BAJAJ BROKING
May 03, 2025
7 mins read
Capital expenditure and revenue expenditure are two key types of business spending, differing in purpose, nature, and accounting treatment.
Capital expenditure (CapEx) is the money spent by a firm to buy, update, or maintain long-term assets like machinery, buildings, or equipment. These expenditures are not consumed in the short term but provide benefits over multiple accounting periods. CapEx is recorded as an asset on the balance sheet and is depreciated over time. Examples include purchasing land, constructing a facility, or upgrading a production system.
Revenue expenditure (RevEx), on the other hand, relates to the day-to-day operational costs required to run a business. These include expenses that are incurred for maintaining existing assets or supporting routine business operations. Revenue expenditures are charged directly to the income statement in the accounting period in which they are incurred. Examples include rent, wages, utility bills, and routine repairs.
While capital expenditure is aimed at enhancing earning capacity or extending asset life, revenue expenditure is focused on maintaining current operating efficiency. Understanding the distinctions between capital expenditure and revenue expenditure of the government is important for financial reporting, tax calculation, and investment decision-making, as it affects how costs are treated and how financial performance is analyzed.
Capital Expenditure (CapEx) refers to the money spent by a business to acquire, improve, or extend the life of fixed assets. These assets are expected to provide benefits over multiple accounting periods. CapEx is not part of the company’s regular operational expenses and is usually invested in physical or tangible assets such as property, plant, and equipment.
Examples of capital expenditure include purchasing machinery, constructing buildings, upgrading existing equipment, or investing in new technology systems. These expenditures are recorded as assets on the balance sheet rather than being fully expensed on the income statement in the year they are incurred. Over time, the cost is allocated through depreciation, except in cases where the asset is land, which is not depreciated.
CapEx decisions often require planning and approval because they involve a long-term commitment of resources. Businesses consider factors such as expected returns, asset life, and alignment with strategic goals before making capital expenditures. Investors and analysts review CapEx to understand how a company is investing in future growth or maintaining existing operations. Proper management of capital expenditure can support operational stability and contribute to the organization’s long-term value.
Here are the common types of CapEx explained:
Acquisition of Fixed Assets
This involves spending on physical resources such as land, buildings, vehicles, or machinery that are not intended for resale. These assets are used in the business over an extended period and are recorded on the balance sheet as part of fixed assets.
Upgrades and Improvements
These are expenditures made to improve the usefulness or productivity of an existing asset. For example, modernizing equipment to support higher output or adding space to a facility to accommodate more activity. These changes go beyond routine maintenance and extend the asset’s useful life or performance.
New Construction
This refers to costs related to constructing new buildings or infrastructure for business operations. It could include a new office, warehouse, or manufacturing unit. These assets are created to support business growth and are used over several accounting periods.
Technology and Software Development
Costs related to designing, building, or purchasing software and technology systems used over a longer period fall under capital expenditure. This could include enterprise systems, internal platforms, or customized applications developed for company use.
Replacement of Long-term Assets
When old or worn-out fixed assets are replaced with new ones, the cost of the new asset is treated as capital expenditure. These new assets are expected to be used in operations across multiple financial years.
Leasehold Improvements
These are expenses related to customizing rented premises to fit specific business needs, such as partitioning, lighting installation, or interior redesign. The improvements are made to enhance functionality and are used throughout the lease term or longer.
Each type of capital expenditure is recorded as an asset on the balance sheet, with costs gradually allocated over the asset's useful life.
Revenue expenditure (RevEx) refers to the costs incurred in the normal course of business to maintain day-to-day operations. These expenses do not result in the acquisition of long-term assets and do not provide benefits beyond the current accounting period. Instead, they are necessary for the smooth functioning of the business and are typically recurring in nature.
Examples of revenue expenditure include payments for rent, utility bills, salaries, repairs, maintenance, and the cost of raw materials. These costs are essential for producing goods or delivering services, and they are directly linked to the company's operational activities. Since these expenses are consumed within the same financial year, they are recorded in the income statement and deducted from the company’s revenue to determine net profit or loss.
Revenue expenditures can also include costs related to the upkeep of existing fixed assets, such as regular servicing or minor repairs that do not enhance the asset’s life or value. The primary purpose of RevEx is to support ongoing business functions rather than to invest in future growth.
