3.1 - finance and accounts

Question 1

name the 2 types of expenditure

Answer 1

1. capital expenditure
2. revenue expenditure

Question 2

what does finance refer too

Answer 2

finance refers to available moneythat a business has, to fund its activities.

Question 3

what is expenditure

Answer 3

All businesses need money to finance their activities. This is called Expenditure. They could use the money for start up a business, day-to-day running of the business or for business expansion

Question 4

how can the funds in expenditure be obtained and what is the one factor that affects this

Answer 4

These funds can be obtained by a range of sources, such as loans from a bank or selling assets; but, as always, it depends on the type and the size of business.

Question 5

define capital expenditure

Answer 5

this refers to money a business spends on fixed assets (also knows as non-current assets) for the business, such a machinery, land, buildings, vehicles, etc

Question 6

what type of assets are found in capital expenditure

Answer 6

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 (i.e. the building where the business is located can be sold).

Question 7

can the assets found in capital expenditure be used collaterally

Answer 7

For the nature of the assets , these can be used as collateral (financial guarantee) if the business has a loan and they are not intended to be sold in the short-term.

Question 8

define revenue expenditure

Answer 8

this refers to money spend by businesses on a day-to-day basis. For example, wages, rent, electricity, insurance, fuel, raw material, etc. they DO NOT involve the purchase of fixed assets.

Question 9

when does revenue expenditure need to be covered

Answer 9

Revenue expenditure needs to be covered immediately to keep a business operating and hence it should provide immediate benefits. However, businesses need to keep their costs under control to be able to generate enough revenue to earn profits.

Question 10

state the 7 qualities of capital expenditure

Answer 10

• long term
• adds to the value of a firms non current assets
• non recurring expenditure
• provides long term benefits
• represents significant investments on the firm
• expenditure reflected in the balance sheet
• improves the firms operational efficiency

Question 11

state the 7 qualities of revenue expenditure

Answer 11

• short term
• does not add to the value of a firms non current assets
• recurring expenditure
• provides short term benefits
• includes low cost expenditures
• expenditure reflected in profit and loss account
• does not improve operational efficiency