Distinguish Between Capital Expenditure And Revenue Expenditure

A revenue expenditure is assumed to be consumed within a very short period of time.

Distinguish between capital expenditure and revenue expenditure. It is not exhausted within the current accounting year its benefit is received for a number of years in future. When your company purchases a storage area it s recorded as a capital asset in the balance sheet. A more questionable difference is that capital expenditures tend to involve larger monetary amounts than revenue expenditures. The going concern assumption allows the accountant to classify the expenditure as capital expenditures and revenue expenditures capital receipts and capital revenues.

The first and foremost difference between the two is capital expenditure generates future economic benefits but the revenue expenditure generates benefit for the current year only. Its effect is long term i e. Its effect is temporary i e. These refer to items which are not consumed within one year or not for resell by the business.

So it s recorded in the p l statement as a revenue expense. All the painting and refurbishing do not add to the revenue generating capacity of the asset. A capital expenditure is assumed to be consumed over the useful life of the related fixed asset.

This is because these are treated differently in the financial statements. The difference between capital expenditure and revenue expenditure are expained in tabular form. Neither an asset is acquired nor the value of an asset is increased. Revenue expenditures are part of income statement account while capital expenditure are shown in balance sheet and benefits are taken by company for more than one fiscal years.

In maintaining accounting records it important to distinguish between capital and revenue expenditure items. Distinguish between capital expenditure and revenue expenditure with examples.