3.1 Flashcards
what is finance?
Finance refers to available money that a business has, to fund its activities.
what is expenditure and who needs it?
all business need it, it refers to the money and finance of the business.
what is expenditure used for?
could be use to start up the business, day-to-day running of the business or for business expansion.
how do you attain expenditure?
a rage of financial sources that depends on the type and size of the business.
what are the two ways you can classify expenditure?
capital expenditure and revenue expenditure.
what is capital expenditure?
the money a business spends on fixed assets for the business, such a machinery, land, buildings, and vehicles.
These are the type of assets that last more than a year and can be used repeatedly.
These assets are needed to generate income in the long term
For the nature of the assets , these can be used as collateral (financial guarantee).
what is revenue expenditure?
this refers to money spend by businesses on a day-to-day basis. For example, wages, rent, electricity, insurance, fuel, raw material, etc.
Revenue expenditure needs to be covered immediately to keep a business operating and hence it should provide immediate benefits.
what are four main differences between capital expenditure and revenue expenditure?
Capital is long term, revenue is short term.
capital is a non-recurring expenditure. Revenue is a recurring expenditure.
capital provides long term benefits but revenue provided short term benefits.
capital expenditure is reflected in balance sheet, however the revenue expenditure is reflected in profit and loss account.
