Capital and Revenue Expenditure

Question 1

What is the definition of capital expenditure?

Answer 1

Items that will benefit the firm beyond the current year and creates an asset. These are recorded in the balance sheet

Question 2

What are the three types of capital expenditure?

Answer 2

Purchase of fixed asset.
Cost spent to install the fixed asset to get it ready for use.
Improvements to the fixed asset to extend its useful life.

Question 3

What is the definition of revenue expenditure?

Answer 3

The items that will benefit the firm for the current year and are classified as expenses. They are recurring costs incurred to earn revenue and will affect the current year’s profit/loss calculation. These are recorded in the income statement.