Capital vs Revenue Expenditure

What is Capital Expenditure?00:00:10

Capital expenditure involves acquiring non-current assets with a useful life exceeding 365 days, such as buildings, warehouses, offices, PCs, cars, and vans. These expenses are not immediately charged to the statement of profit or loss but are depreciated over time.

What is Revenue Expenditure?00:00:58

Revenue expenditure is incurred for business trade. If an item is purchased to be sold on, like a Mac PC for resale, it's a revenue expense. It also includes maintaining fixed assets to their original working order, such as servicing machinery. Revenue expenditure is charged to the statement of profit or loss.

Key Rules for Distinguishing Capital and Revenue Expenditure00:01:53

Capital expenditure is for purchasing, altering, or improving fixed assets, extending their life or improving their function. If the purpose is to keep an item in the business for over a year or to improve it, it's capital. Revenue expenditure, however, is for repairs to restore an item to its previous standard, classified as a running cost.

Example 1: Company Car00:02:56

The initial purchase of a company car (£28,000) is capital expenditure. New headlights that improve visibility are also capital expenditure. Repairs to an onboard PC and general running costs like diesel are considered revenue expenditure because they are repairs or routine operational costs.

Example 2: Various Expenses00:04:25

Employee wages are revenue expenditure. The purchase of a building is capital expenditure as it's a long-term asset. Selling machinery previously used for business functions is related to a capital asset's acquisition. The purchase of a van is capital expenditure. Goods bought for resale are revenue expenditure.