Capital expenditure occurs when a business gets a long term advantage due to that expenditure.
It is usually incurred for accusation of an asset. These expenditures do not occur in the regular day to day transactions of the business.
- Purchase of furniture, office building etc.
- Purchase of additional furniture or machinery
- Expenditure incurred in connection with the purchase of a fixed asset. For example, carriage paid of machinery purchased.
- Purchase of patent right, copy rights etc.
Expenditure which is not for increasing the value of fixed assets, but for running the business on a day to day basis, is known as revenue expenditure.
Difference between Capital and Revenue expenditure
Buy a car is capital expenditure because its benefit to the business will be spread over a long time.
Fuel cost for running this care is revenue expenditure and it will be used up in few days and does not add to the value of the fixed asset.
Capital receipts consist of
- additional payments made to the business either by owner or shareholder of the business; or
- from sale of fixed assets of the business.
- Any receipt in the normal running or through day to day transactions of the business is categorized as Revenue receipt.
- Sales receipts of the business are revenue receipts.