Types Of Income Flashcards
what are the two types of income
capital and revenue
define income
money a business receives either
through a lump sum investment or from the sale
of its goods or service.
define capital income
income that comes from capital invested in the business by investors /owners of the business.
It is not money that comes from any form of production or work.
used to buy assets for the business that are within the business for the medium to long term such as premises or
equipment.
define revenue income
the money that is flowing into the business via the day
Revenue income is a by-product of the
business performance.
evaluate loans as a capital income
when money is given to a business usually from a bank
and the business repays the loan amount plus interest
agreed to by each party before any money is paid
Monthly payments must be repaid regardless of whether the
business is making a profit or not
evaluate mortgages as a capital income
loan taken out to buy property or land.
Most run for 25 years but the term can be shorter or longer.
‘secured’ against the value of your home until it’s paid off.
If you can’t keep up your repayments the lender can repossess (take back) your home and sell it so they get their money back.
A business may use a
mortgage to buy a premises for their business such as a factory.
evaluate shares as a capital income
A company can issue shares to raise capital( used to develop company or pay suppliers )
Shareholders are owners of the business and usually receive voting rights.
A shareholder receives income in the form of dividends if the
business is profitable.
evaluate owners capital as a capital income
This is when the owner funds the business
through their own personal savings.
evaluate debentures as a capital income
Medium to long term sources of finance. Large
companies use them to secure income. These debt
instruments pay an interest rate and are redeemable or
repayable on a fixed date.
A company typically makes these scheduled debt interest
payments before they pay stock dividends to
shareholders.
Debentures are advantageous for companies since they
carry lower interest rates and longer repayment dates
compared to other types of loans and debt instruments.
Evaluate sales as a revenue income
can either be cash or credit sales and it is money made from the sales of goods or services
Evaluate rent received as a revenue income
A property mogul who owns residential or commercial property would receive revenue income in the form of rent as they charge others to use the properties.
Evaluate commission as a revenue income
When a business or individual sells a product on behalf of another business. If the sale is successful then the seller receives a commission.
Evaluate interest received as a revenue income
Money made from savings or investments. If a business is paid interest for an investment they have made or for positive balances they have in their account then this is classed as revenue income.
Evaluate discount received as a revenue income
This is when a business pays a reduced price for goods or services. If a business pays a supplier quickly then that business may receive a discount, this in turn has reduced the cost to the business.
