Capital vs revenue expenditure
1 min read
Updated 29 Sep 2026
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AI summary
Which spending goes to the Balance Sheet and which goes to the P&L.
3 sections
The difference
| Capital expenditure | Revenue expenditure | |
|---|---|---|
| Purpose | Buys or improves an asset that gives benefit for more than a year | Runs the business day to day |
| Where it goes | Balance Sheet (then depreciated) | Profit & Loss account |
| Examples | Machinery, vehicle, building, installation and freight on new machinery, software licence for years | Rent, salary, electricity, repairs, fuel, routine maintenance |
Tricky cases
- Repairs that only keep an asset working → revenue. Upgrades that increase capacity or life → capital.
- Freight and installation on a new machine → capital (added to its cost).
- Heavy advertising for a launch that benefits several years → treated as revenue under Indian standards (no deferral).
Receipts too
Capital receipts: loans taken, capital introduced, sale of fixed assets. Revenue receipts: sales, interest, commission.
Wrongly treating capital spending as an expense understates profit and assets. This is an error of principle that the Trial Balance won't catch.
PreviousAssets, liabilities, capital, income and expenses Next in Accounting Concepts Depreciation: methods and entries
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