What is the difference between capital expenditure and revenue expenditure in relation to Shriver Company's addition to its chemical plant?
Capital Expenditure vs. Revenue Expenditure
Capital expenditure: The $8,000 spent on attorney's fees to obtain the building permit reversal and the $58,000 extended footings cost are considered capital expenditures as they are investments in the permanent enhancement of the plant's infrastructure.
Revenue expenditure: The $3,000 spent on thank-you gifts for subcontractors, $40 spent on the ribbon-cutting ceremony, and $4,100 for sandblasting the company logo are considered revenue expenditures as they are one-time costs for regular business activities.
Understanding Capital Expenditure
A capital expenditure is an investment in an asset that will provide long-term benefits for the business. In the case of Shriver Company, the expenditures related to obtaining the building permit and extending the footings for the addition are considered capital expenditures because they contribute to the permanent improvement of the chemical plant.
Understanding Revenue Expenditure
A revenue expenditure is a one-time cost incurred in the course of regular business activities and is typically expensed in the period it is incurred. The expenditures for thank-you gifts, ribbon-cutting ceremony supplies, and logo sandblasting are examples of revenue expenditures for Shriver Company as they do not result in long-term benefits or asset enhancement.
In summary, capital expenditures are investments in assets that provide long-term benefits and are essential for the growth and expansion of the business. On the other hand, revenue expenditures are necessary for day-to-day operations but do not result in long-term asset enhancement.