6RQ - Horngren'S Financial And Managerial Accounting

Question

What is the difference between capital expenditure and a revenue expenditure? Give an example of each.

Step-by-Step Solution

Answer

The capital expenditure increases the capacity but revenue expenditure will not increase any such capacity of the assets of the company.

Difference between capital expenditure and revenue expenditure

Capital expenditure is an expenditure that increases the asset’s capacity or efficiency or extends the useful life of the asset owned by the company. These expenditures are also known as balance sheet expenditures.

Whereas, the revenue expenditures which does not increase the capacity or efficiency of the assets owned by the business. These expenses are known as the income statement expenses, which do not increase the useful life of the asset.

Examples of capital expenditure and revenue expenditure

Examples of Capital Expenditure:

• Major engine or transmission overhaul
• Modification for new use
• Addition to storage capacity
• Anything that increases the life of the asset

Examples of revenue expenditure:

• Repair or transmission or engine
• Oil change, lubrication, and so on
• Replacement of tires or windshield
• Paint Jobs