Capital and Revenue Expenditure

Capital Expenditure is directly related to fixed assets in that it is incurred when money is spent by a business to either:

-Buy a fixed asset, or

-Increase the value of a fixed asset in existence.

Revenue Expenditure is not directly related to acquiring fixed assets, but relates to the everyday cost to operate a business. Revenue expenditure is chargeable to the Trading and Profit and Loss Account as an expense, while capital expenditure will reflect increase value for fixed assets in the balance sheet. If the two classification are done incorrectly then the error will affect reported profit, and the closing capital and value of assets in the balance sheet.

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