C3 Types Of Expinditure Flashcards
What is expenditure?
Money spent by a business and can be split into two categories
What are the 2 types of expenditure?
Capital expenditure
Revenue expenditure
What is capital expenditure?
Used to buy, alter, or improve capital items! It is not charged to the statement of comprehensive income
What are capital items?
Asserts that will stay in the business for a long time and are non-current assets and intangible assets however it is written off overtime as depreciation
What are non-current assets?
Items opened by a business that will stay in the business for a reasonable time period!they are shown on a business.s statement of financial position. They are sometimes referred to as tangible assets because they can be touched
What are some examples of a non-current asset?
Land and premises
Machinery and equipment
Wechiles
Fixtures and fittings
Why might non-current assets depreciate?
New tech comes along
Wear and tear
What are tangible assets?
Something owned by the business that cannot but touched but adds value to the business
What are 4 common tangible assets?
Goodwill
Patents
Trademarks
Brand names
What is goodwill?
When buying an existing business its name and reputation will already be known it may already have an established customer base or set clinets. It increases the value and therefore increases the selling price
What does goodwill do?
A sum of money added to the value of the business to reflect the value of this goodwill. However it is difficult to place a figure on
What is patent?
A legal protection of an invention, such as unique feature of product or a new process.
It allows protection to stop others from complying the idea to exploit in the future by launching a a premium selling price.
It must be worth something
What are trademarks?
A symbol, logo, brand name, words or even colour that set apart a business from it competitors
It is a key influence on consumer choice and build a strong brand loyalty
It is recorded as an intangible asset
What are brand names?
A feature of the business that is recognised by customers and distinguishes a business from competitors
A brand name is a promise of what to expect
Link the brand to expectations from past experiences
What is Revenue expenditure?
Spending on items on a day-to-day or regular basis
Expenses incurred by a business that are shown on the statement of comprehensive income
What is inventory?
Most businesses providing a good or service will require some sort of inventory no matter what they are selling to customers
They will have to pay in cash as a starting business as they are not trustworthy, as they become more established it may be able to buy on credit
What is rent?
The cost of using premises not owned by a business, regular payments, usually monthly
What are rates?
Similar to council tax that is payed by the residents, businesses pay non-domestic rates.
A sum of money paid to the local council to go towards services.
It’s not a set amount , but it is calculated by the council based on the size and location of the premises
What is heating and lighting?
Covers payments for services such as gas and electricity.
The business will receive regular bills for the use of services
What is water?
A payment for the supply of water to the premises and use of water, this could be a fixed rate or based on the usage within a period of time
What is insurance?
A business is legal,y required to take out a number of types of insurance to protect itself from the possibility of serious loss
What is building insurance?
To protect the physical building from damage that may be caused by events such as fire
What is contents insurance?
To protect what is inside the building in terms of machinery, fixtures and fittings and stock from damage
What is public liability insurance?
To protect people within the building who may be harmed or injured
What is employers liability insurance?
To protect if the employee is injured at work, the business is protected against any claims for compensation or any legal costs incurred
What is administration?
Paperwork that goes within a business either internally between employees or externally with suppliers and customers
What are examples of administrative costs?
Postage
Printing and stationary
Business cards
Headed paper
Books
What is a salary?
An annual figure paid to an employee divided into equal monthly payments
What are wages?
An hourly rate paid to an employee, meaning their is a direct link between the number of hours worked and the amount of money laid
What is marketing?
This covers a whole range of costs associated with attracting the customers and convincing them to make a purchase
What are bank charges?
Generally free, banks charge businesses for each transaction that takes place
What is interest paid?
If the business has a bank loan or a mortgage, then interest will be charged on this
What is depreciation?
Assists lose value overtime.
A paper exercise by accountants to spread out the cost of a sweet to match the cost of an asset against the time it’s used.
What is discount allowed?
Reductions offered to customers are an expense to a business as it reduces the amount of cash flowing into the business
What is the formula for depreciation?
Historical cost- resale value / no. Of years