Proper classification of revenue expenditure is important for accurate financial reporting and helps in assessing the operational efficiency and profitability of a business during a specific period.
Here are the main types of Revenue Expenditure (RevEx) explained below:
Operating Expenses
Operating expenses are the regular, ongoing costs necessary to keep a business running. These include expenses like electricity for lighting, water for daily operations, rent for office space, and insurance for protecting the business. These expenses are vital to maintaining normal business functions.
Administrative Expenses
Administrative expenses refer to costs associated with managing the business, such as salaries of office staff, office supplies like paper and pens, and communication costs like phone and internet services. These expenses help support the overall management and administration of the company.
Selling and Distribution Expenses
These expenses are related to the activities that help sell and distribute the company’s products or services. They include costs for advertising campaigns, packaging materials for products, and transportation expenses for delivering goods to customers. These activities support sales efforts and customer reach.
Maintenance and Repairs
Maintenance and repairs are costs for keeping assets in working condition. This could involve routine servicing, fixing machinery, or repairing buildings and vehicles. These costs help to ensure that assets continue functioning without adding value or extending the asset’s useful life.
Raw Materials and Inventory
These are expenses for purchasing the materials needed to produce goods or services, as well as stock for resale. Raw materials are used directly in production, while inventory includes goods held for future sale. Both are considered current expenses for the business.
Depreciation and Amortization
Although depreciation and amortization are non-monetary costs, they are treated as revenue expenditures. They represent the progressive distribution of the expenses of tangible assets (depreciation) and intangible assets (amortization) throughout their period of use, representing the loss of value over time.
Here is a table outlining the key distinctions between capital receipts and revenue receipts:
Basis of Difference | Capital Expenditure | Revenue Expenditure |
Purpose | Incurred to acquire or enhance long-term assets. | Incurred for the day-to-day functioning of the business. |
Benefit Duration | Provides benefits over multiple accounting periods. | Benefits are consumed within the same accounting period. |
Nature | Non-recurring and investment-oriented. | Recurring and operational in nature. |
Accounting Treatment | Recorded as an asset on the balance sheet and depreciated over time. | Charged directly to the income statement as an expense. |
Examples | Purchase of land, building, machinery, or upgrading fixed assets. | Wages, rent, utility expenses, regular repairs, and cost of goods sold. |
Impact on Financial Statements | Affects the asset base and future depreciation expenses. | Affects the net profit of the current period. |
Funding Objective | Aimed at capacity expansion or efficiency improvement. | Aimed at maintaining existing business operations. |
Reversibility | Generally not reversible once incurred. | Can be adjusted or modified in subsequent periods. |
Timing | Often planned and budgeted in advance. | Occurs routinely based on operational requirements. |
Depreciation Applicability | Subject to depreciation or amortization over its useful life. | Not subject to depreciation as it is fully expensed in the period incurred. |
Both expenditures are important and useful in their own terms. Below are the examples of both that will ease the understanding:
Examples of Capital Expenditure (CapEx):
Purchase of land or property for business use
Construction or renovation of buildings or facilities
Acquisition of machinery, equipment, or vehicles
Installation of new technology or software systems
Improvement or upgrading of existing infrastructure
Expenses related to setting up a new production line
Acquisition of intellectual property like patents or trademarks
Purchase of long-term investments such as stocks or bonds
Examples of Revenue Expenditure (RevEx):
Rent payments for office space or equipment
Utility costs such as electricity, water, and gas bills
Salaries, wages, and other employee benefits
Office supplies and raw materials used in production
Routine maintenance and repairs of machinery or equipment
Advertising and promotional expenses
Transport and delivery costs for goods sold
Insurance premiums for protecting business assets
Payments for routine services like cleaning or security
Share this article: 
No Data Found
A capital expenditure in accounting refers to money spent on acquiring, upgrading, or extending the life of long-term assets, which are expected to provide benefits over more than one financial year.
Revenue expenditure relates to costs for daily operations or maintenance, while capital expenditure is aimed at acquiring or improving fixed assets that benefit future periods beyond the current accounting year.
