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Difference Between Capital and Revenue Expenditures:

Learning Objectives:

  1. 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.

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