Capital Income Flashcards
1
Q
Capital Income
A
- Capital income is the money invested by the owners or other investors that is used to set up a business or buy additional equipment
- It tends to be used to buy things that will stay in the business for a medium-to-long period of time – for example, premises, vehicles or equipment (fixed assets)
- When setting up a business, capital income might also be used to buy opening stock, but, as the business develops,
stock should be paid for by sales income
2
Q
Fixed / Non-Current Assets
A
Items of value owned by a business that are likely to stay in the business for more than one year - e.g. machinery
Also known as non-current asset
3
Q
Loans
A
- Amount of money lent to the business or business owners from a bank or other financial institution
- As well as the repayment of the loan, there will be a monthly interest repayment. This is the amount of money the bank is charging for the loan as a percentage of the amount borrowed
- Monthly payments must be made even if the business is not making a profit
- Bank loans have to be secured against an asset e.g. the entrepreneurs home or company vehicles
4
Q
Asset
A
Any item of value owned by an individual or firm
5
Q
Mortgages
A
- A mortgage is a larger sum of money loaned from the bank for usually 25 years
- Mortgages are always secured on an asset, normally a property
- Businesses might take out a mortgage to buy their premises – e.g. a factory, retail store or warehouse
6
Q
Shares
A
- Companies issue shares to its shareholders
- The shareholders are the owners of the business and all contribute towards the capital income and normally receive a voting right and the more shares they own the greater their influence
- Shareholders are rewarded for their investment by a payments of a dividend (a share of the profits)
7
Q
Owner’s Capital
A
- Owners capital is the money invested in a business from the owners’ personal savings
- A sole trader is a person who owns a business on their own; they therefore have to find all the capital income from their own sources or personal loans
- Risky as they are responsible for all debts of the business but if successful they keep all of the profits for themselves
- A partnership is when two or more people join together to set up a business and they all contribute towards the capital income but are all responsible for debts
8
Q
Debentures
A
- Debentures are medium- to long-term sources of capital income
- Large companies often use them to secure income
- Interest is payable, normally at a fixed rate, and the debenture is repaid as a lump sum, normally on a pre-agreed date
- Debentures can be secured against an asset
