Types of expenditure Flashcards
Capital expenditure
This is used to buy capital items, which are assets that will stay in the business for years. They are non current assets and intangible assets.
CE - Non current assets
Items owned by the business that will remain in the business for a long time. Shown on a business statement of financial position and include land, premises, machinery, equipment and vehicles. Most fixed assets lose value overtime and so they are depreciated.
CE - Intangibles
Something owed by the business that cannot be touched but adds value to the business. The 4 common intangibles within business are:
- Goodwill - is a sum of money added to a businesses value based on its customer base, reputation and overall good name. When a business acquires an existing business goodwill is factored in and an amount paid based on the above customer base.
- Patents - legal protection of an invention
- Trademarks - symbol, logo, name etc that sets apart business goods.
- Brand name - feature that is recognised by customers and distinguishes itself.
Revenue expenditure
Is spending money on items on a day to day or regular basis. These are the expenses incurred by a business that are shown on the profit and loss account. The types of costs incurred vary from business to business.
RE - Inventory
Most businesses providing a good or service will require some sort of inventory. When a business is first started inventory may be brough with cash as they have not built a reputation as being trustworthy. As it becomes more established it may be able to buy inventory on credit. There are other costs related to inventory, such as insurance and storage costs.
RE - Rent
Cost of using premises, regular payments, usually monthly for use of premises.
RE - Rates
Businesses pay non-domestic rates which is a sum of money paid to local council to go towards services. Collected by the council based on size and location of premises and business type.
RE - Heating and lightning
Covers payment for services such as gas an electricity.
RE - Water
Involves payment for the supply of water to premises and use of water. Can be a fixed rate or based upon usage if a water meter is fitted
RE - Insurance
A business is legally required to take out a number of types of insurance to protect itself from possibility of serious losses. Includes - building insurance, contents insurance, public liability insurance and employers liability insurance.
RE - Administration
Refers to paperwork that goes on within a business either internally between employees or externally with suppliers and customers.
RE - Salaries
A salary is an annual figure paid to an employee divided into equal monthly payments, businesses have to pay their workers their salary plus employers national insurance and any pension or other benefits
RE - Wages
Is a hourly rate paid to an employee, meaning their is a direct link between number of hours worked and the amount of money paid. Paying a wage rather than salary allows greater flexibility.
RE - Marketing
Marketing costs may include advertisements, promotional literature, promotional events, point of sale materials etc
RE - Bank charges
Banks charge businesses for each transaction that takes place. Bank charges can soon start to add up to quite a large amount of money
