Revenue expense are costs in the for day to day running of the business for example servicing a machine,

spare parts etc. Revenue expenditure is normally charged against profit in the Income statement in the year it is expensed. Capital expenditure is on an item that will help generate profits over the longer term (12 months or more) so a purchase of a machine or van etc. The item is depreciated over the items useful life and each depreciateable amount is charged to the Income statement in the year the item has help generate profit

revenue expenditure is the expense incurred for deriving short term benefits say one year or less capital expenditure is the expense incurred for deriving long term benefits say more than one year.

Difference between Capital Expenditure and Revenue Expenditure:

Revenue Expenditure
is received within the accounting year.

Capital Expenditure
exhausted within the current accounting year-its benefit is received for a number of years in future. existing asset is increased. intangible assets.

1. Its effect is temporary, i.e. the benefit 1. Its effect is long-term, i.e. it is not

2. Neither an asset is acquired nor the

value of an asset is increased. is incurred on items which are used by the business. occurs repeatedly. business.

2. An asset is acquired or the value of an

3. It has no physical existence because it 3. Generally it has physical existence except 4. It is recurring and regular and it 4. It does not occur again and again. It is
nonrecurring and irregular. the business.

5. This expenditure helps to maintain the 5. This expenditure improves the position of 6. The whole amount of this expenditure 6. A portion of this expenditure (depreciation
is shown in trading P & L A/c or income statement. on assets) is shown in trading & P & L A/c and the balance is shown in the balance sheet on asset side. benefit is fully exhausted.

7. It does not appear in the balance

sheet.

7. It appears in the balance sheet until its 8. It does not reduce the revenue of the
concern. Purchase of fixed asset does not affect revenue.

8.

It reduces revenue (profit) of the business.

Example:

State with reasons whether the fallowing items of expenditure are capital or revenue. (i) Wages paid on the purchase of goods. (ii) Carriage paid on goods purchased. (iii) Transportation paid on machinery purchased. (iv) Octroi duty paid on machinery. (v) Octroi duty paid on goods.

Solution:
Sr. No. Wages A/C is debited. Nature of Expenditure Revenue expenditure Reasons Wages paid on goods purchased and a revenue expenditure because goods purchased are meant for resale. It is recurring by nature as goods are purchased repeatedly in a business. The carriage paid on purchases is a revenue expenditure because goods purchased are meant for resale and whenever goods are purchased carriage is paid to bring the goods to the godown of the business. A machinery purchased is useless until it is brought to the business. As machinery is a fixed asset and transportation paid is an additional cost to the machinery, so it is a capital expenditure. Octroi duty paid on machinery is also an additional cost to the machinery, If it is not paid, the machinery cannot be taken to the business, so it is a capital expenditure. Octroi duty paid on goods is a revenue expenditure because goods mean saleable goods. It is recurring and is paid repeatedly whenever goods are purchased.

(i)

Carriage A/c is debited.

(ii)

Revenue expenditure.

Machinery A/c is debited instead of transportation A/c. Machinery A/c is debited instead of octroi duty A/c Octroi duty A/c is debited.

(iii)

Capital expenditure.

(iv)

Capital expenditure.

(v)

Revenue expenditure.

revenue Exp., means one transaction which can benefit and that tran..repeats in one a/cing year. Ex: printing & Stationery , Salaries Etc.,

capital Exp., which transaction benefit the more than one accounting year Ex; Plant7Machinery , Buildings etc.,
Expenditure refers to the outlay of cash from the company to the outsiders. Here is the list of differences between revenue and capital expenditure 1. Revenue expenditures refers to those expense which are incurred for maintain the assets and sales of the products of the company while capital expenditures refers to those expense which are incurred to buy the assets. 2. While revenue expenditures are incurred daily, in other words it is of recurring nature while capital expenditures are incurred once in a while and therefore it is of non recurring nature. 3. While revenue expenditures is recorded in the profit and loss account of the company whereas capital expenditures are recorded in the balance sheet of the company.