Difference Between Revenue Expenditure and Capital Expenditure (With Table)

Expenditures are the total expenses that are calculated at the end of the month and sometimes at the end of the year. The expenses list is generated just to know whether we are in profit or loss. This work is usually done by accountants hired by the companies for handling their financial position.

Revenue Expenditures are used to operate short-term businesses or small businesses because this type of expenditure only lasts for about a month or a week. Whereas, Capital Expenditures are generated for lump-sum expenses and specific assets that are pre-decided.

Revenue Expenditure vs Capital Expenditure

The difference between Revenue Expenditure and Capital Expenditure is that Revenue Expenditures are ongoing expenses or the amount that must be used in a short period. And Capital Expenditures are high amounts that are generated for one-time events or deals. And usually used long-time benefits.

Revenue Expenditure is an amount that is imposed on expenses as soon as the original cost is reflected in the record. The two important types of Revenue Expenditure are generating revenue and maintenance revenue. This Expenditure plan helps to generate exact results.

Capital Expenditures are non-variable expenses on fixed assets such as vehicles, land, and equipment, etc. It is also known as Asset Expenditure as it includes a constant resource. This Expenditure technique increases the scope of the projects created by the companies for their benefit.

Comparison Table Between Revenue Expenditure and Capital Expenditure

Parameters of ComparisonRevenue ExpenditureCapital Expenditure
MotiveRevenue Expenditure is incurred for running small businesses and spending on varying assets. Capital Expenditure is subjected to the investment of non-varying services for use in business.
BenefitsRevenue Expenditure increases the chances of profit in a business. Capital Expenditure provides a rise in the chart of income capability of the business in which it is used.
Usage PeriodRevenue Expenditure benefit gets exhausted within one year.Capital Expenditure advantages hold up for one or more than one year.
Account TypeRevenue Expenditure is an Expense account and does not stay for a long time.Capital Expenditure is an Asset account.
ExamplesDepreciation on furniture and fixture, salary, rent, etc. Cost of land, buildings, vehicles, furniture, and equipment, etc.
Nature of ExpenditureRevenue Expenditure is on and off in nature as it is applied to maintain the daily business tasks. Capital Expenditure is one time in nature because they are not generated every day.

What is Revenue Expenditure?

Revenue Expenditure is recurring in nature and helps to maintain the daily business activities. This type of Expenditure mostly exhibits its benefits within one accounting year or period. Revenue Expenditure keeps healthy maintenance of profit-earning capacity of a company or a business.

When the income statement is issued, the Revenue Expenditure is represented on the depreciation position or devaluation position of the trading and profit and loss account, depending on whether it is a direct or indirect type of expenditure. Some examples of Revenue Expenditure assets are raw materials, energy costs, wages, salaries, research and development, business travel, property taxes, and marketing costs, etc.

The Revenue Expenditure does not help in the constant growth of the business; therefore, it is generally categorized as a non-developmental expenditure, also called a nominal account, and is mostly used by small business holders. As it does not include large amounts or any direct business loss.

What is Capital Expenditure?

Capital Expenditure contributes directly to the earning capacity of a business. The benefits that are provided by it for a longer period and usually help to maintain a good income capability of a business. Capital Expenditure is generally used by firms or companies that maintain a big budget plan or event.

Capital Expenditure is normally represented in the asset side of the income statement. This Expenditure is generated to acquire fixed assets for ongoing business operations and, it also provides a good stable benefit in its current year of use as well as in future years. That is why it is mostly preferred by the experts for long-run usages.

Capital Expenditure, when calculated on the balance sheet, is not matched with the capital receipts and, it has no subcategories like Revenue Expenditure possess. Some examples of Capital Expenditures are the construction of buildings or apartments, repayment of loans, and purchasing small things like laptops or computers, office-related equipment or machines, etc.

Main Differences Between Revenue Expenditure and Capital Expenditure

  1. Revenue Expenditure is incurred for running small businesses and spending on varying assets. On the other hand, Capital Expenditure is subjected to the investment of non-varying services for use in business.
  2. Revenue Expenditure is recorded in financial statements that are subjected to prepaid and outstanding expenses. Whereas the Capital Expenditure is listed in the balance sheet that is subjected to depreciation.
  3. Capital Expenditure doubles up the earning or income capacity of the business in which it is used. While the Revenue Expenditure grows the chances of profit in a business and helps to maintain the business.
  4. Capital Expenditure benefits last for more than one year. Whereas the benefits of Revenue Expenditure are short-term benefits and get exhausted within one year.
  5. Revenue Expenditure does not add any value to the existing or current asset. While Capital Revenue adds value to a current asset while doing the modifications to the current asset.

Conclusion

Many types of expenditures are used in business or companies’ finance sheets or balance sheets but mainly have three categories: capital expenditure, deferred revenue expenditure, and revenue expenditure. Expenditure planning is necessary to maintain expenses and record spending, savings, manage taxes, etc. All sorts of corporations, whether small or big, use Expenditure planning. And it is calculated during the making of balance sheets and is added at the last step.

Primarily Capital Expenditure and Revenue Expenditure are used compared to Deferred revenue Expenditure because they possess more benefits and provide a clear vision regarding profits and loss of business expenses or outlay.

References

  1. http://www.jed.or.kr/full-text/23-2/ewing.PDF
  2. https://www.sciencedirect.com/science/article/pii/0304405X85900066

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