Capital expenditures are expenses that improve the operating efficiency or capacity of an asset or that provide future benefits. Examples include the acquisition of plant assets, additions to the physical layout of an asset, and improvements that do not add to the physical layout of the asset (betterments). Extraordinary repairs, which significantly affect the residual value or useful life of an asset, are also considered capital expenditures.
Revenue expenditures, on the other hand, are expenses incurred to maintain the normal operating efficiency of an asset and include ordinary repairs, maintenance, lubrication, cleaning, and inspections. Ordinary repairs benefit only the current period and are therefore charged against revenue in the current fiscal period.
