Types of expenditure- revenue expenditure

Question 1

What is revenue expenditure?

Answer 1

Money spent on day-to-day items, or on a regular basis. This includes restocking shelves. Revenue income is shown on the profit and loss account of the business.

Question 2

Give the 14 examples of revenue expenditure

Answer 2

Inventory, rent, rates, water, heating and lighting, insurance, administration, salaries, wages, marketing, bank charges, interest paid, depreciation, and discount allowed.

Question 3

Inventory

Answer 3

Stocking up on products and supplies needed to perform a service. As the business grows, they may be able to drive the cost down as they buy in bulk.

Question 4

Rent

Answer 4

Cost of using premises not owned by the business. This is normally paid on a monthly basis

Question 5

Rates

Answer 5

Businesses must pay non-domestic rates, which is a sum of money paid to the local council to go towards services such as powering street lights. This sum is calculated from the size, location and nature of the business

Question 6

Heating and Lighting

Answer 6

This covers payment for provision and use of services (gas and electricity), which are normally paid quarterly

Question 7

Water

Answer 7

Payment for the supply of water to the premises, and the use of water. This can be a fixed rate, or can be measured depending on how much water used (water meter)

Question 8

Insurance

Answer 8

A business must use insurance to protect from the possibility of serious losses

Question 9

List the 4 types of insurance a business needs

Answer 9

Building insurance, Contents insurance, Public liability insurance, and Employers’ liability insurance

Question 10

Describe building insurance

Answer 10

To protect the physical building from damage (fires)

Question 11

Describe contents insurance

Answer 11

Protect the contents inside the building from damage (floods, fires). These contents include machinery, and stock.

Question 12

Describe public liability insurance

Answer 12

To protect people within the building who may be harmed or injured in accidents

Question 13

Describe employers’ liability insurance

Answer 13

If the employee is injured at work, the business is protected from any claims for compensation or any legal costs incurred.

Question 14

Administration

Answer 14

Refers to the paperwork that goes on inside a business, internally or externally. Administration costs include items such as postage, printing, and stationary (business cards, headed paper, order books)

Question 15

What is telephone charges

Answer 15

Cost of using the telephone
Line rental cost- paid quarterly in advance
Call charges- paid quarterly after use

Question 16

Salaries

Answer 16

An annual figure paid to an employee, divided into equal monthly payments. The employee will have to pay further national insurance, and tax, meaning the amount they actually take home will be a little less

Question 17

Wages

Answer 17

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

Question 18

Marketing

Answer 18

Whole range of costs associates with attracting and retaining customers, convincing them to make a purchase. Marketing costs include advertisement, promotional literature and events, and point of sale materials.

Question 19

Bank charges

Answer 19

Banks charge businesses for each transaction that takes place (every time a cheque is paid in)

Question 20

Interest paid

Answer 20

If the business has a bank loan or mortgage, they are required to pay interest, which is a percentage of the amount of money in the bank.

Question 21

Depreciation

Answer 21

As assets lose value over time, depreciation is used to spread out the cost of an asset over its useful life.

Question 22

Discounts allowed

Answer 22

This reduces the amount of cash flowing into the business by offering reduced prices on products, to attract customers, bulk purchases or to gain a competitive advantage

Question 23

What are the 2 types of depreciation

Answer 23

straight line depreciation, and reducing balance depreciation

Question 24

What is straight line depreciation

Answer 24

an asset is depreciated by a set amount each year

Question 25

What is reducing balance depreciation

Answer 25

an asset is depreciated by a set percentage of its remaining value each year