What Is Capital Expenditure vs. Revenue Expenditure?

Although the day-to-day operations of a successful business don’t always bring up technical accounting terminology, there are some terms you’ll want to be on the lookout for. For example, revenue expenditure and capital expenditure might sound the same, but they are different.

The following are the key takeaways regarding capital expenditure vs revenue expenditure:

• Revenue expenditure refers to short-term expenses that a company has during a specific accounting period, related to generating revenue.

• Examples of revenue expenditure include things like rent, maintenance, utilities, wages, software, and travel expenses.

• Some examples of capital expenditure are buying land, vehicles, computers, furniture, manufacturing equipment, or buildings.

• The difference comes down to whether the purchase will be used over the short or long term.

• Capital expenditures are recorded on the balance sheet, while revenue expenditures go on the income statement. Also, capital expenditures involve larger amounts of money and contribute to the company’s earnings over several years, while revenue expenditures are recurring expenses that maintain earnings for just one year.

In this article, we’ll take a closer look at the expenditure definition for revenue vs capital expenditure, diving further into what separates them.

What is revenue expenditure?

Revenue expenditure refers to the company’s total expenses to produce good service. The total revenue expenditure helps the company prosper by generating revenue within the accounting period. Since these expenses are recorded in the same accounting period as when revenue was generated, they are short-term related expenses. See also: Is Service Revenue an Asset?

There are two primary expense types under revenue expenditure: cost of sales and operating expenses (OPEX). Cost of sales refers to expenses a company incurs to obtain the product needed to sell to customers, and operating expenses are the costs associated with doing business. 

Revenue expenditure examples

Revenue expenditure focuses strictly on short-term expenses written into the current accounting period.

• Rent

• Maintenance

• Utilities

• Wages paid

• Software

• Travel expenses

The actual list is longer than what we’ve noted above, however, it is focused on anything that must be paid for so the business can continue making revenue. Revenue expenses must be budgeted so the business doesn’t run into issues. 

See also: Managing Business Expenses: Your Guide to Budgeting Company Spending 

What is capital expenditure?

Generally, capital expenditures focus on more long-term investments made by the company. It refers to funds the company spent to acquire, improve, or maintain physical or intangible assets. Typically, this monetary investment improves capacity or efficiency when generating more revenue. Such higher investment can be secured via a deal sourcing platform, where you can find investors interested in partnering up to support your business ideas.

Expenses incurred under capital expenditure get included on the balance sheet rather than the income statement. Purchased items with a useful life of less than a year aren’t expressed on the balance sheet; therefore, they are not considered capital expenditures. 

Capital expenditure is not to be confused with operating expenses which are short-term expenses needed to operate a business. In contrast, capital expenditure is mostly newly purchased assets that have a life of more than a year.

Capital expenditure examples

Capital expenditure helps shed light on how much a company invests in its future. Therefore, these expenses will be included as longer-term assets or investments on the balance sheet. It includes purchases such as:

• Land

• Vehicles

• Computers

• Furniture

• Manufacturing equipment

• A building; factory, or facility

Capital expenditures vs. revenue expenditures: What are the differences?

Difference between capital expenditure and revenue expenditure, Finlawportal

Capital expenditures, or long-term investments, are fixed assets and will continue being productive for a while. Revenue expenditures are related to the cost of goods or repairs and maintenance. 

Here are further differences:

Consumption

The biggest difference between revenue and capital expenditure is how long the purchase will be used. Short-term expenses are considered revenue expenses; they focus solely on keeping the business running and making revenue, such as utilities and rent. Capital expenditures include long-term investments such as purchasing a new facility or vehicle. These expenses are used for a longer time.

Time

This is mostly regarding financial statements. Capital expenditures belong on the balance sheet and get expensed gradually with depreciation; some can last as long as a decade. On the other hand, expense revenues are short-term and expensed fully within the same accounting period. 

Size

As long-term assets, capital expenditures involve substantial amounts of money since they have to cross a monetary threshold to classify as capital expenditures. Though it’s possible for a larger expense to become a revenue expenditure, it’s only possible if they are useful for a short time.

Comparison chart: capital expenditure vs. revenue expenditure

Comparison chart: capital expenditure vs. revenue expenditure

Frequently asked questions

What is the difference between revenue and capital expenditure?

The difference between capital and revenue expenditures depends on how long the asset will benefit the company. Revenue expenses help the company continue running – rent, utilities, and regular maintenance included. Capital expenditure comprises long-term investments such as buildings, factories, or vehicles. 

Why do companies track revenue expenditure?

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.

In closing

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.

First, capital expenditure involves long-term investments that end up on the balance sheet. The benefit of these investments is spread out over several years, sometimes spanning decades. Revenue expenditures comprise short-term expenses that help a company continue running, including rent, utilities, and maintenance. These benefit the company only for the accounting year in which they’re paid. Be sure to check out our article about annual revenue—its meaning, formula and examples.

Second, sometimes the monetary value is also involved in determining the difference. Larger investments are considered capital expenditures, though they have to belong on the balance sheet. Revenue expenditures are typically smaller in value and belong on the income statement. 

To further boost your financial knowledge, check out our mammoth list of +45 bookkeeping resources!

Agata Kaczmarek has held a passion for writing since early childhood. A professional writer for many years, Agata specializes in writing articles and blogs focused on finance as someone who holds a Master’s Degree in Accounting and Finance.

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