Differences Between Capital Expenditure And Revenue Expenditure

1451 Words Jan 8th, 2016 6 Pages
Explain the differences between capital expenditure and revenue expenditure?

In this literature review I will describe and explain the key differences between capital expenditure and revenue expenditure that have been identified by others that have studied the subject previously.

Frank Wood’s Business Accounting 1 (Twelfth Edition) defines capital expenditure as being “incurred when a business spends money either to buy non-current assets or add to the value of an existing non-current asset” (Frank Wood & Alan Sangster, 2012, p. 275). Revenue expenditure is defined in the same textbook as being “incurred in running the business on a day-to-day basis” (Frank Wood & Alan Sangster, 2012, p. 276). Wood and Sangster (2012) also state how the two different types of expenditure are recorded in different financial statements in order to have the correct figures for profit and value of non-current assets for the defined accounting period. Revenue expenditure is included under the expenses heading in the Statement of Profit or Loss as these expenses occur to allow the business to function but they do not result in the increase of the value of a non-current asset. Conversely, capital expenditure does result in an increase in the value of a non-current asset and so it influences the calculation of figures for non-current assets in the Statement of Financial Position. Therefore, despite the possibility that the two types of expenditure could be incurred from spending money on the…
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