Revenue & capital expenditures: definitions, types & examples

Capital and revenue expenditures are not the same, despite both involving company expenses. The similar meanings of both expenditures cause many to mix them up, failing to see the important differences. Tracking revenue expenditure gives companies a better view of expenses that pay for themselves in the long run. Companies can determine whether some of their expenses are generating immediate income or taking a longer time. This process helps identify unnecessary expenses and find places a company can save funds.

For example, a company that buys expensive new equipment records its investment as a capital expense. Therefore, the cost of the equipment is amortised over its useful life. It’s not enough to say that capital expenditures are everything that revenue expenditures aren’t. They break down differently, depending on the size of the payment and the time across which it needs to be paid for. Plus, capital expenditures will show up differently on your reporting metrics.

State the difference between capital reserve and revenue reserve.

Revenue expenditures or operating expenses are recorded on the income statement. These expenses are subtracted from the revenue that a company generates from sales to eventually arrive at the net income or profit for the period. Revenue expenditures are short-term expenses used in the current period or typically within one year. Revenue expenditures include the expenses required to meet the ongoing operational costs of running a business, and thus are essentially the same as operating expenses (OPEX). As long-term assets, capital expenditures involve substantial amounts of money since they have to cross a monetary threshold to classify as capital expenditures.

The term “net long-term capital gain” means long-term capital gains reduced by long-term capital losses including any unused long-term capital loss carried over from previous years. Revenue expenditures and capital expenditures are contrasting in nature. The revenue expenditure is an investment of money and is periodically done, it is neither profitable nor harmful for business.

Distinguish between Capital Receipts and Revenue Receipts?

Capital expenditures are expenses incurred by a company for the long term benefit of the company. By enhancing or adding new assets to the organisation, these expenditures increase the capacity of a long-term investment. Capital expenditures deal with assets like land, equipment, furnishings, or vehicles that help the organisation drive benefits. Capital expenditures are for fixed assets, which are expected to be productive assets for a long period of time. Revenue expenditures are for costs that are related to specific revenue transactions or operating periods, such as the cost of goods sold or repairs and maintenance expense. The differences between these two types of expenditures are noted below.

• Capital may refer to tangible things such as land, buildings and machinery, intangible assets such as intellectual property or goodwill, or financial instruments such as stocks and bonds.
• This article provides a broad overview of the differences between capital and revenue, with examples of how each impacts business operations.
• It refers to funds the company spent to acquire, improve, or maintain physical or intangible assets.
• Similarly if we do some expenditure and that can increase the capacity or capability of any vehicle then that expense would be considered as Capital expenditure.
• Fixed resources, like hardware and gear, are regularly bought with capital expenditure.

While it may seem as if you are saving money by not hiring an accounting firm to do your books and business taxes, the risk of whether you have done it right or not is always there. The benefits of revenue expenditure are enjoyed for a short time (less than 12 months). Getting this wrong could involve looping in financial analysts to fix and heft legal expenses balance sheet in the long run. Keeping track of your costs correctly will tell you where you’re spending too much and allow you to assess where money is being spent effectively. When you’re running your SaaS business, dealing with a huge glossary of financial terms daily, it’s to be expected that you might occasionally get two terms with similar meanings mixed up.

Read More on Income Tax Act

The tax rate on most net capital gain is no higher than 15% for most individuals. Examples of revenue expenditure include wages and salary, printing and stationery, electricity, repairs and maintenance, inventory, postage, insurance, taxes, etc. It is the sum of money that an individual or company has invested to produce goods and services. This includes cash, stocks, bonds and other assets that can be converted into cash. In the case of a startup, capital will usually come from friends and family members or investors. Accordingly, capital expenditures are usually higher than income expenditures.

J.B. Maverick is an active trader, commodity futures broker, and stock market analyst 17+ years of experience, in addition to 10+ years of experience as a finance writer and book editor. Our mission is to empower readers with the most factual and reliable financial information possible to help them make informed decisions for their individual needs.