Difference between Capital Expenditure and Revenue Expenditure
Capital Expenditure
Capital expenditure includes costs incurred on the acquisition of a fixed asset and any subsequent expenditure that increases the earning capacity of an existing fixed asset. The cost of acquisition not only includes the cost of purchases but also any additional costs incurred in bringing the fixed asset into its present location and condition (For example: delivery costs).
Capital expenditure, as opposed to revenue expenditure, is generally of a one-off kind and its benefit is derived over several accounting periods. Capital Expenditure may include Purchase costs (less any discount received), Delivery costs, Legal charges, Installation costs, Upgrade costs, Replacement costs, etc.
Revenue Expenditure
Revenue expenditure incurred on fixed assets includes costs that are aimed at ‘maintaining’ rather than enhancing the earning capacity of the assets. These are costs that are incurred on a regular basis and the benefit from these costs is obtained over a relatively short period of time.
For example, a company buys a machine for the production of biscuits. Whereas the initial purchase and installation costs would be classified as capital expenditure, any subsequent repair and maintenance charges incurred in the future will be classified as revenue expenditure.
This is so because repair and maintenance costs do not increase the earning capacity of the machine but only maintain it . For example: the machine will produce the same quantity of biscuits as it did when it was first put to use). Revenue costs therefore comprise Repair costs, Maintenance charges, etc.
Difference between Capital Expenditure and Revenue Expenditure
| Basis | Capital Expenditure | Revenue Expenditure |
| Occurrence | Capital Expenditure is incurred to acquire or to improve permanent assets. | Revenue Expenditure is incurred in normal courses of Business. |
| Effect | It increases the value of assets and earning capacity. | However, it is incurred for maintaining the earning capacity of the business and upkeep 0f the fixed assets. |
| Benefits | It provides benefits over several years. | But, it is consumed within the accounting year. |
| Nature | It is non-recurring in nature. | But, it is recurring in nature. |
| Presentation | It is shown in the balance sheet of the asset side. | But, it is charged in the revenue account i.e.; income statement. |
Capital Expenditure FAQs
- How should you record a capital expenditure?
- Which of the following is an example of a capital expenditure?
- Which of the following items should be accounted for as a capital expenditure?
- A capital expenditure results in a debit to
- Which of the following represents a capital expenditure?
- Which of the following is not a capital expenditure?
- Another name for a capital expenditure is:
Revenue Expenditure FAQs
- An expenditure for which of the following items would be considered a revenue expenditure?
- Which of the following would be considered a revenue expenditure?
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I am Smirti Bam, an enthusiastic edu blogger with a passion for sharing insights into the dynamic world of business and management through this website.
I hold a MBA degree from Presidential Business School, Kathmandu, and a BBA degree with a specialization in Finance from Apex College,
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