Most of the people get confused regarding the identification of the expenditure not only the common people as they are not familiar with the accounting terms but also the known persons or persons who are experts and professional in field, they sometimes are not able to differentiate either it is capital expenditure or revenue expenditure such as:
A company is providing services of transportation from one city to another city, in the transportation they have busses, tractors, long vehicles and other automobile now here people get confused that if a company is changing the seat of any bus for its damages or depreciation either it is a revenue or capital expenditure.
To understand such situation we must know the basic knowledge and definition of these separate terms then we will be able to differentiate among themselves.
The expenses are treated as capital only if it is an expense which is for the fixed asset which it is for the assets which is for the longer period of time such as the repair in the building or infrastructure of the company, or change or any alternation in the fixed assets is said to be as capital expenditure.
Whereas the revenue expenditures are those expenditure which are mostly known as operating expenditure, an expenditure that occurs immediately, we can say that any expense that a company does for the sale of the product is known as revenue expenditure.
Though there are many difference between the capital and revenue expenditure from which the professional (accountant) must be familiar such as those items whose life span is for more than 2 or 3 years or the assets which are fixed any expense on that assets is treated as capital expenditure.
The revenue nature of account can be known from its consumption period as well, the capital expense are for the long consumption and those which are consumed in short period known as revenue expenditure.
The examples of capital expenditures can be
Goodwill Payment -Plant, Machinery Furniture Fixture – Automobiles etc
The examples of revenues can be as under
Any expense that is occurred during the start of the business which is known as preliminary expense, the company use to advertise its products which are known as promotional expenses in which people can be attracted also treated as revenue expenditure.
Sometimes company also invest money or do more expanses for the earning of more profit which is also treated as revenue expenditure as in the very first we have discussed about the adjustment of placing a seat in bus this is to be treated as revenue expenditure.