Explain the difference between capital income, revenue income, capital expenditure and revenue expenditure.

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Unit 5


In this task I have been asked to explain the difference between capital income, revenue income, capital expenditure and revenue expenditure.

Capital income

 Capitan income is money invested into the business to buy equipment. For example Future Fashion will invest money into their business to buy equipment such as hangers, clothes stands. These kinds of things will stay in Future Fashion for a long period therefore this means they are known as fixed assets which means items which will stay in the business for a long period of time. When Future first opened up their business they may have used capital income to but opening stock but as the business develops stock will then be paid for using sales income.  

Sole trader  

 A sole trader is a business who owns a business on their own therefore Future Fashion is a sole trader business as an individual person owns it. Therefore Future Fashion has to find all their capital income from their own sources or personal loans. Mostly sole trader businesses invest their personal savings or borrow from the bank using their personal assets such as their house to secure the loan. For example Future Fashion may give their house to the bank to get a loan but this is a big risk for Future Fashion  as they have to responsible for the debts of its business itself. As a sole trader business Future fashion can keep all its profits to itself.


A partnership is when two or more than two people set up a business. They are then known as partners. Each partner will have to contribute towards the business, they will have to contribute towards the capital income, therefore increasing the amount of money available. Partners all share making decisions for the business and the profit. Some partnerships any loans taken out are still taken out by using their own assets which is a huge risk.


A company is when a business is registered with Companies House and issues shares to its shareholders. Therefore shareholders are the owners of the business and all contribute towards the capital income.


A loan is a sum amount of money which is lent to a business from a bank.  It is a certain amount of money that has to be paid back in a certain amount of time such as five years, but sometime longer term loans can be agreed. As well as paying back the loan back an interest will be charged too. This is the amount of money that is being charged for the loan as a percentage of the amount that was borrowed.  The interest rate a bank charge can be a fixed amount or may vary with changes in the economy.  It is the interest payable on top of the loan that makes a loan a relatively expensive source of capital income. Also monthly payment will have to be paid even though if the business isn’t making a profit. Banks have certain procedures so that they can lend money to businesses but it is not guaranteed that banks will lend money to businesses because businesses will have to be specific how the money borrowed will be spent on and how the business will pay the bank back. When banks give out loans they need a guarantee that the business will pay back their money, the guarantee a business will have to give might be their house or the businesses vehicles.  Therefore if the business fails to pay back the loan the bank can reclaim the asset.  

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For example if Future Fashion is in need of money they will go to the bank and ask them for a loan but they will have to give the bank a guarantee that they will pay the money back. A guarantee may be the owner’s home. Also Future fashion will have to tell the bank what they will be spending the money so they can tell the bank they will be spending the money on some new stock, to pay for equipment and to pay bills. Also Future fashion will have to keep in mind that the ban will charge ...

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