Difference between Capital and Revenue Expenditure

We all went to school when we were young and schools charges school fees from students and apart from that students also pay other costs like school bus fee, books related expense, stationary related costs and so on while the first part that is school fees is capital expenditure for an individual because it builds a base for the individual for his or her future education while the second part is revenue expense because it is secondary in nature as it done only to help a student in going to school. In the same way company also do expenditures which are of 2 types one is capital and other is revenue expenditure. In order to understand both the concepts better, let’s look at the difference between capital and revenue expenditure –

  1. Capital expenditure are those expenses which are done by the company to purchase an asset or increasing the  capacity of the asset whereas revenue expenditure refer to those costs which are incurred by the firm in running its day to day operations.
  2. Capital expenditure involves huge amount and therefore it requires the authority of higher management whereas revenue expenses involves small amount and hence it does not require authority from higher management.
  3. Capital expenditure is done one or two times in a year whereas revenue expenses are recurring in nature and hence they are done several times during a year.
  4. Examples of capital expenditure are purchase of machinery, purchase of building, upgrading current machinery and so on while examples of revenue expenditure are rent paid for building, repairs done to machinery, salaries paid to workers and so on.
  5. Accounting treatment of capital expenditure is complex because a part of it is transferred to profit and loss account in the form of depreciation and remaining balance is shown in the balance sheet whereas accounting treatment of revenue expenditure is simple because it involves transferring of revenue expenses in the profit and loss account of the current year.
  6. Capital expenditure helps in increasing the earning capacity of the company and hence it helps in making a company big overtime while revenue expense helps in maintaining the earning capacity of the company.
0 comments… add one

Leave a Comment

Related pages

advantages and disadvantages of communismdifference between income and substitution effectlong term sources of finance advantages and disadvantagesdifference between a creditor and a debtorthe balance in the prepaid rent accountexample of perfect competition in the philippinescapital convertibilitydisadvantages of perfect competitionadvantages and disadvantages of international businessproblems of trade by barterpayback method disadvantagesadvantages and disadvantages of rural and urban lifetypes of retail banksformula for operating profit ratioadvantages and disadvantages of vertical integrationhow to calculate national income by expenditure methoddefine inferior goods in economicsfloating currency definitionmarket skimming price strategysystematic and unsystematic riskunearned revenue adjusting entrycapm explainedconglomerate growthformula for operating profit ratioconcept of capmwhat is skimming pricingsubstitutes in economics definitioninventory turnover interpretationcapital convertibilityan autocratic leadercharacteristics of urbanisationsemi durable goods examplesdifference between accounts receivable and accounts payablelaws of diminishing returnsadvantages of authoritarian leadership stylewholesale vs retail definitionunbilled salesadvantages of command economydiff between cash flow and fund flowpenetration pricing definitionpenetration and skimming pricingconglomerate acquisitionfull form of kpmgadvantages and disadvantages of cost plus pricingadvantages and disadvantages of premium pricingsimilarities between public finance and private financevertical merger exampleunearned income accountingasba in bankingprepaid rent expense journal entrymeaning of forward rateexamples of inelastic demand productsmarket skimming price strategylimitations of capital budgetingadvantages and disadvantages of direct investmentindirect expenses definition accountingfreight inwardsfeatures of absorption costingunbilled fees adjusting entrymeaning of direct and indirect expensesdifference between direct cost and indirect cost with exampleorganizational structures advantages and disadvantageswhat is absolute advantage in economicsmonopolistic competition examples in real lifemeaning of wholesalingdefinition of retail bankadvantage and disadvantage of bank loancost push inflation definition economicsadvantages and disadvantages of income statementadvantages and disadvantages of transfer pricingdisadvantages of a cashless societyadvantages of conglomerateshow to calculate national income by expenditure methodsundus meaningdifference between freight and carriagefunctions of regional rural banks