types of expenditure

Question 1

what is expenditure?

Answer 1

Expenditure is the money spent by a business.

Question 2

what is capital expenditure?

Answer 2

Capital expenditure is used to buy capital items, which are assets that will stay in the business for a long period of time.
Capital items are fixed assets (non-current assets/tangible) and intangible assets.

Question 3

what are capital items?

Answer 3

assets bought from capital expenditure that will stay in the
business for a long period of time

Question 4

what are fixed assets?

Answer 4

Items of value owned by the business that are likely to stay in
the business for more than one year. E.g. machinery. Also known as non-current assets and tangible assets

Question 5

what is the statement of financial position?

Answer 5

A financial document that shows the net worth of a
business by balancing its assets against its liabilities. Often called a balance sheet.

Question 6

what are intangibles?

Answer 6

An intangible asset is something owned by the business that cannot be touched but adds value to the business. Four common intangibles that exist within businesses.
- Goodwill
- Patents
- Trademarks
- Brand Name

Question 7

what is goodwill?

Answer 7

• When an existing business is bought, its name and reputation will already be known.
• It may have an established customer base or set of clients
• This increases the value of the business and therefore the selling price of the actual business
• A sum of money is added to the value of the business to reflect the value of goodwill

Question 8

what is a brand name?

Answer 8

• A feature of a business that is recognised by customers and distinguishes the business from competitors.
• Customers will link the brand name to expectations based on previous experiences with brand.
• It is sometimes said that a brand name is a promise of what to expect.

Question 9

what are trademarks?

Answer 9

• A trademark is a logo, symbol, brand name, words or even a colour that sets apart one business ‘ goods or services from those of its competitors. Trademark can be a key influence on consumer choice and build a strong brand loyalty.
• A trademark, therefore, is of value to a business and consequently recorded as an intangible asset.

Question 10

what are patents?

Answer 10

• A patent is the legal protection of an invention, such as unique features of a product or new process.
• An entrepreneur or business may patent their idea to stop others from copying their idea.
• Having a patent allows the business to exploit this in the future by launching an innovative product at a premium (more expensive) selling price.
• This is difficult again to put a value on this.

Question 11

what is revenue expenditure?

Answer 11

Spending on items on a day-to-day basis or regular basis.
These are the expenses incurred by a business that are shown in the statement of comprehensive accounts (profit and loss accounts).
These types of costs vary from business to business.

Question 12

what are examples of revenue expenditure?

Answer 12

Inventory
Rent
Rates
Heating and Lighting
Water
Insurance
Administration
Salaries
Wages
Marketing
Bank charges
Interest paid
Depreciation
Discount allowed

Question 13

what is inventory?

Answer 13

Most businesses providing a good or service will require some sort of inventory, whether it is raw materials, finished goods to sell on or supplies to provide the service – for example, shampoo and conditioner for a hairdresser.

Question 14

what is rent?

Answer 14

This is the cost of using premises not owned by the business. These are regular payments, usually monthly, for the use of premises.

Question 15

what are rates?

Answer 15

This is a sum of money paid to the local council to go towards services such as street lights and refuse collection.

Question 16

what is heating and lighting?

Answer 16

This covers payments for services such as gas and electricity. The business will receive regular bills, often quarterly (every three months) for the provision and use of these services.

Question 17

what is waterb

Answer 17

This involves payment for the supply of water to premises and use of water. This can be a fixed rate or based upon usage if a water meter is fitted.

Question 18

what is insurance?

Answer 18

A business is legally required to take out a number of types of insurance to protect itself from the possibility of serious losses.

Question 19

what is building’s insurance?

Answer 19

protect the physical building from damage that may be caused by events such as fire

Question 20

what is contents insurance?

Answer 20

protect what is inside the building in terms of machinery, fixtures and fittings and stock from damage that may be caused by events such as flooding

Question 21

what is public liability insurance?

Answer 21

protect people within the building who may be harmed or injured from an event such as an accident

Question 22

what is employees liability insurance?

Answer 22

this means that if the employee is injured at work, the business is protected against any claims for compensation or any legal costs incurred.

Question 23

what is administration?

Answer 23

Administration refers to the paperwork that goes on within a business either internally between employees or externally with suppliers and customers.

Administrative costs include items such as postage, printing and stationery, which might include items such as business cards, headed paper and order books.

Question 24

what are salaries?

Answer 24

A salary is an annual figure paid to an employee divided into equal monthly payments. For example, a trainee accountant may have a salary of £18,000 per year, meaning their gross pay is £1500 per month

Question 25

what are wages?

Answer 25

A wage is an hourly rate paid to an employee, meaning there is a direct link between the number of hours worked and the amount of money paid.

Question 26

what is marketing?

Answer 26

This covers a whole range of costs associated with attracting the customer and convincing them to make a purchase.
Possible marketing costs might include advertisements, promotional literature, promotional events, point of sale materials and so on.

Question 27

what are bank charges?

Answer 27

Unlike personal banking, which is generally free, banks charge businesses for each transaction that takes place, for example, every time a cheque is paid in or written, whenever cash is deposited, and so on.

Question 28

what is interest paid?

Answer 28

If the business has a bank loan or a mortgage, then interest will be charged on this.

Question 29

what is depreciation?

Answer 29

Assets lose value over time. Accountants use depreciation to spread out the cost of an asset over its useful life. Depreciation is a paper exercise to match the cost of an asset against the time it is used within a business.

Question 30

what is discounts allowed?

Answer 30

Reductions offered to customers are an expense to a business as it reduces the amount of cash flowing into the business.