What is the difference between capital expenditure and revenue expenditure?

Capital expenditure buys or improves an asset that will benefit the business for more than one year, such as machinery, a vehicle or a computer. It goes on the balance sheet as an asset and is written off over time through depreciation.

Revenue expenditure is the day-to-day cost of running the business, such as rent, salaries, electricity and routine repairs. It is charged to the profit and loss account in the year it is incurred.

A simple test: if the spend creates or extends the life or capacity of an asset, it is usually capital; if it only keeps the business running or maintains the asset as it is, it is usually revenue.