INTRODUCTION TO FINANCE Flashcards
Capital Expenditure
Money spent on fixed assets, assets that last a long time and can be re-used.
These fixed asssets are needed for the purpose of generating income for the business over the long term.
Revenue Expenditure
Revenue expenditure refers to the costs a business incurs through its regular operations, such as wages, utilities, and repairs. These costs are charged to expenses immediately and do not result in acquiring long-term assets. They impact the business’s operating income within the same period they’re incurred.
Collateral
Due to the high initial cost,most fixed asses can be used as collateral (finanical security pledged for repayment of a particular cource of finance such as bank loans)
Why do businesses need to make sure that they don’t have consistent high revenue expenditures?
Because it makes it difficult for them to build sufficient capital to make long-term investments. Also it will be harder for them to get out of a sudden situation crisis.