Accountancy · Ch 11 — Capital and Revenue Transactions
Distinction Between Capital and Revenue Expenditure
3
Distinction Between Capital and Revenue Expenditure
3. Distinction Between Capital and Revenue Expenditure
| Basis | Capital Expenditure | Revenue Expenditure |
|---|---|---|
| Duration of benefit | Benefit lasts for more than one accounting year | Benefit is exhausted within the current accounting year |
| Nature | Acquires, extends, or improves a fixed asset, or acquires a right | Maintains an asset's existing condition, or funds day-to-day operations |
| Where shown | Balance Sheet, as an asset (capitalised) | Trading Account or Profit and Loss Account, as an expense |
| Effect on profit | Not charged to the current year's profit (only depreciation on it is) | Reduces the current year's Gross or Net Profit in full |
| Recurrence | Usually a one-time or infrequent transaction | Usually recurring, period after period |
| Example | Purchase of machinery, installation charges on a new machine | Repairs to machinery, wages, rent |