Distinguishing between the two ensures accurate financial reporting, correct asset valuation, and proper classification of expenses, which helps in understanding a business's operational and investment activities.
Capital expenditures are recorded as assets and depreciated over time, affecting the balance sheet. Revenue expenditures are charged to the income statement and reduce net income in the period incurred.
Yes, some expenditures can have both aspects. For example, overhauling equipment may include a capital part for upgrades and a revenue part for regular servicing within the same transaction.
Examples include purchasing land, constructing buildings, buying machinery, upgrading equipment, or installing new software systems that offer long-term business value.
These include wages, rent, utilities, maintenance costs, repairs, and other day-to-day expenses necessary to keep business operations running during the accounting period.
Revenue expenditures are usually deductible in the year they occur, reducing taxable income. Capital expenditures are capitalized and depreciated, offering deductions spread over several years.
Disclaimer :
The information on this website is provided on "AS IS" basis. Bajaj Broking (BFSL) does not warrant the accuracy of the information given herein, either expressly or impliedly, for any particular purpose and expressly disclaims any warranties of merchantability or suitability for any particular purpose. While BFSL strives to ensure accuracy, it does not guarantee the completeness, reliability, or timeliness of the information. Users are advised to independently verify details and stay updated with any changes.
The information provided on this website is for general informational purposes only and is subject to change without prior notice. BFSL shall not be responsible for any consequences arising from reliance on the information provided herein and shall not be held responsible for all or any actions that may subsequently result in any loss, damage and or liability. Interest rates, fees, and charges etc., are revised from time to time, for the latest details please refer to our Pricing page.
Neither the information, nor any opinion contained in this website constitutes a solicitation or offer by BFSL or its affiliates to buy or sell any securities, futures, options or other financial instruments or provide any investment advice or service.
BFSL is acting as distributor for non-broking products/ services such as IPO, Mutual Fund, Insurance, PMS, and NPS. These are not Exchange Traded Products. For more details on risk factors, terms and conditions please read the sales brochure carefully before investing.
Investments in the securities market are subject to market risk, read all related documents carefully before investing. This content is for educational purposes only. Securities quoted are exemplary and not recommendatory.
For more disclaimer, check here : https://www.bajajbroking.in/disclaimer
Level up your stock market experience: Download the Bajaj Broking App for effortless investing and trading
TRENDING CALCULATORS AND STOCKS ON BAJAJ BROKING
POPULAR STOCKS: Tata Motors Share Price Infosys Share Price IRFC Share Price SBI Card Share Price Cipla Share Price NBCC Share Price IDFC First Bank Share Price IRCTC Share Price PNB Share Price Vodafone Idea Share Price Axis Bank Share Price JSW Steel Share Price Bandhan Bank Share Price SBI Share Price Tata Steel Share Price ONGC Share Price Ashok Leyland Share Price Paytm Share Price Subex Share Price DLF Share Price Reliance Share Price HDFC Bank Share Price Suzlon Share Price IOC Share Price HUL Share Price Asian Paints Share Price Bank Of Baroda Share Price ITC Share Price TCS Share Price HFCL Share Price Icici Bank Share Price Tata Chemicals Share Price CDSI Share Price MRF Share Price Tata Power Share Price Adani Green share price BPCL Share Price Vedanta Share Price Dmart Share Price Hindalco Share Price LIC Share Price SAIL Share Price Adani Port Share Price IEX Share Price Nalco Share Price L&T Share Price Adani Power Share Price BHEL Share Price Bajaj Finance Share Price Canara Bank Share Price Indusind Bank Share Price Gail Share Price Yes Bank Share Price Wipro Share Price Happiest Minds Share Price Coal India Share Price Maruti Share Price Reliance Power Share Price
INDIAN INDICES: Nifty 50 Share Price SENSEX Share Price Nifty Next 50 Share Price BSE100 Share Price Nifty Bank Share Price LRGCAP Share Price Nifty 100 Share Price MIDCAP Share Price Nifty 200 Share Price SMLCAP Share Price Nifty 500 Share Price BSE500 Share Price Nifty Midcap 50 Share Price ALLCAP Share Price NIFTY SMLCAP 50 Share Price BSE200 Share Price India VIX Share Price BSEIPO Share Price
