Study Notes
Businesses spend money on capital expenditure for long-term assets and revenue expenditure for daily operations. Correct classification affects profit calculation and financial statements.
- Capital Expenditure — long-term spending on assets that benefit the business for multiple years.
Example: Buying machinery or a shop building. - Revenue Expenditure — day-to-day operational costs consumed within the current accounting year.
Example: Paying wages or utility bills. - Non-current Assets — resources used over an extended period.
Example: Buildings, machinery, vehicles. - Income Statement — financial statement showing revenue and expenses.
Example: Includes revenue expenditure like wages. - Statement of Financial Position — financial statement showing assets and liabilities.
Example: Includes capital expenditure as non-current assets.
Exam Tips
Key Definitions to Remember
- Capital Expenditure: Long-term spending on assets.
- Revenue Expenditure: Day-to-day operational costs.
- Non-current Assets: Resources used over multiple years.
- Income Statement: Shows revenue and expenses.
- Statement of Financial Position: Shows assets and liabilities.
Common Confusions
- Confusing capital expenditure with revenue expenditure.
- Misclassifying operational costs as asset purchases.
Typical Exam Questions
- What is capital expenditure?
Long-term spending on assets. - What is revenue expenditure?
Day-to-day operational costs. - How does misclassification affect financial statements?
It distorts profit figures and misleads stakeholders.
What Examiners Usually Test
- Ability to classify expenditures correctly.
- Understanding the impact of classification on financial statements.
- Knowledge of examples for capital and revenue expenditures.