Revenue vs Capital Expenditure
The distinction between expenses for day-to-day operations (revenue) and investments in long-term assets (capital), with different accounting treatments and financial impacts.
Revenue vs Capital Expenditure
The distinction between spending for day-to-day operations (revenue expenditure) and investment in long-term assets (capital expenditure), with fundamentally different accounting treatments and financial implications.
For example, when a manufacturing company spends $5,000 on machine repairs, it’s a revenue expenditure expensed immediately on the income statement. When the same company spends $500,000 on a new production line, it’s a capital expenditure recorded as an asset on the balance sheet and depreciated over its useful life.
Revenue expenditures maintain current operations and include costs like supplies, routine maintenance, wages, utilities, and rent. Capital expenditures enhance or acquire long-term assets providing benefits over multiple years, such as buildings, equipment, or major software implementations. While revenue expenditures immediately reduce reported profit, capital expenditures affect the income statement gradually through depreciation, creating timing differences between cash outflows and expense recognition.