Distinguish between revenue expenditure and capital expenditure.
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Distinguish between revenue expenditure and capital expenditure.
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Revenue Expenditure: In simpler terms, Revenue Expenditure refers to any expenditure that neither creates assets nor reduces liabilities, such as employee salaries, interest payments on past debt, subsidies, pensions, and so on. These are funded by revenue receipts. In general, revenue expenditure is defined as any expenditure that does not result in the creation of assets or the reduction of liabilities. It occurs in nature as part of day-to-day activities. Revenue expenditure generally refers to expenses incurred on the day-to-day operations of government departments and the upkeep of services. Salary payments to government employees, interest payments on government loans, pensions, subsidies, grants, rural development, education and health services, and so on are examples of revenue expenditures. 

Capital Expenditure: Capital expenditure refers to any expenditure that either creates an asset (e.g., a school building) or reduces liability (e.g., loan repayment). It is a one-time occurrence in nature.

(A) Capital expenditure that results in the creation of assets includes 

(a) Expenditure on the purchase of land, buildings, and machinery,

 (b) investment in shares, loans from the Central Government to state governments, foreign governments, and government companies, cash in hand, and

 (c) The acquisition of valuables.

(d) Long-term development programs, real capital assets, and financial assets are examples of such expenditures. This type of spending adds to the economy's capital stock and increases its capacity to produce more in the future.

 (e) Loan repayment is also considered capital expenditure because it reduces liability. These expenses are covered by the government's capital receipts, which include capital transfers from the rest of the world.

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