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 living in rural and urban areaswhat is the difference between accounts payable and accounts receivablesystematic vs unsystematic riskdisadvantages of lifowhat is a predeterminationprepaid insurance entrytechniques of marginal costingdefine demand depositsadvance payment journal entrydistinguish between cash discount and trade discountexplain fifo methodmortgage hypothecationvertical analysis accountingadvantages of lifo inventory methoddeflation refers to a situation wheredisadvantages of rural areaslaw of diminishing returns examplesfeatures of capital budgeting pdffifo advantagesfluctuations définitiondurable vs nondurable goodsdiminishing law of returnsdemerits of online shoppingexample of cash inflowwhat is the bartering systemhorizontal integration advantages and disadvantagescross cheque definitiondefine nondurable goodsdemat account benefitsautocratic leadership styledemat account benefitsqip meaningexamples of monopolistic competition marketshow does the barter system workmeaning of demand in hindidebtureadvantages and disadvantages of b2bcomplement and substitute goodswhat is the difference between implicit and explicit costdisadvantages of perfect competitionmerits and demerits of globalisationasba in bankingadvantages of decentralizationbarter trade systempure monopoly economicsobjective of trial balancewhat are crossed chequesadvantages of socialist economyupselling examplesmeaning of capital formationdividend investopediacapitalism and socialism differencesexamples of price elastic goodsdisadvantages of convertible bondsfeatures of perfectly competitive marketdistinguish between explicit and implicit costsadvantages and disadvantages of oligopoly market structureinferior vs normal goodsystematic vs unsystematic riskexample of perfect competition in the philippinesdurable goods and nondurable goodsdemerits of decentralisationwhat are inferior goods examplesjunk bonds meaningunearned revenue journal entriesdisadvantages of mergers and acquisitions pdfwhat is mixed economy in economicsthe autocratic leaderwhat is a decentralised organisational structureplr rate of sbidistinguish between normal goods and inferior goodstypes of elasticities