To know the Difference Between capital and revenue expenditures we have to know the meaning of both terms. and To know the meaning of Capital and Revenue Expenditures, first of all, we have to know the meaning of the Expenditures. Expenditures meaning spends or will be spent some amount on the purchase of goods and avail services. These can be paid in cash or credit or in kind. These are divided into two types on the basis of time. Explained as following: –
Meaning of Capital Expenditure: –
Capital expenditure is that amount spend on the more valuable goods or services which is used for a long duration like more than one year. In other words, the amount spent on the creation of a capital asset or to increase the working capacity of the existing asset is known as capital expenditure. Because of the huge amount invested in this process so we have to capitalize this amount.
In short, we will drive the benefit from these expenditures in the current year as well as in the future year also.
Example: –
Purchase of a new Plant and Machine, the creation of a new building or expansion of an old building, purchase of a new car, furniture, computer, etc.
Meaning of Revenue Expenditure: –
Revenue expenditure is that amount spend on more goods or services which are used/consumed in a short duration like within one year. In other words, The amount spends on running the process of production and sale of goods. These expenses are routine expenses and will have to pay again and again.
In short, we will drive the benefit from these expenditures in the current year only.
Example: –
Salary & wages, Rent, Office & factory Electricity, Freight Inward & outwards, Travelling Expenses, Marketing Cost, Publicity and Advertisement, Postages and Telegram, Printing and Stationery, Mobile and Telephone, Staff welfare, Repair and maintenance, insurance, etc.
Solution:
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Chart of Difference between capital and revenue expenditures: –
|
Basis of Difference |
Capital Expenditure | Revenue Expenditure |
| Meaning | Capital expenditure is that amount spend on the more valuable goods or services which is used for a long duration. | Revenue expenditure is that amount spend on more goods or services which is used/consumed in a short duration. |
| Year of Benefit | we will drive the benefit from these expenditures in the current year as well as in the future year also | we will drive the benefit from these expenditures in the current year only |
| Duration | Capital Expenditure has a duration of more than one year. | Revenue Expenditure has a duration of up to one year. |
| Financial Statement | It will be posted on the Balance sheet. | It will be posted in the Trading and Profit/Loss account. |
| Capitalized | These expenditures will be capitalized. | These expenditures will not be capitalized. |
| Nature | It is non-recurring in nature. | It is recurring in nature. |
| Need | To improve the working capacity or to grow the business | To running the existing business capacity properly. |
| Matching Concepts | These are not matched with the capital receipts | These are matched with the revenue receipts to know the profit/loss for the year. |
Sub Categories |
It has no subcategories. | It has two subcategories. |
Download the chart: –
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The conclusion of Difference: –
The main difference in both expenditures is the duration or time period. Those expenditures on which we spent huge amount We will be treated as capital expenditures and get benefit from them for a long duration. But those expenditures on which we spent less or normal amount we will be treated as revenue expenditure and get benefit from then for the short or current year only.
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