Capital vs Revenue Expenditure
Definition
Capital expenditure buys or improves long-lived assets and is capitalised and depreciated; revenue expenditure covers day-to-day running costs and is expensed in the period. The split affects both profit and the balance sheet.
Related Terms in Core Accounting
Intangible Asset
A non-physical asset with value, such as patents, trademarks, software and goodwill. Those with a finite life are amortised over that life, while indefinite-life intangibles are tested for impairment.
Impairment
A reduction in an asset's carrying amount when its recoverable value falls below what the books show. The write-down is recognised as a loss, keeping assets from being overstated.
Deferred Tax
A balance arising from timing differences between how items are treated in the accounts and in the tax computation. Deferred tax liabilities represent tax expected to be paid later; deferred tax assets, tax expected to be recovered.
Suspense Account Usage
The practice of temporarily holding a transaction in a suspense account when its correct classification is unclear, then clearing it to the right account once resolved. A suspense balance at period end signals unfinished work.
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