CAPITAL EXPENDITURE

AND REVENUE
EXPENDITURE
By Samhita Majumder 9B
 What is Capital Expenditure?
Capital expenditures are long-term investments,
meaning the assets purchased have a useful life of
one year or more. Types of capital expenditures can
include purchases of property, equipment, land,
computers, furniture, and software. Intangible assets
include patent and licence.
Examples of Capital
Expenditure:
 What is Revenue Expenditure?
Revenue expenditures are short-term expenses used in the
current period or typically within one year. Revenue
expenditures include the expenses required to meet the
ongoing operational costs of running a business, and thus
are essentially the same as operating expenses. Types of
revenue expenditures can include direct expenses and
indirect expenses.
 Direct Expenses
Direct expenses are those costs that are incurred when goods and
services are in the process of being produced. The costs that are
incurred during the day-to-day operations that take place in the
business are also direct expenses. For manufacturing companies,
examples of direct expenses include the costs that are incurred for
the conversion of raw materials to finished products or goods.
Direct expenses also include costs such as electricity used during
the production, wages paid to workers, legal expenses, rent, and
shipping-related costs.
 Indirect Expenses
Indirect expenses are the second type of revenue expenditure.
These types of expenses are usually incurred when the finished
goods and services are being sold and distributed. These expenses
include taxes, salaries for employees, depreciation, and interest
among others. Indirect expenses also include repairs and
maintenance costs. Although these costs aren’t directly linked to
the finished products, they are required to ensure the proper
functioning of the asset which in turn supports the proper
functioning of the business.
Revenue Expenditure versus Capital
Expenditure
Revenue Expenditure
•  Short term asset
• Used to ensure the proper functioning
of a fixed asset
• Recurring expense
• Reported in the Income Statement
• Ensures that the assets such as
machinery are functioning optimally
at all times
• Cheaper than Capital Expenditure
Capital Expenditure
• Long term asset
• Used to improve how the business
functions by boosting efficiency
• One-time investment
• Reported in the Balance sheet
• Generates more revenue over time
• More expensive than revenue
expenditure
 Both revenue expenditure and capital
expenditure are equally important!
It is wrong to say that either is better than the other
because both are required for your business to operate
without issues and generate profits. Capital expenditure is
critical because it can improve business efficiency.
Revenue expenditure is vital as it ensures smooth business
operations so there is nothing stopping your business from
operating fully. Your business must manage and monitor
both these expenditures to ensure you are not over-
spending on each. If you do so regularly, you can
effectively use strategies for regulating these expenses!
 Identify Revenue Expenses as black
and Capital Expenses as white
• Purchase a building
• Rent a building
• Redecorating existing building
• Addition to a new building
• Electricity costs of using the equipment
• Buy a new vehicle
• Installation cost of new equipment
• Repair a vehicle
Thank you!