Back to Topic 3.1 — Introduction to finance

3.1.2BM25 flashcards

Capital and revenue expenditure

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Card 1 of 253.1.2

3.1.2

Question

State the main difference between capital and revenue expenditure.

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All 25 Flashcards — Capital and revenue expenditure

Card 1example

Question

State the main difference between capital and revenue expenditure.

Answer

Capital expenditure buys/improves non-current assets lasting more than one year; revenue expenditure pays day-to-day running costs used up within one year.

💡 Hint

Long-term vs day-to-day.

Card 2example

Question

Capital expenditure is spending on ______ assets lasting more than one year.

Answer

Non-current.

💡 Hint

Long-term assets.

Card 3example

Question

Classify: Buying a delivery van.

Answer

Capital expenditure (a non-current asset used for several years).

💡 Hint

Long-term asset.

Card 4definition

Question

Define revenue expenditure (opex).

Answer

Revenue expenditure is spending on day-to-day running costs that are used up within a short period (usually within one year).

💡 Hint

Running costs.

Card 5definition

Question

Define capital expenditure (capex).

Answer

Capital expenditure is spending on non-current assets that will be used by the business for more than one year.

💡 Hint

Long-term asset spend.

Card 6example

Question

Give one example of revenue expenditure.

Answer

Wages, rent, utilities, advertising, raw materials, or routine repairs and maintenance.

💡 Hint

Used up quickly.

Card 7example

Question

Give one example of capital expenditure.

Answer

Buying machinery, vehicles, land/buildings, or an IT system used for several years.

💡 Hint

Lasts years.

Card 8example

Question

Which type of expenditure appears on the balance sheet?

Answer

Capital expenditure (as non-current assets).

💡 Hint

Asset on BS.

Card 9example

Question

Classify: Petrol for the delivery van.

Answer

Revenue expenditure (used up quickly as a running cost).

💡 Hint

Running cost.

Card 10example

Question

Revenue expenditure is day-to-day running costs used up within ______ year.

Answer

One.

💡 Hint

Short-term costs.

Card 11example

Question

What is the key test to identify capital expenditure?

Answer

Ask whether the spending creates or improves an asset that will last more than one year.

💡 Hint

Lasts > 1 year?

Card 12example

Question

Classify: Monthly internet subscription.

Answer

Revenue expenditure (a recurring running cost).

💡 Hint

Recurring cost.

Card 13example

Question

Which type of expenditure appears on the profit and loss account?

Answer

Revenue expenditure (as expenses).

💡 Hint

Expense on P&L.

Card 14example

Question

Where is revenue expenditure recorded in the final accounts?

Answer

As an expense on the profit and loss account for the period.

💡 Hint

P&L expense.

Card 15example

Question

Capital expenditure appears on the ______ sheet.

Answer

Balance.

💡 Hint

Assets on BS.

Card 16example

Question

What is the “one-year” test used for?

Answer

To decide if spending is capital (benefits last > 1 year) or revenue (used up within 1 year).

💡 Hint

>1 year vs within year.

Card 17example

Question

Revenue expenditure appears on the profit and ______ account.

Answer

Loss.

💡 Hint

Expenses on P&L.

Card 18example

Question

Where is capital expenditure recorded in the final accounts?

Answer

As a non-current asset on the balance sheet (with depreciation over time).

💡 Hint

Balance sheet asset.

Card 19example

Question

Why does capital expenditure affect accounts differently from revenue expenditure?

Answer

Capital items provide benefits over several years, so their cost is spread over time through depreciation rather than expensed immediately.

💡 Hint

Depreciation spreads cost.

Card 20example

Question

Classify: Building an extension to a factory.

Answer

Capital expenditure (adds long-term value to a non-current asset).

💡 Hint

Improves long-term asset.

Card 21example

Question

Classify: Repainting the office.

Answer

Revenue expenditure (maintenance, not a new long-term asset).

💡 Hint

Maintenance.

Card 22example

Question

Exam skill: When classifying a cost, what question should you ask first?

Answer

Does it create or improve a long-term asset lasting more than one year? If yes → capital; if no → revenue.

💡 Hint

Long-term asset test.

Card 23example

Question

Why is capital expenditure important for business growth?

Answer

It helps the business increase capacity, efficiency or quality using long-term assets (e.g., new machinery).

💡 Hint

Invest to grow.

Card 24example

Question

Why can misclassifying revenue expenditure be a problem?

Answer

It distorts profit figures and financial statements, leading to poor decisions.

💡 Hint

Wrong profit.

Card 25example

Question

What is a common exam trap when classifying expenditure?

Answer

Repairs and maintenance are usually revenue expenditure because they do not create a new long-term asset.

💡 Hint

Repairs ≠ new asset.

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Topic 3.1 hub

Introduction to finance

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