Business 3.1

Question 1

Businesses need to various sources of finance to pay for their operational / daily cost, such as:

Answer 1

the purchase of raw materials

components and inventory

the payment of wages, salaries, rent, insurance and utility bills (for gas, electricity, water and telephone bills).

Question 2

Capital expenditure

Answer 2

refers to business spending on non-current assets or capital equipment of a business. It is regarded expenditure on the long-term investment of an organization on assets that offer gains in efficiency and productivity. Capital expenditure results in an increase in the earning capacity of the business.

Question 3

Example of capital expenditure

Answer 3

Buildings

Tools and equipment

Computers

Printers

Photocopiers

Machinery

Vehicles

Research and development

Question 4

Revenue expenditure definition

Answer 4

refers to business spending on its everyday and regular operations. These expenses have to be paid in order to keep the business operational, including routine expenditure on maintaining the firm’s non-current assets.

Question 5

Example of revenue expenditure

Answer 5

Stocks of raw materials, components (semi-finished goods) and finished goods which as ready for sale, paid to suppliers

Delivery costs

Utility bills (e.g. gas, electricity, water and telephone bills)

Wages and salaries to employees

Rental payments for the premises

Monthly repayments on bank loans and mortgages

Insurance premiums (for example, insurance cover for buildings, employee safety and vehicles).