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Explain the capital payments and revenue payments
First, let us understand about the capital payments.
Capital payments are payments of capital expenditures of a company, which are made into cash.
In other words, capital payments are non-recurring payments which are paid in cash and are part of the capital expenditures. These payments are made in installments or at once.
Capital payments include the following −
- Payment which is made to purchase an asset/assets.
- Share capital and debentures redemption.
- Repayment of proprietors in long drawing.
- Goodwill payments etc.
Suppose a company purchases a product from a vendor. Moreover, the vendor sent a team of professionals at the time of installation and invoiced the company with Rs.5,00,000/-.
Now, the company paid capital payments in monthly installments of Rs. 50,000/- Also, it paid the following −
- Salary payments at the end of month.
- Warehouse rent.
- Stationary payments.
Revenue payments are an actual amount paid for the revenue expenditures. In other words, these are recurring payments which are paid in cash and are part of revenue expenditure.
Revenue payments include the following−
- Salary payments.
- Cash purchases.
- Paid wages.
- Paid interest on bank loans.
- Compensation paid.
- Payments (creditors).
- Paid bills payable etc.
A merchant purchases a product worth of Rs. 10,000/-. He pays Rs.3000/- in cash and balance has to be paid by the customer after two months.
Then, Rs.3000/- is called as revenue payment and Rs. 10,000/ - is called as revenue expenditure.
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