Essay
Unit 5 :P2-difference between capital and revenue items of expenditure and income.
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Essay of 2 pages for the course unit 5 at BBK
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By: jakejn6 • 7 year ago
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In this task, I will explain the difference between capital and revenueitems of expenditure and income.
Capital income is the sum of money which has been set aside by
owners or investors. This amount is used to set up the business and
to buy fixed assets, which will be used for a long period of time.
These include: premises, fixtures and fittings, vehicles,
equipments... These items are not bought to be sold. However,
they can be sold when no longer useful for the business, although
during that time, some may depreciate in value.
Capital expenditure, also known as capital spending are long term
investments intended to help a business grow and thrive. It is
usually an amount spent to acquire or upgrade productive assets
such as premises, machinery and equipments. Capital expenditure
is normally incurred in order to increase the efficiency of a business
for a certain period.
Revenue income is the money which a business receives from
trading activities. Basically, any sales, whether from cash or credit
transactions are called revenue income. It can also be from
dealings like rent received, commission received.
Revenue expenditure is concerned with the cost of running the
business on a day-to-day basis. When companies make
revenue expenditure, the expense provides immediate benefits,
rather than long term ones. Revenue expenditures include things
like stock replenishment, maintenance, wages and salaries, and
costs for utilities. It relates to expenses which must be covered
immediately to keep the business running and which provide
immediate benefits.
Companies break their expenses into revenue expenditures and
capital expenditures so that they can see how they are using their
funds and they can assess whether or not they are operating
efficiently and effectively.
A sole trader is an individual who owns his own business. The latter
usually puts his own money and personal savings into the business
or borrows money from a bank and as a result, all profit belongs to
him.
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