Question

Distinguish between revenue expenditure and capital expenditure.

Hint:

Revenue expenditure is like the cost of running day-to-day operations, while capital expenditure is like investment in future growth and assets.

Answer 1

Step 1: Understand Revenue Expenditure.
Revenue expenditure refers to the costs incurred in the day-to-day operations of the government, which are used up within the year. These do not result in the creation of assets or liabilities. Examples include salaries, subsidies, interest payments, etc.

Step 2: Understand Capital Expenditure.
Capital expenditure refers to spending on the creation of assets or investments. This expenditure results in the acquisition of new physical assets or investments that will provide benefits over the long term. Examples include building infrastructure, buying machinery, etc.

Step 3: Key Differences.
- Revenue expenditure is for the routine functioning of the government, while capital expenditure is for creating new assets or investing in long-term assets.
- Revenue expenditure is short-term, whereas capital expenditure is long-term.
- Revenue expenditure does not add to the assets of the government, while capital expenditure does.