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Difference-between-Capital-Expenditure-and-Revenue-Expenditure

 

Difference between Capital Expenditure and Revenue Expenditure

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Capital Expenditure-

Expenses incurred for purchase or erection of fixed assets i.e. Land, Building, Plant & Machinery, Furniture, Equipment, Vehicles etc. i.e. capital assets are called Capital Expenditure. Such expenditure yields benefit over a long period and hence written in Assets.

For Example, Plant & Machinery purchased for Rs. 5,20,000 on 25.07.2018, the value of plant & machinery will be shown under the head “Fixed Assets” of the Balance Sheet for that financial year but deprecation will be charged under Profit & Loss Account and it will be deducted from the cost of the Plant & Machinery.

 

Revenue Expenditure-

Expenses incurred where the full benefit of which is received during one accounting period is termed as revenue expenditure, such expenses are debited to Trading and Profit & loss Account.  The expenditure which is incurred on a regular basis for conducting the operational activities of the business are known as Revenue expenditure like the purchase of stock, carriage, freight, etc. Revenue Expenditures does not result in an increase in the earning capacity of the business but only helps in maintaining the existing earning capacity.

For Example, the following expenses i.e. Wages & Salary, Printing & Stationery, Electricity Expenses, Repairs and Maintenance Expenses, Inventory, Postage, Insurance, taxes, etc. will be charged to Profit & Loss Account, it will not to be shown under the Balance Sheet.

 

Deferred Revenue Expenditure-

There are certain expenditures which are revenue nature but the benefit of which is likely to be derived over a number of years. Such expenditures are termed as “Deferred Revenue Expenditures”. The benefit of such expenditure generally lasts between 3 to 7 years. The whole expenditure is not debited to the Profit and Loss Account of the current year but spread over the years for which the benefit is likely to last, only a part of such expenditure is taken to Profit & Loss Account every year and the unwritten off portion is allowed to stand on the assets side of the Balance Sheet.

For Example, Amount spent of Rs. 5,00,000 on advertising to introduce a new product in the market and it is estimated that the benefit will last for 5 years, then Rs. 1,00,000 will be charged every year to profit & loss account and balance amount shown on the Assets side of the Balance Sheet.

 

 

Difference between Capital Expenditure and Revenue Expenditure-

Particulars

Capital Expenditure

Revenue Expenditure

Nature

Capital Expenditure is incurred for the acquisition or erection of a fixed asset.

Revenue Expenditure is incurred for the day to day running of the business.

Capacity

Capital Expenditure is incurred for the purpose of increasing the earning capacity of the business.

Revenue Expenditure is incurred for maintenance of earning capacity i.e. for keeping the assets in an efficient working order.

Benefit

Capital Expenditure yields benefit normally over a long period.

Revenue Expenditure yields benefit for a maximum period of one year.

Deprecation

Deprecation will be charged on Capital Expenditure every year.

There is no Deprecation will be charged on Revenue Expenditure.

Profit & Loss

Capital Expenditure is not written in Trading or Profit & Loss Account.

Revenue Expenditure is written in Trading or Profit and Loss Account.

Balance Sheet

Capital Expenditure is written in Balance Sheet under Fixed Assets.

Revenue Expenditure is not written in Balance Sheet, these effected profit & loss account.

 



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