Types of income Flashcards
Capital income
Is the money invested by the owners or other investors that is used to set up a business or buy additional equipment. It is used to buy things that will stay in the business for a medium to long period of time. These are called fixed assets. The source of capital income available to a business owners are influenced by the type of business.
Capital income - Loans
A loan is a amount of money lent to the business or business owners from a bank or other financial institution. Often has to be secured against an asset to convince the bank that the risk being taken is not too great. If the business fails to meet repayment, the bank can claim the asset.
Capital income - Mortgages
Businesses may take out a mortgage to buy their premises, for example a factory, retail store or warehouse.
Capital Income - Shares
A business becomes a company when it is registered with Companies House and issues shares to its shareholders. Shareholders are the owners of the business and all contribute towards the capital income. The more shares they own, the greater their ability to influence decision making. Shareholders are rewarded for their investment by the payment of a dividend.
Capital income - Owners capital
This is money invested in a business from the owners personal savings. A sole trader is a person who owns a business on their own, they may have to find all of their capital income from their own sources or loans.
A partnership is when two or more people join together to set up a business as partners. Each partner would be expected to contribute towards the capital income, so increasing the potential amount of money available.
Capital income - Debentures
Are medium to long term sources of capital income. Larger companies often use them to secure income. Interest is payable, normally at a fixed rate and the debenture is repaid as a lump sum, normally on a pre - agreed date. Debentures can be secured against an asset, they are a form of loan capital.
Revenue income
Is the money that comes into the business from performing its day to day function - selling goods or providing a service. The nature of revenue income depends on the activities that the business does to bring in money.
Revenue income - sales
Sales is money coming in from the sales of goods or services. Sales turnover is determined by the prices charged and the number of customers. Sales can be cash sales(customers pay there and then) or credit sales(buys then but pays later)
Revenue income - Rent recieved
A business that owns property and charges other for use of all or part of that property will receive rent as their main source of income. Businesses may also own land or offices which it rents out to other businesses.
Revenue income - commission received
A business may sell products or services as an agent of another business. They sell another business’s products on their behalf and for each sales they make they get paid a percentage on that sale, called commission.
Revenue income - Interest received
Is money earned on savings or lending, interest on positive bank balances act as revenue coming into the business. If a business lends money to another business, interest will be charged to the lender and the business lending the money will receive interest as a form of revenue.
Revenue income - Discount received
Is when a business is given a percentage off a sale, normally in return for quick payment or a bulk order. This reduces the costs to the business
