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Difference between capital expenditure and revenue expenditure.

Capital Expenditure:

  • It is expenditure which results in the acquisition of fixed assets or an improvement in their earning capacity.
  • Capital expenditure is not charged as an expense in the income statement at one go but rather a depreciation or amortization charge will usually be made to write off the capital expenditure gradually over time. 
  • Capital expenditure on fixed assets is the recognition of a fixed asset (e.g. vehicles, Land and Building) in the statement of financial position of the business.

Revenue Expenditure:

  • Is expenditure which is incurred for either: For the purpose of the trade/service of the business. 
  • This includes Selling & Distribution expenses, administration expenses and finance charges. 
  • To maintain the existing earning capacity on fixed Assets ( such as repair expenses)  
  • To ensure smooth running of the day to day activities of the company/Business.

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