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

negative aspects of capitalismsundry items examplestheory of absolute advantage by adam smithformat of comparative balance sheetdisadvantages of industries wikipediawhat is the full form of tdsdisadvantages of developing countriesskimming policyadvantages and disadvantages of stock market investingmarket skimming pricing strategyadvantages and disadvantages of fifo and lifoadvantages of perfect competitionmeaning of debentures in hindimarket penetration pricing examplecomplements in economics examplesadr full formmarket penetration advantages and disadvantageshow to record prepaid rent journal entrydisadvantages of hedge fundsmeaning of traditional economydisadvantages of bill of exchangecapm in financial managementforex reserves meaningadvantages and disadvantages of specialisationadvantages and disadvantages of borrowing money from a bankwhat is substitution effectdefine inferior goods in economicswhat is the journal entry for prepaid rentsecuritization of receivablesperfect or pure competitionexplain the expenditure method of measuring national incomefeatures of decentralisationdisadvantages of specializationwhat is consignor and consigneeexample of conservatism in accountingadvantage of decentralizationdeffered revenue expendituresouth africa mixed economy systemfeatures of demat accountexample of derivative marketwhat are the disadvantages of international trademarketing skimming pricingpros and cons of mergers and acquisitions pdfadvantage of dictatorshipautocratic leadership in businesscrr full formbalance sheet disadvantagesadvantages of functional organisational structurereasons for failure of mergers and acquisitionsmeaning of unsystematic riskfull form of slrperfect competition in economics definitionlimitations of capitalist economyexpenditure method of calculating national incomefull form nasdaqdisadvantages of convertible bondsvertical merger companiesmoil ipocapital account convertibility pptcapital withdrawal journal entrywhat are inferior goods in economicswhat does proprietors meanunearned rentconglomerate merger definitionipo fullformunearn revenueskimming pricing strategy examplesslr in banking termsdisadvantages of activity based budgetingintermediate good economicsconglomerate strategyunearned revenue on a balance sheetadvantages of dcfdefine privatisation