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The difference between capital and revenue items of expenditure and income

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Introduction

´╗┐The difference between capital and revenue items of expenditure and income Capital Income is the money that the owners and other investors have invested into the business to start it up or to buy additional equipment. Capital income is usually used to buy things that will stay in the business for a long period of time such as premises, vehicles, computes and other equipment. These are called fixed assets meaning that these things will usually stay in the business for some time. When the business is in its early stages Capital income is used to buy opening stock however as the business develops and starts to generate sales income that money should be used to pay for stock. The source of where Capital income comes from usually depends on the type of business. Depending upon the legal status of the business the type of income will vary. There are different types of capital income for the different types of legal status?s a business is in. The Capital Income for a sole trader would differ in many ways from a Partnership due to the fact a sole trader is solo and a partnership can have 2-20 members I it. ...read more.

Middle

Revenue income is the complete opposite to Capital Income. As Capital Income is an investment for a longer period of time as it?s used to start up the business and to later buy equipment required for the business which will stay over a long period of time and will not return the money spent to buy it in a short period of time. Revenue Income is not for a long period it is the day-to-day-function; it is over a short period of time. The revenue Income is generated by the service/product that the business is selling. The revenue income depends on the activities that the business does to get money and three main ways of doing this are: * Sales * Rent Received * Commission Received By the term Revenue Expenditure this means the day-to-day expenditure of the business so it keeps running and is usually on a day-to-day or a regular basic. These expenditures incurred by a business are shown on the profit and loss account. The types of Revenue expenditure are different depending on what type of business, but some are more common than others. ...read more.

Conclusion

Due to the fact that business is regularly making phone calls and printing so Administrative Costs class as Revenue Expenditure. Capital Expenditure in the same way as Revenue Expenditure is money spent by a business which split into these two categories. Capital Expenditure is when the company buys Fixed Assets which are items that are owned by the business and will remain in the business for a long period of time. Another thing that Capital Expenditure is used for is Intangibles which is something that is owned by the business but cannot be touched however it adds value to the business. Capital Expenditure Examples: * Premises ? The business have to make a long term invest on the premises so they are able to operate from there. * Equipment ? The business have to but any equipment required for them to operate; this will be a long term invest which will help the business make a profit. * Maintenance ? Any maintenance done at the business premises has to be capital expenditure due to them have it in the long term and the work done staying for a long period of time. Fixed Assets Capital Expenditure Revenue Expenditure Equipment Yes Rent Yes Premises Yes Stock Yes ...read more.

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