Capital and Revenue Expenditure

An expenditure is a payment or disbursement made by a business. Business expenditures can be

classified as either Revenue Expenditure or Capital Expenditure.
It is important to correctly classify expenditure in a business into capital or revenue expenditure
correctly as any incorrect classification of any type of expenditure will ultimately affect the
calculation and recording of profits and the value of assets in the balance sheet, ultimately
affecting the valuation of the business.

Capital Expenditure
This refers to costs/ expenditure incurred on Fixed/Non-Current Assets to either:
-Buy a fixed asset, or
-Increase the value of a fixed asset in existence by improvement of modification.
Capital expenditure usually requires a large outlay of money and are expected to benefit the
business for a long period of time.
Capital Expenditure include: All costs to purchase and acquire fixed assets, permanent
improvement of fixed assets, for example installation of air conditioning within a property,
modifications/improvements to fixed assets.
NB. Capital Expenditure is recorded in the Balance Sheet of a business.

Revenue Expenditure
These are expenses that occur or is incurred in the daily running/ operation of the business or the
maintaining of the business’ fixed assets.
The effect of Revenue expenditure is not expected to last more than (12) twelve months.
Examples of revenue expenditure include: rent, insurance, repairs to motor vehicles and
maintenance of machinery.
NB. Revenue Expenditure is recorded in the Income Statement/ Trading Profit and Loss
a/c of a business.