We are independent & ad-supported. We may earn a commission for purchases made through our links.
Advertiser Disclosure
Our website is an independent, advertising-supported platform. We provide our content free of charge to our readers, and to keep it that way, we rely on revenue generated through advertisements and affiliate partnerships. This means that when you click on certain links on our site and make a purchase, we may earn a commission. Learn more.
How We Make Money
We sustain our operations through affiliate commissions and advertising. If you click on an affiliate link and make a purchase, we may receive a commission from the merchant at no additional cost to you. We also display advertisements on our website, which help generate revenue to support our work and keep our content free for readers. Our editorial team operates independently of our advertising and affiliate partnerships to ensure that our content remains unbiased and focused on providing you with the best information and recommendations based on thorough research and honest evaluations. To remain transparent, we’ve provided a list of our current affiliate partners here.
Accounting

Our Promise to you

Founded in 2002, our company has been a trusted resource for readers seeking informative and engaging content. Our dedication to quality remains unwavering—and will never change. We follow a strict editorial policy, ensuring that our content is authored by highly qualified professionals and edited by subject matter experts. This guarantees that everything we publish is objective, accurate, and trustworthy.

Over the years, we've refined our approach to cover a wide range of topics, providing readers with reliable and practical advice to enhance their knowledge and skills. That's why millions of readers turn to us each year. Join us in celebrating the joy of learning, guided by standards you can trust.

What Are the Differences between Revenue and Capital Expenditure?

By Alex Newth
Updated: May 16, 2024
Views: 27,532
Share

Revenue and capital expenditure are aspects of business management that seem very similar at first. Both revenue and capital expenditure are concerned with spending money to help a business survive and grow. The key difference between the two is the intent of the expenses and where the money goes. Revenue is for short-term costs that are not used afterwards to make the company grow, such as repairs. Capital expenditure is for long-term assets, such as new vehicles or software, which will be used to make the company stronger.

Revenue expenditure is money being spent immediately for short-term purposes. These are expenses associated with assets, such as repair, that may or may not increase the life of the given asset. Revenue expenditure is more often associated with day-to-day costs the company accrues through its life cycle.

Capital expenditure is money is being spent on assets that will increase the company’s ability to pull in profit or operate at a higher performance level. New software, vehicles, machinery and tools that will be used for at least 12 months are considered capital expenditure. Capital expenditure, unlike revenue, is looked at more as an investment than a cost, because it is being used to strengthen the company so it can do better business.

When purchasing a capital asset, a business either will spread the cost out over the asset’s life or will purchase the asset outright. If the asset is one that will depreciate in value, such as a vehicle, the expense is usually logged over the life cycle. If the asset will remain in the same condition, such as software, the expense is logged all at once.

While capital expenditure is supposed to bring in growth and strengthen the company, this is not always the case. Sometimes the capital expenditure will end up not increasing profit. Investors often look at capital expenditure as a good sign, but investors must also be skeptical because business profits may not increase.

Both revenue and capital expenditure amounts are recorded in separate accounts. By separating the two, it makes it easier for investors to know where the money is going and makes it easier to account for the associated costs of both expenditures. Some businesses participate in accounting fraud in which revenue and capital expenditure are combined to make it look as if the company is spending all its money on capital expenditure. This falsely leads investors to believe the company is spending a large amount of money on capital assets when it is not.

Share
SmartCapitalMind is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.
Discussion Comments
By Ceptorbi — On Feb 12, 2014

@SimpleByte - Examples of revenue expenditure include utilities and telephone costs. The electric, gas, water, and phone bills for a given month only get you through that month. Capital expenditures, in contrast, are purchases that will benefit the company for a long-term period rather than a short-term period. A new fax machine and printer, for example, can last the company for a couple of years so they are examples of capital expenditures. Repair costs for the fax or printer, however, are revenue expenditures since they are short-term costs. Things like Internet fees, rental or lease costs, and employee salaries are also revenue expenditures.

By SimpleByte — On Feb 11, 2014

What are some examples of revenue expenditure?

Share
https://www.smartcapitalmind.com/what-are-the-differences-between-revenue-and-capital-expenditure.htm
Copy this link
SmartCapitalMind, in your inbox

Our latest articles, guides, and more, delivered daily.

SmartCapitalMind, in your inbox

Our latest articles, guides, and more, delivered daily.