Difference Between Capital Expenditure and Revenue Expenditure

⁣Capital Expenditure (CapEx)
Definition: Money spent to acquire, improve, or maintain a long-term ****et that will provide benefits for multiple years.
Purpose: For the future – it helps in generating income or efficiency over the long term.
Impact: It adds value to the ****et and is shown on the balance sheet as an ****et.
Examples:
Buying a machine for a factory.
The machine will be used for years to produce goods.
Building a new office.
It provides a workspace for the company for many years.
Upgrading software to improve efficiency for the next five years.
Revenue Expenditure (RevEx)
Definition: Money spent on day-to-day operational expenses or maintaining an existing ****et.
Purpose: For the present – it helps in running the business smoothly in the short term.
Impact: It is a regular expense and is shown on the income statement as an expense.
Examples:
Paying salaries to employees.
It’s needed to keep the business running daily.
Repairing a machine that broke down.
This brings the machine back to working condition but doesn’t improve its value.
Electricity bills for the office.
It's an operational cost required monthly.
Key Difference: Duration of Benefit
Capital Expenditure: Benefits the business over a long period.
Revenue Expenditure: Benefits the business in the short term, usually within a year.
Analogy:
Think of CapEx as buying a new smartphone, which you’ll use for years, while RevEx is like paying for the monthly internet bill to use the phone now.