How are revenue expenses accounted for?
Both revenue expenses and operating expenses are treated the same way and recorded in the income statement. Both of these statements are recorded from the company’s overall revenue.
The resulting value gives you the net profit. However, revenue expenditure needs to be completely tax-deducted the same year in which they occur. Therefore, they not only help reduce your company’s profit but also the taxable income.
What are capital expenditures?
Capital expenditure refers to the kind of expenses that represent a significant investment in the company’s capital. The main purpose of such investments is either to expand the business or maintain it in a way that generates profit. Compared to revenue expenditure, capital expenditure is more long-term.
Common examples of capital expenditure include investing in long-term assets, buying fixed assets, getting a factory upgrade or expansion, buying new furniture, computers, or manufacturing equipment, or purchasing new vehicles that could be used for product delivery. In short, any long-term investment that results in the revenue generation is considered capital expenditure.
How are capital expenditures accounted for?
Capital expenditures need to be recorded under the investing section in a cash flow statement. If your company has invested in a piece of new equipment, the transaction is recorded as a cash outflow in the cash flow statement. In contrast, the equipment is recorded under the fixed assets section in the balance sheet.
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