Question

When a person who is maintaining accounts is not able to differentiate between capital expenditure and revenue expenditure it is __________.

• A. errors of principle
• B. errors of omission
• C. errors of commission
• D. all of the above

Answer 1

The correct option is A errors of principle

Error of principle is that when the capital expenditure are debited to revenue expenditure or vice versa. There will be no mismatch in trial balance of the business but its impacting the profitability of the business.

Example: Purchase of Furniture of Rs.5000 is debited to Purchases account. In this situation, profit of the business will be understated by Rs.5000 as capital expenditure is debited to revenue expenditure.