📊 Capital vs Revenue Expenditure
Learn the difference between two important types of business expenses!
A simple guide for students to understand accounting basics
🏗️ What is Capital Expenditure?
Capital Expenditure (CapEx) is money spent to buy or improve long-term assets that will benefit the business for many years.
Key Features:
- Benefits the business for more than one year
- Creates or improves fixed assets
- Appears on the Balance Sheet
- Value decreases over time through depreciation
Benefits
🏪 Capital Expenditure Examples
Buying a Building
Purchasing a shop or office building for ₹50,00,000
Delivery Truck
Buying a delivery vehicle for ₹8,00,000
Computer System
Purchasing computers and software for ₹2,00,000
💡 Remember: These assets will be used for many years and help generate income!
📝 Capital Expenditure Journal Entry
Example: Buying a Computer for ₹50,000
| Date | Particulars | Debit (₹) | Credit (₹) |
|---|---|---|---|
| Jan 1, 2024 | Computer A/c Dr. | 50,000 | - |
| To Cash A/c | - | 50,000 |
Rule: Asset increases = Debit the Asset Account
Cash decreases = Credit the Cash Account
📉 Depreciation Calculation
Since capital assets lose value over time, we calculate depreciation each year.
1️⃣ Straight Line Method (SLM)
Example: Computer worth ₹50,000, Life = 5 years, Scrap = ₹5,000
2️⃣ Written Down Value Method (WDV)
Example: Computer ₹50,000, Rate = 20%
📊 Depreciation Journal Entry
Annual Depreciation Entry (SLM: ₹9,000)
| Date | Particulars | Debit (₹) | Credit (₹) |
|---|---|---|---|
| Dec 31, 2024 | Depreciation A/c Dr. | 9,000 | - |
| To Computer A/c | - | 9,000 |
Result: Depreciation is charged to Profit & Loss Account
Asset value reduces on Balance Sheet
🔄 What is Revenue Expenditure?
Revenue Expenditure (RevEx) is money spent on daily business operations and expenses that benefit only the current year.
Key Features:
- Benefits only the current year
- Spent on day-to-day operations
- Goes directly to Profit & Loss Account
- Fully charged in the same year
Benefits
🛒 Revenue Expenditure Examples
Electricity Bill
Monthly electricity cost of ₹5,000
Staff Salaries
Monthly wages of ₹1,00,000
Repair & Maintenance
Machine repair cost of ₹8,000
💡 Remember: These expenses are consumed immediately and need to be paid regularly!
💸 Revenue Expenditure Journal Entry
Example: Paying Electricity Bill of ₹5,000
| Date | Particulars | Debit (₹) | Credit (₹) |
|---|---|---|---|
| Jan 15, 2024 | Electricity Expense A/c Dr. | 5,000 | - |
| To Cash A/c | - | 5,000 |
Rule: Expense increases = Debit the Expense Account
This expense will appear in Profit & Loss Account for the current year
🎯 The Big Difference!
| Aspect | Capital Expenditure | Revenue Expenditure |
|---|---|---|
| Charging Period | Charged over multiple years through depreciation | Fully charged in the same year |
| Benefit Period | Benefits for many years | Benefits only current year |
| Balance Sheet | Appears as Asset | Does not appear |
| P&L Account | Only depreciation charged | Full amount charged |
🔑 Remember the Golden Rule:
Revenue Expenditure = Full amount charged to P&L in same year
Capital Expenditure = Spread over asset's useful life through depreciation