Business Finance - The Purpose of Accounting

Question 1

Accounting

Answer 1

Accounting involves the recording of financial transactions, planned or actual, and the use of these
figures to produce financial information.

Question 2

Income

Answer 2

Income is the money coming into a business.

Question 3

Capital income

Answer 3

Capital income is the money invested by the owners or other investors, used to set up the business or
buy additional equipment e.g. loan, mortgage, shares, owner’s capital, debentures (medium to long-term
sources of capital income).

Question 4

Revenue income

Answer 4

Revenue income is the money that comes into the business from performing its day-to-day function -
selling goods or providing a service e.g. sales (cash or credit), rent received, commission received,
interest received, discount received.

Question 5

Expenditure

Answer 5

Expenditure is the money spent by a business.

Question 6

Capital expenditure

Answer 6

Capital expenditure is used to buy capital items, which are assets that will stay in the business for a long
period of time.

Question 7

Non-current assets

Answer 7

Tangible items that will appear on the statement of financial position and include things like land,
premises, equipment and vehicles.

Question 8

Intangible assets

Answer 8

Cannot be touched but add value to the business e.g. goodwill, patents, trademarks and brand names.

Question 9

Revenue expenditure

Answer 9

Spending on items on a day-to-day or regular basis. These expenses are shown on the statement of
comprehensive income e.g. inventory, rent, rates, heating & lighting, water, insurance, salaries, wages,
bank charges, interest paid, depreciation allowance, discount allowed.