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Business Accounting

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Introduction

P2 The difference between capital and revenue items of expenditure and income For this assignment I will attempt to explain the difference between capital and revenue items of expenditure and income. I will do so by defining capital income, capital expenditure, revenue income, and revenue expenditure. Capital Income Capital is money or value contributed by the owner of a business to get the business started or to buy equipment. For a sole trader there is just one owner so that one person has to raise all of the capital required, but limited companies may have many shareholders who all contribute. The figure for fixed capital may increase each year if profits are retained in the business. A sole trader introducing additional money to the business can raise additional capital through private funding e.g. family/friends or by getting a business loan but banks are understandably reluctant to lend without security, so the sole trader may have to raise funds by offering security in the form of the private residence. Revenue income The company earns revenue income by selling products or providing services. ...read more.

Middle

These can be divided into capital expenditure and revenue expenditure. Capital expenditure is money used to acquire or improve the long-term assets of the business such as its property or equipment. Fixed Assets These are items of value, which the organisation has bought and will use for an extended period of time, such as land and buildings, office equipment, machinery, motor vehicles, office furniture and fittings in the buildings such as carpets, shelving and curtains. Fixed assets are tangible items, which means that they are items that can be touched. Intangibles A business may also pay for some things that cannot be touched, known as intangible, which are not physical items yet still have considerable value for the business. The most common intangible items to a business might be a patent that a business has file to cover a certain invention or product, trademarks which cover logos etc. Revenue Expenditure Regular financial commitment is known as revenue expenditure and is shown on the profit and loss account. Premises Costs Some regular bills are associated with premises from which the business operates. ...read more.

Conclusion

Insurance - All employers must take out Employer's Liability Insurance. This type of insurance can compensate employees if they sustain injury caused by a bad or improper working environment. Pension - Most businesses are required by law to provide some form of pension to their employees. Selling and distributing costs There is a range of costs associated with selling products or services, which a business produces. The most common of these are: * Salaries - Paid to sales staff * Carriage - The cost of delivering the product * Marketing - Such as advertising and promotion costs. Finance Costs Very few businesses can operate without a bank account, but there are further expenses associated with this. Bank Charges Bank charges can be very expensive for business customers, Individuals generally benefit from free banking, meaning that as long as the account does not go overdrawn, all transactions are free. Overdraft, loan and mortgage interest Any form of bank borrowing will also incur interest charges that must be paid; again the best advise is to compare the different deals offered by banks, as some will cost more than others. Purchase or stock or raw materials Businesses that sell products need stock to sell and this is invariably a large expense. ...read more.

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