Accounting Fundamentals: Capital and Revenue Expenditure

Desklib provides solved assignments and past papers to help students understand key concepts.

Accounting Fundamentals
1

Table of Contents
Task 5...............................................................................................................................................3
Capital Expenditure and Revenue Expenditure difference..........................................................4
Reference.........................................................................................................................................5
2

Task 5
Revenue Expenditure is charged when there will be an expense takes place in an accounting
period. These expenses are also known as expenditure of income statement. The assets that will
not give financial benefits, these types of assets are related to the cost of revenue expenditure.
Revenue expenses are also known as extra expenses on assets but it will not create any additional
value of the assets and these expenses will not add any useful productivity or life of such assets
(Weil, et. at., 2013).
The book value of assets does not mention these assets as they do not create any future profits for
a company. Some of the revenue expenditures are factory workers wages lubricates machines oil,
power to run motor or machine, saleable goods cost, fixed assets depreciation, borrowed money
interest, fixed assets repair and maintenance expenses, bad debts, petrol consumed by motor
vehicle, motor vehicles services, etc (Porter, and Norton, 2012).
Capital Expenditure is those expenses that have been incurred on the purchase, maintenances
of the fixed assets. Fixed assets can be buildings, types of equipment, vehicle or land. These
expenses are also incurred in the new investments or projects by a company or firm. Capital
expenditure includes everything from the acquiring of a fixed asset to its repairing. These
expenses are shown in the balance sheet as an investment rather than showing it as an expense in
the income statement. It shows as an investment because these expenses add some benefits to a
firm. They build or improve the capacity or efficiency of the organization. Purchase of fixed
assets includes both tangible and intangible assets; intangible assets may include the purchase of
patents or licenses. These expenses put a substantial effect on both the short and long- term
standing of financial in an organization (Irwin, 2012).
3

Capital Expenditure and Revenue Expenditure difference
 Capital expenditure is incurred on the fixed assets while revenue expenditure is incurred
for the cost which is related to specific transactions of revenue.
 Expenses of capital are charged for a long period which has been related to the expenses
gradually through depreciation while the expenses of revenue are for a short period or
current period (Weil, et. at., 2013).
 The expenses of capital are assumed to use or consumed over the whole useful life of the
fixed assets. The consumption of revenue expenses is for a very short period.
 Expenditures of capital involve monetary amount is very large than the expenditure of
revenue.
 The differences in the capital and revenue expenditure are based on the long and short
period (Porter, and Norton, 2012).
 Revenue expenses are ongoing or continuous expenses of operations while the capital
expenses are for one-time which includes large purchases of the fixed assets.
 Capital expenses are used for the generation of revenue for a long period.
 Revenue expenses do not associate with the asset creation on the other hand capital
expenditure results in the asset creation.
 Capital expenses help in the creation of some value for an organization or increase the
capacity of the company, on the other hand, revenue expenses does not result in some
benefit to the organization (Irwin, 2012).
4

Reference
 Irwin, T., 2012. Accounting devices and fiscal illusions. International Monetary Fund.
 Porter, G.A. and Norton, C.L., 2012. Financial accounting: The impact on decision-
makers. Cengage Learning.
 Weil, R.L., Schipper, K. and Francis, J., 2013. Financial accounting: an introduction to
concepts, methods, and uses. Cengage Learning.
5