Distinguish capital and revenue items
Classify spending and receipts by their purpose and expected benefit, not simply by their size.
Cambridge IGCSE Accounting 0452 / (9–1) 0985, 2027–2029 Version 1. These lessons follow the 2027–2029 syllabus only; the separate 2026 syllabus update is not yet mapped. Written practice is self-checked, not an official Cambridge grade. Full timed-paper practice and human subject-teacher review remain pending.
Before you begin
- No previous accounting study is assumed. Keep the business, transaction and accounting period in view, and distinguish a resource, a claim and a performance result.
Work on paper. Try each question before revealing help, and explain why your method works.
Quick readiness check
A business buys a new machine that will be used for several years. How is the purchase normally classified?
What you will learn
- Distinguish capital expenditure from revenue expenditure
- Distinguish capital receipts from revenue receipts
- Explain where each item is recorded
Spending can create an asset or support this period
Capital expenditure acquires or improves a non-current asset that supports the business beyond the current accounting period. Revenue expenditure is a running cost of operating or maintaining the business for the period.
Classify by purpose. Buying a delivery van is capital expenditure; fuel, routine servicing and wages are revenue expenditure. A large bill is not automatically capital, and a repair that restores an asset is generally revenue even when costly.
Receipts can finance the business or arise from trading
Capital receipts include owner capital introduced, borrowing and proceeds from selling a non-current asset. Revenue receipts arise from normal activities such as sales or service fees.
A loan creates a liability, not income. Sale proceeds for a non-current asset are not sales revenue from ordinary trading. Use the source and the reason for the receipt before classifying it.
Pause and explain
The owner introduces $4,000 cash into the business. How should the receipt be classified?
Worked example
Classify a $12,000 delivery van, $450 fuel, a $700 engine replacement that extends the van's useful life, $1,000 sales income and a $5,000 bank loan.
Show the worked solution
- The van is acquired for use beyond this period: capital expenditure.
- Fuel is a running cost: revenue expenditure. The major replacement improves future service potential: capital expenditure in this example.
- Sales income is a revenue receipt; the loan is a capital receipt and liability.
Answer Capital expenditure: van $12,000 and engine replacement $700. Revenue expenditure: fuel $450. Revenue receipt: sales $1,000. Capital receipt: loan $5,000, which creates a liability.
Try a topic test
Choose Easy, Normal or Difficult. Save your answers and open worked review after finishing.
Test this topic →From guided practice to a new situation
Write your answer and reasoning first. Use a hint only if you are stuck. The model solution is for self-checking; your written work is not automatically marked.
Classify a shop's monthly electricity, a new delivery vehicle, cash from ordinary sales and a bank loan.
Give me a hint
Ask whether each item is an operating cost, long-term asset, trading income or financing.
Compare my reasoning
- Electricity is a current-period running cost.
- The vehicle is a non-current asset; ordinary sales are trading income.
- The loan is financing and creates an obligation to repay.
Electricity—revenue expenditure; vehicle—capital expenditure; sales—revenue receipt; loan—capital receipt and liability.
Look for these in your work
- Both expenditures classified
- Sales classified
- Loan distinguished from income
A business pays $1,800 for a routine repaint and $6,500 to add a loading platform that extends warehouse capacity. Classify each and explain the distinction.
Give me a hint
Consider whether the work maintains the current asset or adds lasting capacity.
Compare my reasoning
- The repaint maintains the existing warehouse: revenue expenditure.
- The loading platform adds capacity beyond the current period: capital expenditure.
- The purpose and future benefit matter more than the bill totals.
The repaint is revenue expenditure; the loading platform is capital expenditure because it adds lasting capacity.
Look for these in your work
- Maintenance identified
- Improvement identified
- Reason linked to benefit
A business sells an old machine for $2,200 and earns $2,200 from ordinary product sales. Explain why the equal cash amounts do not have the same classification.
Give me a hint
Classify each receipt by the activity that generated it.
Compare my reasoning
- The machine proceeds come from disposing of a non-current asset.
- Product sales arise from ordinary trading.
- Therefore the first is a capital receipt and the second is a revenue receipt.
The machine sale is a capital receipt; product sales are a revenue receipt. Equal cash values do not make their accounting roles equal.
Look for these in your work
- Asset disposal identified
- Trading identified
- Classifications correct
Common mistakes
- Classifying by amount alone
- Recording loan proceeds as income
- Treating every repair as capital expenditure
What can you explain now?
Which is normally revenue expenditure?
Compare with the explanation
Routine servicing of a delivery van
Routine servicing maintains the asset for the current period rather than acquiring or improving a long-term asset.
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Make it stick
What question helps distinguish capital expenditure from revenue expenditure?
If you needed the solution, close it and solve the problem again from a blank page. A correct answer is stronger when you can explain the reason for each step.