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The difference between revenue and capital expenditure are defined as revenue expenditures are plotted in the income statement to match with in a periodic revenue, whereas capital expenditures are included as an investment in the cash flow statement and shown under fixed assets of a company.It is important to classify them separately in the field of accounting because of their nature of expenditure as revenue and capital expenditures.
Revenue Expendtiure is recurring in nature and comittment towards it is the life-line of the business--like, Rent , Rates and Taxes, Salaries, Commisions etc.
Capital Expenditure are either Initial and/or periodical having long term effect both in their recurrencne and usage.
We generally close the books of account for financial year Apr to March. However the benefit derived for certain transactions will be more than one account period.
The difference is that Capital expenditure are cost incurred in line with the acquisition of fixed assets and any subsequent expenditure that increases or enhance the earning capacity of an existing fixed assets whereas Revenue expenditure an amount that is expensed immediately, thereby being matched with revenues of the current accounting period. It's incurred with the motive of maintaining rather than enhancing the arning capicity of assets assets as well as ensuring the perpetual succussion of business operation. Cash spent in sales revenue generation, or in maintaining a revenue generating asset.
Example of capital expenditure are purrchase costs, Delivery cost, installation cost etc
Revenue expenditure are; repairs and maintenance expenses,
The reason for such separation is to;
1. Avoid over and understatement of assets (Fixed Assets) in the balance sheet
2. Avoid over and understatement of net profit as a result of wrong charges ( for example charging the cost of a new plant as an expense in the income statement will reduce profit etc)
3. To have true and fair representation of the business assests as well as its operation
