Difference Between Capital and Revenue Expenditure

In Accounting and Economics (Government Budgeting), organizations and governments spend money in two different ways: Capital Expenditure (CapEx) and Revenue Expenditure (OpEx/RevEx).

Question (Click to Flip)

What is the difference between capital and revenue expenditure?

Answer

Capital expenditure is money spent to buy or create long-term assets (like machinery or buildings). Revenue expenditure is money spent on the day-to-day operations of the business (like salaries and electricity bills).

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Key Facts

Capital Expenditure: Creates assets (e.g., buying a building). Long-term.

Revenue Expenditure: Day-to-day expenses (e.g., paying rent). Short-term.

Govt Budget: Building a bridge = Capital. Paying police salaries = Revenue.

1. Capital Expenditure (CapEx)

Purpose: Money spent to create physical or financial assets or to reduce a major liability.
Lifespan: The benefit of this spending lasts for many years (long-term).
Nature: It is non-recurring (happens rarely, not every day).
Business Example: Buying a new factory machine, purchasing land, or upgrading computer systems.
Government Example: Building a new highway, constructing a hospital, or repaying an old international loan.

2. Revenue Expenditure (RevEx)

Purpose: Money spent on the day-to-day running of a business or government. It neither creates an asset nor reduces a liability.
Lifespan: The benefit is consumed within one accounting year (short-term).
Nature: It is recurring (happens continuously).
Business Example: Paying monthly salaries to staff, electricity bills, rent, and raw materials.
Government Example: Paying salaries to government teachers, paying interest on loans, or giving pensions to retirees.

Summary Table

Feature	Capital Expenditure	Revenue Expenditure
Asset Creation?	Yes	No
Liability Reduction?	Yes	No
Nature	Non-recurring (Long term)	Recurring (Daily/Monthly)
Earning Capacity	Increases earning capacity	Maintains earning capacity

Questions and Answers

What is the difference between capital and revenue expenditure?+

Is paying interest on a loan capital or revenue expenditure?+

Paying interest is a revenue expenditure because it is a recurring cost of running the business and it does not reduce the principal loan amount (liability).

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