Capital Expenditures are those expenditures that are incurred to acquire fixed assets or to increase or to add value to an existing fixed asset. Fixed assets include both tangible as well as intangible assets. These assets are not meant for the purpose of resale and are used in the business to generate revenues. Whereas, Revenue Expenditure is the expenditure that is incurred to earn or to generate revenue during an accounting year. This expenditure is incurred for normal operating activities of the business and for its efficient or smooth working. Let’s talk about the difference between Capital Expenditure and Revenue Expenditure
Difference between Capital Expenditure and Revenue Expenditure
The points of difference between Capital and Revenue expenditure are given below.
| Basis of Difference | Capital Expenditure | Revenue Expenditure |
|---|---|---|
| Meaning | It is incurred to increase the earning capacity of a business. | It is incurred to maintain the earning capacity of a business. |
| Purpose | It is incurred to acquire fixed assets. | It is incurred to carry day-to-day business activities. |
| Benefits | The benefits of such expenditure can be availed for a period of more than an accounting year. | The benefits of such expenditure can be availed only for a period of one accounting year. |
| Nature | It is non-recurring in nature. | It is recurring in nature |
| Shown | It is shown on the Assets side of the Balance Sheet. | It is shown on the debit side of the Trading and Profit and Loss Account. |
| Examples | Purchase of Building, Purchase of Patents or Trade Marks, etc. | Depreciation on Building, Rent paid, Loss on Sale of Furniture, etc. |
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