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.