0Dear Students,
Identification of Revenue and Capital natured expenditure is essential for us. It is the base for many of the chapters in your Accountancy Syllabus. Let us understand these terms with several examples-
1. Capital Expenditure - You must have observed that some of the business expenditures give long term benefits to an organisation. Say, for example, purchasing a property, Patent rights or Automobiles, etc. Business reaps the benefit of these Assets purchased over several years. Does a Business have to buy Machinery, Land, Buildings, Trademarks, Furniture, Huge Electronic Equipment every year? The answer is "NO". A Fixed Asset purchased servers a business for many years. Thus, the purchase of Fixed Asset is a Capital Expenditure. Students, please note that Capital Expenditures are Presented in the Balance sheet.
2. Revenue Expenditure - Many business expenses have to be made multiple times in a year. These expenses comprise of purchasing Raw materials, Paying wages and salaries to the staff members, paying electricity bills, paying rent, expenditure towards freight, carriage, fuel, etc. This expenditure that is recurring in nature or has to be made almost every year are called Revenue expenses. Generally, these expenses appear in the Trading/ P&L Account.
I hope this makes the concept clear.
All the best!!!
