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Explain the difference between capital and revenue items of expenditure and income for a business.

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Introduction

´╗┐Unit 5 ? P2 Capital Income In FF the capital income will come from the investors that own FF(Future Fashion). Investor?s money is used to buy things that will stay in the business for a medium to long period of time ? FF?s premises, vehicles or equipment. These are called fixed assets. When FF sets up a business, Capital Income might also be used to buy opening stock, but as the business develops, stock should be paid for by sales income. The sources of capital income available to business owners are influenced by the type of Business. Sole trader: Sole traders are people who own a business by them self, they will have to find all the capital income for the business on their own by things such as personal loans. Sole Traders often invest their personal savings into a business or borrow from the bank using their personal assets, such as their house to secure a loan. Sole Traders take a big risk when they do this as they are ultimately responsible for the debts of the business. Being a sole trader can also limit the size of the business but all the profit made from the business can be kept by the sole trader. ...read more.

Middle

Capital Expenditure Expenditure is money spent by a business and can be split into two categories; capital expenditure and revenue expenditure. This is used to buy capital items, which are assets that will stay in the business for a long period of time. Capital items are fixed assets and intangible assets, as explained below. Revenue Income Revenue Income is the money that comes into the business from performing its day-to-day function which would be selling goods or providing a service. The nature of the revenue income depends on the activities that the business does to bring in money, sources of that can be; sales, rent received, commission received Trademarks: A trademark is a symbol, logo, brand name, words or even colour that sets apart one business?s goods or services from those of its competitors. FF?s logo is a key influence because it is very well known and can build brand loyalty. Commission Received: A business may sell products and services as an agent of another business. This will mean that they sell other business products on their behalf and for each sale they make a small percentage of the sale. This percentage is called commission. ...read more.

Conclusion

Marketing ? This covers a whole range of costs for FF associated with attracting the customer and convincing them to make a purchase. Possible marketing costs might include advertisements, promotional literature, promotional events, point of sale materials and so on. * Finance costs - FF do not operate on a cash-only basis ? they are likely to accept payments by cheque, card or direct bank transfer. They are likely to make payments in the same way. This means FF must have a bank account. Banks are also businesses and they too want to make a profit so they charge for their services. Finance costs to a business can include Bank charges (business charge for every transaction made) and Loan and mortgage interest (Banks charge interest on loans and Mortgage) * Purchase of stock ? FF will require stock as they are providing goods and services. When FF is first started up it is likely to buy stock with cash as it will not have built a reputation, but then when it gets more well known it may be able to buy stock in credit which FF can do now. Bigger and more established business may be able to drive the cost of stock when buying in larger quantities, there are other costs related to stock such as insurance and storage costs. ...read more.

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