As capital costs and income differ?


Differences between capital expenditures and expenses profit whether the purchase will be used in the short or long term. Costs, revenues, generally referred to as current operating expenses. Capital costs are usually one-time major purchase fixed assets that will be used to generate revenue over a long period.

Capital Costs

Capital expenditures represent a major capital investment that the company makes to maintain or, more often, to expand your business and earn extra income. Capital expenditures for the acquisition of long term assets such as buildings or manufacturing equipment. Because such assets generate income, benefiting the company during the year companies are not allowed to deduct the full value of the asset in the year such costs, they should reimburse the cost of a year-on-year depreciation over the useful life of the asset. Companies often use debt financing or equity funding to cover core costs associated with the acquisition of major assets to expand their business.

An example of a capital expenditure

Exxon Mobil Corporation (COM)

Capital expenditures, such as fixed assets are on the balance sheet. However, funds for the acquisition of assets shown on the statement of cash flows as shown below on 2017 10K statement “Exxon Mobil” (highlighted in red). The total volume of capital expenses of Exxon exceed in 2017 of 15 billion dollars.

Expenses Profit

Revenue expenses are short-term costs, which are divided into two categories:

Expenses to produce income , include the costs necessary to meet current operating expenses of doing business and, therefore, are essentially the same as operating expenses. Unlike capital expenditures, expenses, revenues can be fully tax-deducted in the same year costs are incurred.

The costs of the income producing assets include ordinary repair and maintenance costs that are necessary to maintain the asset in operating condition without significant improvement or extension of the useful life of the asset. The revenue costs associated with existing assets include repairs and regular maintenance and repainting, and the cost of extending. Expenses profit can be considered as recurrent expenditure in contrast to the one-off nature of most capital expenditures.

Example of revenue expenditure

Exxon Mobil Corporation (COM)

Revenue expenditure are on the statement of profit and loss as shown below in 2017 10K statement “Exxon Mobil” (highlighted in red). The total expenditure for 2017, Exxon exceed 225 billion.

Bottom Line

Capital expenditure major funds as property plant and equipment. Expenses profit are short-term costs in the current period or usually within one year.

Capital costs are typically a larger volume than the volume of expenditure. However, there are exceptions, when large purchases of the asset in the short term or in the current period.

Capital expenditures typically are charged to expense over several periods or years through depreciation, while expenditures are charged to expense in the current year or period.

Capital expenditure is funds used by the company to purchase, upgrade and operate physical assets, such as property, industrial buildings or equipment. Capital costs are often used to implement new projects and investments. Typically the purpose of capital investments to expand the company’s ability to generate revenues and costs the company includes operating costs of business startup and operating expenses needed to maintain the asset in working condition.

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