4.1 Capital and Revenue Expenditure and Receipts

2026 Syllabus Objectives

By the end of these notes, you will be able to:

  1. Distinguish between and account for capital expenditure and revenue expenditure
  2. Distinguish between and account for capital receipts and revenue receipts
  3. Calculate and comment on the effect on profit of incorrect treatment
  4. Calculate and comment on the effect on asset valuations of incorrect treatment

Section 1: Capital Expenditure and Revenue Expenditure

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What is Expenditure?

Expenditure simply means money that a business spends. In accounting, it is very important to split expenditure into two types: capital expenditure and revenue expenditure. Treating them correctly is essential because they are recorded in different financial statements.

Capital Expenditure

Capital expenditure is money spent on buying or improving non-current assets — things the business will keep and use for a long time (usually more than one year).

Think of it this way: if the spending gives the business a long-term benefit and adds lasting value, it is almost certainly capital expenditure.

Examples of capital expenditure include:

  • Buying a non-current asset (e.g. purchasing a delivery van, buying a building, or buying machinery)
  • Paying for the delivery of a non-current asset to get it to the business premises
  • Paying for the installation of a non-current asset (e.g. fitting new machinery into a factory)
  • Paying legal costs connected to buying a non-current asset (e.g. solicitor fees when purchasing land)
  • Paying to decorate a new asset before it is first used (e.g. painting a newly purchased building)
  • Paying to extend or enlarge a non-current asset (e.g. building an extension to a warehouse to make it bigger)

Key rule: Any cost that is needed to bring a non-current asset to the business and get it ready for use is part of capital expenditure.

Where is capital expenditure recorded?

Capital expenditure is recorded on the Statement of Financial Position (also called the balance sheet) under non-current assets. It does not appear on the Income Statement (also called the profit and loss account).

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