Capital Expenditure also referred to as CapEx, is regarded as the funds used by a company, firm, enterprise or an organisation to acquire, upgrade and maintain its fixed assets. Revenue Expenditures serve short-term requirements. Capital expenditures are for fixed assets, which are expected to be productive assets for a long period of time. It is the process of causing a liability by a commodity. Capital expenditure: Capital expenditures means the expenditure the benefit of which is not exhausted within the current year but is enjoyed over a long time period. This is the basis of classification between revenue expenditure and capital expenditure. Capital Expenditure vs Revenue Expenditure. Some of these expenditures are meant to bring in more profits for the organisation in the long term while some expenditures … Benefit period: Its benefits accrue for a long time to the business, say for 10 to 15 years. These are expenditures which neither help in the creation of asset nor they help in reducing the liabilities of a business. Introduction. Difference Between Capital Expenditure And Revenue Expenditure Capital Expenditure is the expenditure incurred for the purchase of fixed assets. Answer: Question 3. The expenditures that are incurred by an organisation for long term benefits are known as capital expenditures. expenditure and receipts, which can be further subdivided into its revenue and capital variants. b) REVENUE EXPENDITURE is money spent on the daily running expenses of the business. Such expenditures include those day-to-day expenses that are required to run a business efficiently. CAPITAL EXPENDITURE REVENUE EXPENDITURE . Revenue Expenditures do not add value to any existing assets. Ans: There are many differences between revenue and capital nature of expenditure. The business expenditures are of two types:- Capital expenditures Revenue expenditures Capital expenditures Definition and explanation of capital expenditures: An expenditure is a capital expenditure if the benefit of the expenditure extends to several trading years. Difference Between Revenue Expenditure and Capital Expenditure, Difference Between Physical Capital and Human Capital, Difference Between Fixed Capital and Working Capital, Concepts of Total Revenue, Average Revenue and Marginal Revenue. Capital expenditure is expenditure relating to the purchase of non-current assets which are not for resale and are used within the business. Revenue expenditures can be divided into two categories. Government Budget and the Economy – CBSE Notes for Class 12 Macro Economics. The expenditure incurred by the business enterprise for the purchase of fixed assets or to repay the loan is known as Capital expenditure. It means that companies or firms incurring such expenditure recognises these costs and post them in full on the Income Statement in the year of their occurrence. Revenue Expenditures are always mentioned in the Income Statement of an organisation. These expenditures serve the purpose of increasing the capacity or capabilities of the long term asset by either enhancing or adding new assets to the organisation. Moreover, Revenue Expenditures can be categorised into two types which are –. In the case of Revenue Expenditures, the company attains short-term benefits. Capital expenditures are typically one-time large purchases of fixed assets that will be used for revenue generation over a longer period. These expenditures are added on the asset side of the balance sheet. No decline in government liabilities and does not create assets for the government Examples Purchase of shares and bonds Salaries, pensions and interest payments Taxes and government expenditure can be influenced as follows: i. Expenditures meaning spends or will be spent some amount on the purchase of goods and avail services. Such assets include its PP&E (i.e. Expenditure means spending on something. Enjoy the videos and music you love, upload original content, and share it all with friends, family, and the world on YouTube. An expenditure that neither creates assets nor reduces a liability is categorised as revenue expenditure. What are Capital and Revenue Expenditure? business expense that is made to acquire an asset or to improve the capacity of an asset What is the Difference Between Trade and Commerce? 2. Basis of Difference Capital Expenditure Revenue Expenditure Meaning A decline in the government liabilities and creates assets for the government. With the Help of a Single Example, Show Capital Expenditure vs. Revenue Expenditure. Vedantu academic counsellor will be calling you shortly for your Online Counselling session. (ii) It is considered as capital expenditure as registration and a legal fee is given to obtain the asset. 2. An expense is a word very similar to expenditure but expense shows the deduction in the value of the asset while expenditure simply denotes the obtaining of as… The major difference between revenue and capital expense is that capital expenditure is calculated over an extended period, while revenue expense is for a shorter period. To understand the difference between capital expenditure and revenue expenditure, the concepts of capital expenditure and revenue expenditure are as follows:. Expenditures are unavoidable for any company to exist in the competitive market, to expand the business or to find new opportunities to open up beneficial business in those areas, etc. Required fields are marked *, Difference Between Capital Expenditure And Revenue Expenditure, Expenditure incurred for acquiring assets, to enhance the capacity of an existing asset that results in increasing its lifespan, The expense incurred for maintaining the day to day activities of a business, Does not enhance the value of an existing asset, Have a physical presence except for intangible assets, It appears as assets in the balance sheet and some portion in the income statement, It always appears in the Income statement. Part of your accounting strategy a purchase of fixed assets have three types! Period: its benefits accrue to the business and also for maintenance of assets main reason for incurring expenditure to. + cartage will be received after the whole accounting year and beyond which –. 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