Capital and Revenue Expenditure/ Receipts


Capital expenditure:

Capital expenditure is expenditure made in the acquisition, construction and improvement of non- current assets that are expected to generate economic benefits in more than one accounting period. A capital expenditure is an amount spent to acquire or significantly improve the capacity or capabilities of non current assets. They are recorded as Non current assets in the statement of financial position.

Examples of capital expenditure:

  • Purchase price of non-current asset (less trade discount).
  • Customs duty and tax on purchase.
  • Transport cost to bring non-current asset into the business.
  • Legal cost on purchase.
  • Installation and inspection of new non-current asset.
  • Extension and decoration of new building.
  • Painting of new building or vehicles.
  • Extra cost incurred in construction of building.
  • Cost of replacing an engine.
  • Installation of new software or hardware on a computer system.

Revenue expenditure:

Revenue expenditure is expenditure made for the day to day running of the business. Revenue expenditure is an amount that is spent for an expense that will be matched immediately with the revenues reported on the current period's income statement. Revenue expenditure is treated as an expense in the income statement.

Examples of revenue expenditure:

  • Rent and rates
  • Wages and salaries
  • Road tax, insurance and petrol for vehicles
  • Repainting and redecorating of office
  • Purchase of new tire for motor van.

Effects if capital expenditure treated as revenue expenditure.

  • Total expenses overstated.
  • Profit for the year understated.
  • Non-current asset understated.

Effects if revenue expenditure treated as capital expenditure

  • Total expenses understated.
  • Profit for the year overstated.
  • Non-current assets overstated.

Capital receipts

Capital receipts are the income from non-recurring streams, or from non-usual business operations. They result in an increase in the total capital of a company and are shown in the statement of financial position. 

Examples / Sources of capital receipts

Issue of shares / debentures

loan from a bank or financial institution

grant from the government

Insurance claim or any additional claim by owner.

money received from the proceeds (disposal) of non-current assets

capital invested by owner

Revenue income (receipts)

Revenue receipts are the outcome of core business activities. It is the income that a company earns from its day-to-day operations. In other words, all activities happening on a daily basis that brings in cash for the business form part of a revenue receipt. 

Examples / sources for revenue receipts

  • Revenue from sale of goods / inventory
  • Interest received
  • Discount received.