Unit 3.1 - Introduction to Finance Flashcards
What does “Finance” refer to in the context of business?
The various available forms of money that an organization has to fund its business activities.
Why is finance necessary for all businesses in all stages?
It is necessary for daily costs (short-term expenses) and long-term expenses.
Define “Capital Expenditure” in business.
Business spending on non-current assets or capital equipment that offers an increase in productivity and efficiency.
What are examples of items considered as Capital Expenditure?
Buildings, tools and equipment, computers, printers, photocopiers, machinery, vehicles, research and development.
What is the result of Capital Expenditure?
It results in an increase in earning capacity for the business.
Define “Revenue Expenditure” in business
Spending on everyday and regular operations, including routine expenditure on maintaining non-current assets.
Why is funding revenue expenditure crucial for a business?
If a firm cannot fund revenue expenditure, it may become insolvent and go out of business.
Provide examples of items considered as Revenue Expenditure.
Raw materials, components (semi-finished goods), finished goods, paying to suppliers, delivery costs, utility bills, wages and salaries, rent, bank loans, mortgage payments, insurance.
What are the characteristics of Revenue Expenditure in terms of tenure?
Short-term tenure.
Does Revenue Expenditure add to the value of a firm’s non-current assets?
No, it does not add to the value.
Is Revenue Expenditure recurring or non-recurring?
Recurring (regular) expenditure.
What kind of benefits does Revenue Expenditure provide?
Short-term benefits.
Is Revenue Expenditure reflected in the profit and loss account or the balance sheet?
Reflected in the profit and loss account.
Does Revenue Expenditure improve operational efficiency?
No, it does not improve operational efficiency.
What are the characteristics of Capital Expenditure in terms of tenure?
Long-term tenure.
