Capital expenditure is the term used to describe the assets that are fixed. These are expected to become productive for a long period of time. Revenue expenditure is the term that is used to describe certain transactions that may be done. For example, the cost of goods that are purchased for the company’s new products can be classified under revenue expenditures.
Those that are associated under sales transactions may be considered to be under revenue expenditures too. This means that they are very short-term. When it comes to size, capital expenditure is expected to have a larger monetary amount as compared to revenue expenditure.
Capital expenditure refers to expenses made by a business to acquire an asset or to better the capacity of assets. Examples include purchasing machines, buildings, vehicles, and so on. Such expenditure aims to improve the operations of a business and in the long run to increase the profit made and to decrease the total cost of production. On the other hand, revenue expenditure refers to everyday expenses made in a business. Such expenses are incurred regularly.
Example of revenue expenditure includes the cost of electricity, salary, insurance, taxes, repairs, and maintenance. Revenue expenditure helps maintain the earning capacity of a business. In summary, capital revenue increases the earning capacity of a business and decrease the cost of production. It refers to the expenses made to acquire assets. Revenue expenditure helps to maintain the earning capacity of business. It includes recurring expenses made to run a business.
Capital Expenditure is something that you will use in making sure that you can get the capital asset or you can improve the capacity of what you already have. The revenue will show that you will have expenses that will let you know how much you need to pay for the day to day activities of the business that you may have.
The capital expenditure is more effective for the long term, while revenue expenditure is more ideal for the short term. The capital expenditure is usually shown through your income statement and your balance sheet while the revenue expenditure will be demonstrated through your income statement.
Some people may assume that all types of expenditures are the same but this is not true. Two of the most common terms that you will hear are capital expenditure and revenue expenditure. Capital expenditure can be used for fixed assets while revenue expenditure is usually for the costs that are connected to the transactions that are related to revenue.
There is a difference between the timing of the two. Capital expenditure will expense for a certain period of time. Usually, the time will be very long. For revenue expenditure, it will show just shortly after the expense. Another difference is that capital expenditures are known to cost more as compared to revenue expenditures.