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.

What is Capital Expenditure?

Capital Expenditure is the amount spent on purchasing fixed assets or raising the value of fixed assets. An example of capital expenditure is the money spent on acquiring land, buildings, machinery, furniture, etc.

• Fixed assets are used for earning income and are not meant for resale. Fixed assets can be both physical and intangible.
• Capital Expenditure generates benefits over the course of time, i.e. the benefit of such expenditure goes beyond the accounting period.
• Capital expenditure either enhances a company’s earnings or productivity or decreases its operating expenses.

What is Revenue Expenditure?

Revenue Expenditure refers to the amount spent whose benefit is either received or exhausted within the accounting period or, simply it can be said that any expense that is not a capital expenditure is a revenue expenditure. Rent, salaries, expenses for maintaining and repairing fixed assets, and so on are examples of revenue expenditures.

• Revenue Expenditure is recorded as an expenditure and is matched against revenues earned in that particular period to determine the profit or loss of that accounting period.
• It also contains the part of capital expenditure that is consumed within an accounting period, like, Depreciation on fixed assets.

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.