Cambridge IGCSE Accounting(0452)/O Level Principles of Accounts(7110) Notes: Capital and Revenue Expenditure
- In accounting it is paramount to separate between revenue and capital expenditure
- Naturally all business expenditure can be classified as either revenue or capital expenditure
Capital Expenditure
- Capital expenditure is not to be confused with the capital account or capital in general
- Capital expenditure is when a business spends money to either:
- Buy a fixed asset or
- Add value to an existing fixed asset
- It would thus include the following:
- the cost of acquiring fixed assets i.e. the purchase price of the fixed asset itself
- the cost of bringing the fixed asset into the business e.g. carriage inwards, loading and unloading costs, import duty etc
- The legal costs of buying buildings
- Any other cost incurred to get a fixed asset ready for use for example installation and tuning costs
- Visit this topic to learn about the accounting treatment of capital expenditure
Revenue expenditure
- Expenditure which is not spent on increasing the value of fixed assets, but on running the
business on a day-to-day basis - Examples would include:
- Fuel costs
- Repainting a building
- Art resotration
- Purchases
- Rent payments
- Wages and Salaries
- Advertising costs
- Selling and Distribution costs
- Administration costs etc
- Visit this topic to learn more about the accounting treatment of revenue expenditure
Joint expenditure
- It is not at all uncommon for a single sum spend to include both revenue and capital expenditure
- For example a business hires a construction company to restore and extend its premises
- In such instances an endeavor must be made to separate those costs that can be classified as revenue expenditure and those to be deemed as capital expenditure
- Once this is done the cost can be treated according to their nature
To access more topics go to the Principles of Accounting Notes.