| Definition |
Expenditure on acquiring, upgrading, or extending the life of fixed assets. |
Expenditure incurred for the day-to-day operations of the business. |
| Nature |
Non-recurring and long-term in nature. |
Recurring and short-term in nature. |
| Purpose |
To increase earning capacity or improve productive efficiency. |
To maintain existing earning capacity and support regular operations. |
| Accounting Treatment |
Capitalized and shown as an asset on the balance sheet. |
Charged fully to the income statement (profit & loss account). |
| Examples |
Purchase of machinery, land, buildings, or vehicles. |
Salaries, rent, utilities, maintenance, and repairs. |
| Benefit Duration |
Benefits extend over multiple accounting periods. |
Benefits are consumed within the same accounting period. |
| Impact on Profit |
Indirect; affects profit via depreciation over time. |
Direct; immediately reduces net profit. |
| Depreciation |
Subject to depreciation over its useful life. |
Not depreciated as it is expensed in the same period. |
| Recorded In |
Balance sheet (as asset) and partially in income statement through depreciation. |
Income statement (as expense). |
| Financing |
Often financed through long-term loans or equity. |
Financed through revenue or short-term funds. |
| Audit Concern |
Auditors verify capitalization and depreciation accuracy. |
Auditors verify if classified correctly as operational expenses. |
| Tax Treatment |
Tax benefit through depreciation over time. |
Fully deductible in the year incurred. |
| Resale Value |
Often has resale or scrap value. |
No resale value; consumed entirely. |
Capital vs Revenue Expenditure