Explain the difference between capital and revenue items of expenditure and income P2
Capital Income
Capital income is the money invested by owners or investors that fund the setting up of a business. The source of capital income is influenced by the type of business. Sole trader is a business which is owned individually, meaning their capital income comes from their own money (savings) or personal loans. Partnership is when between two and twenty people join to form a business as partners. Each partner should be the source of capital income. Partners of the business share the profit and decisions that need to be made regarding the business. Limited companies get capital income depending on whether they are public or private limited
Fixed assets are the items within a business which stay in the business for a lengthy period of time. Examples of fixed assets are offices, land, buildings, machinery and vehicles. Intangibles are assets which are owed to the business. There are three main intangibles which exist in a business, goodwill, patents and trademarks. Goodwill is what value a brand has due to its reputation, established customer base, clients and name. The price of an existing business will depend on these factors. Patents is the legal protection of an invention, the business will have a patent to protect their idea from being copied by another business or entrepreneur. Trademarks are anything that sets apart ones business’s goods from one of its competitors including, logo, symbol, brand name, colours and slogans.
Revenue Expenditure
Revenue expenditure is spending on items on a day to day or regular basis. These are the expenses which are included on the business’s profit and loss account. These expenses include premises costs, administrative costs, staff costs, selling and distribution costs, finance costs, purchase of stock. Premises costs are something every business has. Rent is paid when a business does own the premises and has to pay the owner a regular amount of money for its use. Rates are the business equivalent to council tax to the local authority. The money goes to the local council but the amount is fixed as it depends on the business’s size and