Capital and Revenue expenditures: Meaning and Differences

The difference between capital and revenue expenditures

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 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 a 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, the creation of a new building or expansion of an old building, purchase of the 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 a 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 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 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.
  1. Direct Expenses
  2. Indirect Expenses

Download the chart: –

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: –

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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