Types of expenditure

Question 1

What is capital expenditure

Answer 1

Spending on items that will stay in the business for more than a year(e.g machinery)

Question 2

What is revenue expenditure

Answer 2

Day to day spending to fund the trading activities of the business e.g inventory

Question 3

What are non current assets

Answer 3

Tangible/intangible forms of capital expenditure

Question 4

Examples of tangible non current assets

Answer 4

Land
Buildings
Machinery
Equipment
Vehicles

Question 5

Examples of intangible non current assets

Answer 5

Trademarks
Brand names
Patents(paying to protect a unique feature of a product or process)
Goodwill(buying the reputation/customer base of another established business)

Question 6

Types of revenue expenditure

Answer 6

Inventory(Stock in the form of raw materials, components or finished goods)
Rent
Rates
Heating/lighting
Water
Insurance
Administration(paperwork)
Telephone
Postage
Stationery
Salaries
Wages
Marketing
Depreciation
Bank charges
Interest paid
Discount allowed

Question 7

What is depreciation

Answer 7

Cost of an asset spread over its useful life

Question 8

What are the 2 methods of depreciation

Answer 8

Straight line and reducing balance

Question 9

What is straight line depreciation

Answer 9

Assets value is reduced by the same amount each year

Question 10

What is net book value

Answer 10

Value of an asset as shown on the statement of financial position after depreciation has been deducted

Question 11

What is reducing balance depreciation

Answer 11

Assets value is reduced by a set percentage of the net book value
Rate of depreciation is decided by the accounting function of the business based on expected life, residual value and standard practises