Difference Between Capital and Revenue Expenditures
Difference Between Capital and Revenue Expenditures:
Learning Objectives:
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What is the difference between capital and revenue expenditures.
Following is the difference between capital and revenue expenditures.
Capital Expenditures | Revenue Expenditures | ||
1 | Its effect is long term i.e., it is not exhausted within the current account year. Its benefit is enjoyed in future year or years also. In a word, its effect is reduces gradually. | 1 | Its effect is temporary, i.e., it is exhausted within the current accounting year. |
2 | An asset is acquired or the value of an asset is increased as a result result of this expenditure. | 2 | Neither an asset is acquired nor the value of an asset is increased. |
3 | It does not occur again and again – it is non-recurring and irregular. | 3 | It occurs repeatedly – It is recurring and regular. |
4 | Generally, it has physical existence i.e., it can be seen with eyes. | 4 | It has no physical existence, i.e., it cannot be seen with eyes. |
5 | This expenditure improves the position of the concern | 5 | This expenditure helps to maintain the concern |
6 | A portion of this expenditure is shown in the trading and profit and loss account or income and expenditure account as depreciation. | 6 | The whole amount of this expenditure is shown in trading and profit and loss account or income and expense account. But deferred revenue expenditures and prepaid expenses are not shown. |
7 | It appears in balance sheet until its benefit is fully exhausted. | 7 | It does not appear in balance sheet. Deferred revenue expenditure, outstanding expenditure, outstanding expenses and prepaid expenses, however, temporarily shown in the balance sheet. |
8 | It does not reduce the revenue of the concern. Purchase of fixed assets does not effect revenue. | 8 | It reduces revenue. Payment of salaries to employees decreases revenue. |
You may also be interested in other articles from “capital and revenue” chapter:
- Capital Expenditures
- Revenue Expenditures
- Difference Between Capital and Revenue Expenditures
- Capital and Revenue Receipts, Payments, Profits and Losses
- Exceptions to the General Rules and More About Capital and revenue Expenditures
Other Related Accounting Articles:
- Capital and Revenue Items
- More About Capital and Revenue Expenditures
- Capital and Revenue Receipts, Payments, Profits and Losses
- Capital Expenditures / Capital Cost
- Revenue Expenditures
- Capital Expenditure
- Income Tax and Capital Budgeting Decisions
- Review Problem 2: Comparison of Capital Budgeting Methods
- Simple Rate of Return Method
- Present Value and Future Value – Explanation of the Concept
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Latest Comments
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