Expenditures may be divided into two general categories – (1) capital expenditures and (2) revenue expenditures.
(a) Distinguish between these two categories of expenditures and between their treatments in the accounts.
(b) Discuss the impact on both present and future balance sheets and income statements of improperly distinguishing between capital and revenue expenditures.
(c) What criteria do firms generally use in establishing a policy for classifying expenditures under these two general categories? Discuss.