Capital and Revenue expenditures: Meaning and Differences

The difference between capital and revenue expenditures

Difference Between capital and revenue expenditures: –

To know the meaning of Capital and Revenue Expenditures, first of all, we have to know the meaning of the expenditure. Expenditure meaning spends or will be spent some amount on purchase of goods and avail services. These can be paid in cash or credit or in kind. These are divided into two type on the base 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 the long duration like more than one year. In other words, the amount spent on the creation of 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 new Plant and Machine, a creation of a new building or expansion of an old building, purchase of new car, furniture, computer etc.

Meaning of Revenue Expenditure: –

Revenue expenditure is that amount spend on the more goods or services which is used/consumed in the short duration like within the 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:

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 the long duration. Revenue expenditure is that amount spend on the more goods or services which is used/consumed in the 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 the one year.
Financial Statement 
It will be posted in 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 a is non-recurring in nature. It a 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.
  1. Direct Expenses
  2. Indirect Expenses

If you want to Download the chart please download the following image and PDF file: –

Chart of Difference between capital and revenue expenditures 300x267 - Capital and Revenue expenditures: Meaning and Differences
Chart of Difference between capital and revenue expenditures

 

application pdf - Capital and Revenue expenditures: Meaning and Differences
Chart of Difference between capital and revenue expenditures

 

The conclusion of Difference between Capital and Revenue Expenditures: –

The main difference in both expenditures is the duration or time period. Those expenditures on which we spent huge amount We will be treated them as capital expenditures and get benefit from them for the long duration. But those expenditures on which we spent less or normal amount we will be treated them as revenue expenditure and get benefit from then for the short or current year only.

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