Capital Outlay

Capital Outlay: Is simply means that the money spent for acquires, repair and maintain or upgrade the capital assets. Capital Assets is also known as fixed assets that may includes machinery ,land & building , facilities or other business necessarily  that are not expended during the normal use. Capital outlays are referred as capital expenditure that is recorded by the accountant as company liability in balance sheet.

                In other word, we can say that the capital outlay is money spends to either purchase a fixed assets or to extend its useful life. Fixed asset are those that appear on the balance sheet as property, plant and equipment. It is the essentially investment in the company, the accounting treatment of capital expenditure different from that operational expense.
 

Difference between Investment and Maintenance

Suppose the companies purchase a new truck that is a capital outlay, money spent for acquire a fixed asset. If we can replace the engine of old truck it is also capital outlay too because when we fix new engine it will extend the life of truck.

But when replace the tires of the truck or servicing of the truck like oiling etc is simple maintenance, the things you do maintain the truck in its current working condition. Maintenance costs are revenue expenditure they are essentially cost of earning revenue not a capital expenditure.

Treatment of Capital outlay

It’s not treated as immediate expenses. For example: If a company spends Rs. 50000/- on purchase a new truck, as per accounting concern company has not any surrender value. Before it you had Rs. 50000/- worth of cash of plant, property and equipment the net asset value remain same. The truck has a finite useful life, so you can expense the amount of Rs. 50000/-cost over useful life, the process is known as depreciation. On the other hand revenue expenditure is immediately done. If the oiling of truck is changes Rs. 500/-it is immediate expense.

Journal and its Types

Journal: When a transaction arises a journal is done its primary book in which the transactions are recorded in the order of occurrence in chronological order. It’s called a book of primary entry or original entry because all business transactions are entered first in this book. The step of writing a transaction in journal is known as journalising and transaction written in journal is known as journal entry.

It may be classified in two first one is simple journal and other is compound journal.

Steps followed in Journalizing: The journal entry is the primary record of a business transaction. Journalizing the business transaction gets, simplified once you comprehend the rules the rules of debit and credit clearly. When we journalize the transaction, one account gets the benefit and the other account provides the benefit. For entering a transaction in the journal, the steps given below are performed:

* Ascertain the accounts that are impacted by the transaction.

* Ascertain the nature of the account, which is impacted.

* Determine the accounts to be debited and the account to be credited by applying the rules of debit and  credit.

* Determine the amount by which the accounts are to debited and credited.

* Enter the date and month of transaction in the date column and the year at the top.

* Record in the specified column the name of the account to be debited. Apart from the name of the account, the abbreviation Dr. also should be entered in the same line against the name of the account. Enter the amount to be debited in the debit amount column.

* Enter in the particular column the name of the account to be credited. The name of the account to be credited should be entered in the next line preceded by the word “To”. The word “To” is written towards the right after leaving some space. Enter the amount to be credited in the credit amount column.

* Provide a brief description of the transaction starting from the next line in the particulars column. This short description of the transaction is known as narration.

* Draw a line across the particulars column to distinguish one journal entry from other.

For example: Purchase furniture of Rs. 30000/- from Ramesh Ply & Furnitures, So we can do a journal entry as:

Furniture Account                        Dr. 30000/-

         To Ramesh Ply & Furniture’s                   30000/-

 

Simple Journal: In case of journal entry has one account to be debited and one account to be credited it should be called as simple journal entry. For ex- paid salary to Varun Rs. 500/-

                  Varun Dr.      500/-

                               To cash          500/-

Compound Journal: It may contain more than one debits or more than one credits or both, in that case the entry is known as compound journal entry. Actually when more than one entry is combined it becomes a compound entry. The compound entry is passed only when following conditions are satisfied:-

Transactions take place on the same day

One aspect of these transactions is common

The numbers of accounts involved are more than two.

Anyone can assume compound entry as following forms:

Debit one account or credit two or more accounts.

Debit two or more account and credit one account

Debit several account and Credit several account

For Ex- Paid wages Rs. 500, Salaries Rs. 1000 and insurance premium on building Rs. 1500.

                  Wages a/c                            Dr.  500

                  Salaries a/c                          Dr. 1000

                  Insurance Premium a/c         Dr. 1500

                                    To Cash                                3000