Difference between Capital Expenditure and Revenue Expenditure
Basis |
Capital Expenditure |
Revenue Expenditure |
---|---|---|
Purpose | It is the expenditure incurred for the purpose of acquiring fixed assets or enhancing the value of the fixed assets. | It is the expenditure incurred for the purpose of running the daily activities. |
Nature | It is an Asset account. | It is an Expense account. |
Accounting Treatment | It is debited from the respective asset account. | It is debited from the respective expense account. |
Benefits | The benefits of capital expenditure extend to more than one accounting period. | The benefits of revenue expenditure get exhausted within one accounting period. |
Earning Capacity | It is the expenditure incurred to improve the earning capacity of the business. | It is the expenditure incurred to earn profits and does not contribute to improving the earning capacity. |
Presentation | It is presented or recorded in the Balance Sheet. | It is presented or recorded in the Trading or Profit And Loss A/c. |
Example | Acquisition of fixed assets like plants and machinery, piece of land, buildings, etc. are examples of capital expenditure. | Rent, salaries, power, fuel, shipment, interest and depreciation, etc. are examples of revenue expenditure. |
Difference between Capital Expenditure and Revenue Expenditure in Accountancy
It is important to understand the difference between Capital Expenditure and Revenue Expenditure. Capital Expenditure is an expenditure that is incurred for the purpose of acquiring fixed assets or enhancing the value of the fixed assets and is shown in the Balance Sheet. However, Revenue Expenditure is an expenditure incurred for the purpose of running the daily activities and is shown on the debit side of the Trading and Profit & Loss Account.