Expenses of an enterprise on Fixed Asset whose benefit occurs to the business for a long period of time usually more than one year are known as capital expenditure and are placed on the asset side of Balance Sheet.
Costs which are charged to the Profit and Loss Account whose benefit occurs to the business for a long period of one year or less are known as revenue expenditure and are placed on the debit side of Profit and Loss Account. It is not easy to differentiate between capital and revenue expenditures. There are no hard and fast rules to differentiate them. However, the following tests may be applied for distinction.