Capital vs Revenue Expenditure

Topic

Capital vs Revenue Expenditure

Area

Accounting Principles

Explanation

Capital vs. Revenue Expenditure

Feature	Capital Expenditure	Revenue Expenditure
Purpose	Incurred to acquire or improve long-term assets	Incurred for day-to-day operations
Benefit	Provides long-term benefits (beyond one year)	Provides short-term benefits (within one year)
Balance Sheet	Recorded as an asset	Treated as an expense in the Income Statement
Examples	Buying machinery, building extensions, patent acquisition	Rent, salaries, routine repairs, utilities

Deferred Revenue Expenditure

• A large one-time revenue expenditure that provides benefits over several years.
• It is written off (amortised) over its useful life rather than expensed in a single period.
• Example: A significant advertising campaign for a new product launch, spread over 3 years.

Capital Receipts vs. Revenue Receipts

• Capital Receipt: Funds received from sources that are not part of regular operations, usually leading to a reduction in assets or an increase in liabilities.
• Examples: Loan proceeds, sale of fixed assets, issuance of share capital.
• Revenue Receipt: Funds received from normal business operations, representing income.
• Examples: Sales revenue, interest earned, rent received.

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