Capital Expenditure Vs. Revenue Expenditure

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Capital expenditures are assets that are acquired to expand business capacity to earn or produce. Costs that are attributed to maintaining earnings or capacity are revenue expenditures.

Accounting

  • Revenue expenditures are noted on income statements and a capital expenditure is placed on the balance sheet.

Working capital

  • Although capital expenditures are typically machinery or some other physical asset, they can also include research and development. This is because research and development expands production ability, earnings and capacity.

Industries

  • A capital expenditure in one industry may be a revenue expense in another company. One example is a real estate company that purchases land or buildings for resale. This is not a capital expenditure, even though it is a physical asset, because its purpose is to be resold.

Raw materials

  • Although raw materials are used in the earnings process, and increasing the amount of raw materials that are purchased and used may increase production, these are revenue expenditures.

Day-to-day

  • The day-to-day costs of running the business, including salaries, utilities, repairs, maintenance, fees, rent and taxes are all revenue expenditures.

References

  • Photo Credit machine 4 image by Vitezslav Halamka from Fotolia.com
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