Distinction Between Capital Expenditure and Revenue Expenditure
What is the difference between capital expenditure and revenue expenditure in business finance?
Capital expenditure refers to investments in long-term assets or projects that yield benefits over multiple periods, while revenue expenditure represents costs incurred in the day-to-day operations and maintenance of a business.
How do capital expenditure and revenue expenditure impact a business's financial statements?
Capital expenditure refers to investments in assets that provide long-term benefits to the business, such as machinery, equipment, or buildings. It is recordedas an asset on the balance sheet and depreciated over its useful life, impacting the business's financial statements by increasing the value of assets and reducing taxable income through depreciation expenses. Revenue expenditure, on the other hand, refers to expenses incurred in the day-to-day operations of the business, such as salaries, utility bills, or inventory purchases. Revenue expenditure is recorded as an expense on the income statement and directly impacts the business's profitability and cash flow.