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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.

You may also be interested in other articles from "capital and revenue" chapter:

  1. Capital Expenditures
  2. Revenue Expenditures
  3. Difference Between Capital and Revenue Expenditures
  4. Capital and Revenue Receipts, Payments, Profits and Losses
  5. Exceptions to the General Rules and More About Capital and revenue Expenditures


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