Home » Accounting Explanation » Capital and Revenue Expenditures


A more comprehensive Example:


Description of ExpenditureKind of Expenditure 
Purchase of Plant and machineryCapital Expenditure
Repair of plant and machinery (It is done every year)Revenue Expenditure
Fuel cost of plant and machinery (incurred frequently during the year)Revenue Expenditure
Installing a new motor in machinery (that will be used for more than a year) Capital Expenditure
Painting the walls of factory building (That is done every year)Revenue Expenditure
Buying vehicles and equipmentCapital Expenditure
Electricity cost of plant and machineryRevenue Expenditure
Site preparation for the new plantCapital Expenditure
Interest on loanRevenue Expenditure
Software price (Software will be used for more than a year)Capital Expenditure
Software customization cost (Customized software will be used for many years)Capital Expenditure
Cost of printer paper ( incurred frequently during the year)Revenue Expenditure
Cost of adding air conditioner Capital Expenditure
Cost of acquiring copy right, patents, goodwill (Intangible assets will be used for many years)Capital Expenditure
Depreciation expenses of fixed assetsRevenue Expenditure
Amortization expensesRevenue Expenditure
Cultivation of land (Cultivated land will be used for more than a year)Capital Expenditure
Expenses incurred to make the newly purchase fixed operationalCapital Expenditure
Initial delivery and handing cost of equipmentsCapital Expenditure
Professional or expert fee for testing the new fixed assetCapital Expenditure
Adding new headlights on delivery truck (will be used for more than a year)Capital Expenditure
All non-refundable tax charges related to the new fixed asset Capital Expenditure


Expenditures and financial statements

All revenue expenditures are charged to income statement while capital expenditures are shown in balance sheet

Errors regarding the classification of expenditures

We can commit the following mistakes

  • We can consider revenue expenditure as capital expenditure
  • We can consider capital expenditure as revenue expenditure

In either of the case, our income statement and balance sheet won’t reflect the true and fair view of business entity and they would be regarded as misleading on business profitability and financial position.

Capital income and revenue income

Capital income are the proceeds from the sale of fixed assets. For example business purchased a building for $30,000 five years ago which is now being sold for $10,000. The receipt of $10,000 should be considered as capital income and it would be credited to building account.

Revenue income is referred to as ordinary sales of merchandise and the revenue which is shown in income statement. For example sale of goods, commission income, rent receivable etc.