Capital Expenditure and Revenue Expenditure

Topics: Generally Accepted Accounting Principles, Income statement, Expense Pages: 3 (589 words) Published: June 15, 2014
Revenue expenditure is an expenditure which on cost of doing business on day to day basis and is necessary to be cover to maintain the business going on effectively. Thus, revenue expenditure is the cash or credit that being spent immediate for short-term purpose, example, expenses on assets such as repair and fuel which will or will not improve the value of the given assets.

Capital expenditure is an expenditure which will cause future benefit to the company. It’s the money that spends on the fixed assets or improves the value of existing assets which will increase the company’s strength to pull in profit or higher performance level. Unlike revenue expenditure, capital expenditure is more to an investment than a cost, since it create better business for the company. (Stolowy and J.Lebas 2006, p 234)

Capital expenditure is expenditure on fixed assets or increasing their earning capacity. Meanwhile, revenue expenditure is to maintain their earning capacity. The difference being that capital expenditure increase the earning capacity, long-term and produce future benefits, while revenue expenditure maintain the earning capacity, short term and produce immediate benefit. (ACCA F3 2009)

Capital expenditure defined as expenditure on purchase or improvement of non-current assets. For example that purchases a van to deliver the goods. Other example such as:- -Delivery of fixed assets-Legal cost of buying property

-Installation of fixed assets-Demolition costs
-Improvement (but not repair) of fixed assets
-Architects fees
Revenue expenditure defined as expenditure on running or management of business, example, cost of fuel or diesel for vans. Other example such as:- -Maintenance of fixed assets
-Administration of business
-Selling and distribution expenses

The main difference between the two forms of expenditure is that effect it has of the financial statement of business as the Balance Sheet and the Income Statement. Revenue expenditure affects in...
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