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As per Fundametal Princiles of Accounting (Matching Principle) Capital expenditure is that expenditure which generates cashflows/returns for a period of more than one year, and revenue expenditure which is the current requirement of business and does not provide long term benefits. Capital Expenditure is capitalised as asset while Revenue expenditure is expensed out in Profit and loss.
Capital Expenditure
Capital expenditure occurs when a business gets a long term advantage due to that expenditure.
It is usually incurred for accusation of an asset. These expenditures do not occur in the regular day to day transactions of the business.
Common examples
· Purchase of furniture, office building etc.
· Purchase of additional furniture or machinery
· Expenditure incurred in connection with the purchase of a fixed asset. For example, carriage paid of machinery purchased.
· Purchase of patent right, copy rights etc.
Revenue Expenditure
Expenditure which is not for increasing the value of fixed assets, but for running the business on a day to day basis, is known as revenue expenditure.
Difference between Capital and Revenue expenditure
Buy a car is capital expenditure because its benefit to the business will be spread over a long time.
Fuel cost for running this care is revenue expenditure and it will be used up in few days and does not add to the value of the fixed asset.
