The difference between capital and revenue items of expenditure and income

Revenue income is the complete opposite to Capital Income. As Capital Income is an investment for a longer period of time as it’s used to start up the business and to later buy equipment required for the business which will stay over a long period of time and will not return the money spent to buy it in a short period of time. Revenue Income is not for a long period it is the day-to-day-function; it is over a short period of time.  The revenue Income is generated by the service/product that the business is selling. The revenue income depends on the activities that the business does to get money and three main ways of doing this are:

• Sales
• Rent Received
• Commission Received

By the term Revenue Expenditure this means the day-to-day expenditure of the business so it keeps running and is usually on a day-to-day or a regular basic. These expenditures incurred by a business are shown on the profit and loss account. The types of Revenue expenditure are different depending on what type of business, but some are more common than others.

• Premises Costs – This is the cost of the premises such as the shop or factory; the shop can be on rent or have a mortgage. This is classed as Revenue Expenditure because this amount of money weather it is weekly or monthly, it has to be paid on a regular basis for the business to therefore it is classed as revenue expenditure.  Things such as the heating, gas and electricity also come under Premises Cost/Revenue Expenditure because they have to be paid on a regular basis and they are premises costs.
• Staff Costs - This is the cost of having staff and having to pay them wages. This is classed as Revenue Expenditure due to the fact that the staffs’ wages have to be paid on a regular basis therefore is classed as Revenue Expenditure.
• Selling and distribution costs - this is the cost of selling the product or having it sent out to the purchaser. This is considered to be Revenue Expenditure due to the fact that a business is selling on a regular basis so  therefore are regularly paying for these costs; hence the reason that this is classed as Revenue Expenditure.
• Purchase of stock – The purchase of stock is considered to be a Revenue Expenditure due to the fact that a business must purchase stock in order to sell it. A business is purchasing stock on a regular basis so this is classed as Revenue Expenditure.
• Administrative Costs – This is all the paper work, phone calls, photocopying, printing, emailing a business does. A business must make phone calls and do paper work in order to function effectively and efficiently therefore they are regularly doing this.  Due to the fact that business is regularly making phone calls and printing so Administrative Costs class as Revenue Expenditure.  

Capital Expenditure in the same way as Revenue Expenditure is money spent by a business which split into these two categories. Capital Expenditure is when the company buys Fixed Assets which are items that are owned by the business and will remain in the business for a long period of time.  Another thing that Capital Expenditure is used for is Intangibles which is something that is owned by the business but cannot be touched however it adds value to the business.

Capital Expenditure Examples:

• Premises – The business have to make a long term invest on the premises so they are able to operate from there.
• Equipment – The business have to but any equipment required for them to operate; this will be a long term invest which will help the business make a profit.
• Maintenance – Any maintenance done at the business premises has to be capital expenditure due to them have it in the long term and the work done staying for a long period of time.