Revenue Expenditure and Capital Expenditure
1 Quick Explanation 1–3 min
Revenue expenditure doesn't create assets or reduce liabilities; capital expenditure creates assets or reduces liabilities.
This sentence mirrors the receipts rule — learn both together.
2 Detailed Notes
Definition
Definitions
- Revenue expenditure: expenditure that does not create any asset or reduce any liability. E.g., salaries, pensions, interest payments, subsidies, defence revenue expenditure.
- Capital expenditure: expenditure that creates assets (roads, dams, machines) or reduces liabilities (repaying loans). E.g., building a highway, buying equipment, loan repayment.
Comparison
Classification
| Expenditure | Category | Why |
|---|---|---|
| Salaries of government staff | Revenue | No asset created |
| Interest on public debt | Revenue | Recurring payment, no asset |
| Subsidies (food, fertilizer) | Revenue | Consumption-type |
| Building a national highway | Capital | Creates asset |
| Purchase of machinery | Capital | Creates asset |
| Repayment of loans | Capital | Reduces liability |
Important
Why subsidies are revenue
Subsidies lower prices for consumers but create no productive asset for the government — hence revenue expenditure. Interest payments are also revenue expenditure (no asset).
Key idea
Plan vs non-plan (old)
Earlier budgets split expenditure into plan and non-plan. Since 2017–18, India merged these into revenue and capital classifications — CBSE focuses on revenue vs capital only.
Formula
Memory trick
Receipts: 'liability/asset change' → Capital.
Expenditure: 'asset created/liability reduced' → Capital.For expenditure the rule is flipped: what changes the balance sheet is capital; the rest is revenue.
In One Minute
Revenue expenditure: no asset, no liability change (salaries, interest, subsidies). Capital expenditure: creates assets (roads, machines) or reduces liabilities (loan repayment).
Important for Exam
- ⭐ 1-mark: classify an expenditure.
- ⭐ 4-marks: classification table with reasons.
- ⭐ Interest payment → revenue expenditure (common trap).
- ⭐ Road/bridge construction → capital expenditure.
Watch & Learn
Watch on YouTubeGovernment Budget - part 3 - Revenue & Capital Expenditure with Questions - Class 12 Macro economics
by Sunil Panda-The Educator
Why watch? Complete classification practice.
Open on YouTube Watch on YouTubeGovernment Budget - part 3 - Revenue & Capital Expenditure with Questions - Class 12 Macro economics
by Sunil Panda-The Educator
Why watch? Both concepts together with examples.
Open on YouTubeWhen a verified best video is available it plays right here; the button always opens the same video on YouTube. Topics without a verified pick fall back to a live YouTube search from trusted CBSE channels.
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