Capital Expenditure and Revenue Expenditure

Capital expenditure and revenue expenditure

Capital expenditure occurs when a business spends monies to buy fixed assets or add value to existing fixed assets.

This expenditure includes spending on

1. Acquiring fixed assets
2. Bringing fixed assets into the business
3. Legal cost of buying buildings
4. Carriage inward on machinery bought
5. Any other cost needed to get the fixed assets ready for use.

Revenue expenditure is not spent on increasing the value of fixed assets but on running the business on a day-to-day basis.

The difference between revenue expenditure and capital expenditure can be seen clearly in the total cost of using the van for a business. Buying a van is an example of capital expenditure. The van will be in use for several years and is, therefore a non-current asset. Paying for petrol to use in the van is a revenue expenditure. This is because the expenditure is used up in a short time and does not add to the value of non-current assets.

Example

Distinguish revenue expenditure and capital expenditure

Expenditure	Type of expenditure
Buying motor vehicle	Capital
Petrol cost for motor vehicle	Revenue
Repairs to motor vehicle	Revenue
Putting extra headlight on motor vehicle	Capital
Buying machinery	Capital
Electricity cost of using machinery	Revenue
Painting outside of new building	Capital