The distinction between capital and revenue expenditure?

It’s very important to differentiate the distinction between capital and revenue expenditure. The revenue expenditure should be counted into the expenditure of this period, but the capital expenditure should be counted into several periods. This will affect the profit and the income tax in this period (You should know the structure and principle of income statement).

The types of capital expenditure include:

1. Expenditure on the acquisiton of non-current assets required for use in the business and not for resale.
2. Expenditure on existing non-current assets aimed at increasing their earning capacity.

The types of revenue expenditure include:

1. Expenditure on current assets (e.g. inventory).
2. Expenditure relating to running the enterprise (e.g. administration, selling expenses).
3. Expenditure on maintaining the earning capacity of non-current assets (e.g. repairs and renewals).

Pay attention to one point, please, the capital expenditure affect long-term, but the revenue expenditure affect this period.

Related posts:

1. Accrual revenue
2. Return on capital employed(ROCE)
3. Measurement of revenue
4. Current vs non current assets
5. Research and development expenditure