How Do You Distinguish Between Capital And Revenue Expenditure?
In accounting, the distinction between revenue and capital expenditure is a critical one. The basic differences between the two are held in their respective definitions. Revenue expenditure is that which a business incurs for the purposes of trade, or in maintaining the earning capacity of non-current assets. Capital expenditure, on the other hand, is for the purchase of non-current assets or an increase in the earning capacity of such assets. From these definitions, the type of assets acquired and the effect on non-current assets are essential elements of the two forms of expenditure. In addition, the accounting period, treatment in the financial statements, occurrence and tax treatment are other ways to distinguish between capital and revenue expenditure. == Types of assets acquired == Revenue expenditure (R.E.)-this is used in the acquisition of items for the purpose of trade (such as tradable goods). This form of expenditure might result in assets left over for another period (inve
