3.1.2—Capital and revenue expenditure
- Syllabus
- First assessment 2024
- Objective
- 3.1.2
- Level
- SL
Classify spending by what it enables and when it matters
Capital expenditure buys or improves a long-term asset; revenue expenditure is the recurring spending needed to operate the business. Sales revenue is income from selling goods or services, possibly through more than one stream.
The classification helps managers forecast capacity, cost and cash timing. A one-off asset purchase may support future output, while rent, energy and wages recur. Revenue can be predictable or volatile depending on customers, prices and the mix of streams.
A gym may earn membership fees and personal-training revenue. A new treadmill is capital expenditure; cleaning and staff wages are revenue expenditure. Mixing them obscures both the investment decision and operating margin.
Capital does not mean “expensive” and revenue does not mean “profit”. Classify by economic purpose, then analyse the timing and effect.