Key terms associated with Accounting Income and expenditure. Business Finance Key terms associated with Accounting Income and expenditure.

Today’s lesson Learn the difference between income and expenditure.

Accounting Questions you need to know…. Plan out your answers….. What is the purpose of Accounting? Recording transactions e.g. income/expenditure for HM Revenue and Customs. Management of the business e.g. planning, monitoring and controlling of resources. Compliance e.g. for laws and regulations for investors, shareholders and protecting against fraud.

Measuring performance 4 ways of measuring performance- what are they?

Types of income- there are two types. Capital Income Loans Lump sum of money given to applicants in agreement of interest payments made on top. Secured or unsecured. Mortgages A mortgage is similar to a loan but is secured against a property. Normally 25 years. Business might take out a mortgage for a factory, retail store or warehouse. Shares A business becomes a company when it is registered with Companies House and issues shares to shareholders. Shareholders are then rewarded with dividends.

Capital Income (continued) Owners’ Capital Money invested into the Business by the owners’ personal savings. Debentures Medium to long term sources of capital income. Large companies often use them to secure capital. Interest is payable normally at a fixed rate and the debenture is repaid as a lump sum. Debentures can be secured against an asset.

Revenue Income Revenue Income Sales Sales/Revenue/Turnover is money coming in from the sale of products or services. Sales can either be cash sales, or credit sales. Rent Received If a business owns a flat, premises or land, they may wish to rent it out to another to earn money on top of their other business/venture. Typical example would be a room above a shop.

Revenue income (cont.) Commission received A business may sell products or services as an agent for another business e.g. Ticketmaster. They will receive a percentage of the sales made. Interest received Interest on money earned on savings/investments. Discount received When a business is given a percentage off a sale, normally in return for a bulk order or quicker sale. This reduces the costs for the business.

Types of expenditure Capital expenditure and revenue expenditure. Capital expenditure is used to buy capital items. E.g. assets bought such as machinery, vehicles that will stay in the business for over 1 year. Sometimes referred to as tangible assets. Revenue expenditure is spending on day to day items on a regular basis.

Capital expenditure What are capital items? Tangible assets- vehicles/premises/fixtures and fittings. Intangible assets- Goodwill- when you buy an existing business, it’s name and reputation will already be known. A sum of money will be added onto the top of the business because of this. Patents- legal protection over an invention such as a unique feature. May patent an idea to stop others from stealing. Trademarks- symbol, logo, brand name, words, colours that set apart the business from others. Brand name- a feature of a business that is recognisable to that company.

Revenue expenditure Day to day spending. Inventory- Most business providing goods or services will have an inventory of the raw materials they require. Rent- cost of the premises. Rates- businesses pay non-domestic rates. Sum of money paid to local council to go towards services such as street lights/refuse collection. Heating and Light. Water Insurance Buildings, contents, public liability, employers’ liability insurance.

Revenue expenditure (cont.) Administration- paperwork etc. Salaries/Wages Marketing Bank charges Interest paid Depreciation Discount allowed.

Assessment practice Identify 1 intangible asset. (1 mark) Identify 2 sources of revenue income. (2 marks) Outline what is meant by ‘depreciation’. (2 marks)