Differences Between Capital Expenditure And Revenue Expenditure

1510 Words Jan 10th, 2016 7 Pages
Differences between Capital expenditure and Revenue expenditure

In business, firms have to spend money in their business operations in order to get profit. A large amount of investments is commonly invested by the companies into business in order to get high returns. Expenditure on fixed assets can be divided into capital expenditure and revenue expenditure. Both of the expenditures are seem very similar but they are actually different from one another. Capital expenditure is the expenditure on acquisition of non-current assets which will benefit current and future period of the business operation. Capital expenditure covers all costs of acquisition, such as delivery, legal charges, installation and replacement costs. Revenue expenditure incurred to maintain the existing earning capacity of non-current assets for the purpose of the trade of business. For example, if a company purchases a new machine, the amount will be treated as capital expenditures including the installation cost, and all amount used to update and repair the machine will be treated as revenue expenditures. It is important to distinguish between these in order to calculate the net profit correctly to ensure the smooth operation of a business. According to Harold. G (1941), capital and revenue expenditure must be distinguished in order to maintain and operate an accounting system which provides for the classification and control of depreciable fixed assets.

First of all, capital expenditure is a long…
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