Treating capital expenditure as revenue expenditure will lead to an understatement of net profit. Revenue expenditures or operating expenses are recorded on the income statement. These expenses are subtracted from the revenue that a company generates from sales to eventually arrive at the net income or profit for the period. Revenue expenses can be fully tax-deducted in the same year the expenses occur. Since the Revenue expenditure is adjusted from the profit and loss account and the capital expenditures are capitalized, therefore treatment of capital expenditure as revenue expenditure will lead to an understatement of net profit.