What is the effect on the final accounts if a capital expenditure is recorded as revenue expenditure in the book of accounts?

Revenue expenditures are normal business expenses and capital expenditures are long-term assets that bring future benefit to the company. Incorrectly recording a capital expenditure has consequences for both financial and tax accounting.

Incorrectly booking a capital expenditure as a revenue expenditure affects expenditure, asset and depreciation accounts. The journal entry overstates expenses and understates assets.

 

1) To record a Capital Expenditure, the journal entry will be debiting an asset account and crediting cash. 2) To record a Revenue Expenditure, journal entry will be debiting expense and crediting cash. 3) Capital expenditure is depreciated on a regular basis, therefore classifying a capital expindeture as a revenue expenditure will underestimate depreciation expense over time. That can be corrected by reversing the initial journal entry, booking the correct entry and booking any necessary depreciation.