Download to read offline
Uploaded byLewis Appleton
Revenue and expenditure
Capital income provides the startup money for a business and can come from various sources like sole traders investing personal savings, partnerships where partners contribute capital, or shares where shareholders invest in the business. Revenue income is money that comes into the business regularly from sales or services, while revenue expenditure refers to regular outlays like premises costs, staff salaries, selling and distribution expenses, and purchasing stock.
More Related Content
Similar to Revenue and expenditure
More from Lewis Appleton
Revenue and expenditure
- 1. Capital income The capitalincome isthe moneythat isusedto start up the businessanditcan come from a variety of sources.Thismoneyiscommonlyusedforfixedassetsastheyare not goingtobe soldon.This waythe investor’smoneystayswithinthe businesssuch ason vans,equipment.Thisavoidsconstant replacement. There are differenttypesof capital incomes; Sole Trader Firstof all there are sole traders,a sole traderisan individual whoownsabusinessalone,andthey are responsible forthe businessand usuallyinvesttheirpersonalsavings.The investmentscan sometimesbe abigrisk.Howeverthe positive of beingasole traderisthat youcan choose to keep all of the profitsforyourself. Partnerships There are alsopartnerships,thisiswhen2-30people choose tojointogetherandsetupthe business.Eachof the partners is expectedtocontribute towardsthe capital incomeswhichwould increase the potential forprofit,theyshare decisionmaking, andthe partnersownassetssecure loanstakenout. Shares Finallythere are shareswhichare where abusinessisregisteredwiththe CompaniesHouse andhas the optionto issuessharestoitsshareholders.All of these ownapart of the businessandusually have the optionto vote towardsdecisionmaking,the more sharesowned,the largerthe vote.Asa rewardfor theirinvestmentshareholdersare oftengivenapaymentinthe formof a dividend. Loans and Mortgages There are alsootherincomes,the firstof whichisloanswhichisan amountof moneythat the businessborrowsandpaysbackat a laterdate.A mortgage can alsobe takenoutwhichisa loan that lastsaround25 yearsandis usuallyalarge amountof money. Capital expenditure Capital expenditureisusedtopurchase assetswhichwill staywithinthe businessforalongtime. These are knownas fixedassets. Fixed Assets Fixedassetsare the itemsownedbythe businessremaininginthe businessforalongperiodof time, theyare showonthe businessesbalance sheet.Thesecaninclude thingsuch asland,buildings,
- 2. equipment,machinery,fittingsandvehicles.Overtime theseusuallylose valuewhichiscalled depreciation.Sotoshowthis,the value isdecreasedeachyearonthe balance sheet. Intangibles There are alsointangibleswhichare thingsownedbythe businesswhichcannotbe modifiedbut that add value tothe business. Goodwill One of these isgoodwill;thismeansif youbuyabusinessthatalreadyhasa good name,reputation and customerbase thentheywill remainwhichtherefore addsvalue tothe business.A sumof moneyisusuallyaddedtothe value torepresentthe goodwill value.Howeverthe limitationisthatit cannot be easilyvaluated. Patents and Trademarks Anotherintangible is patents;thisisthe legal protectionof aproductsuch as copyrightandis usually put onthingssuch as computerproductsand technology.Anexampleof thisisAdobe Photoshop because thatis copyrighted.Howeverthisisn’tapplicable toyoursmoothie company. The final intangible istrademarks,thisiswhatisactuallyputon the productssuch as symbolsandlogosand by havingthemtrademarkedtheycannotbe usedbyothercompanies.Youmaywantto trademark your smoothie productstopreventotherpeople orbusinessesfromusingyourproducts. Revenue income The revenue income isthe moneythatcomesintothe businessonaregularbasissuchas salesor providingservicestocustomersandconsumers. These are usuallyreceivedonadailybasisand increase eachtime a productor servicesissold.Thisisdependentonwhatthe businessdoestoget moneyandthere are three mainsources. Sales Firstof all there are saleswhichisthe moneycominginfromthe salesof productsand services.So each time yousell asmoothie thisfigure isgoingtoincrease.Salescaneitherbe acash sale which meansthe customerspayimmediatelyorcreditsaleswhere theywouldpayata laterdate.You are mostlikelytouse cash salesasit wouldbe uncommonforsomeone nottohave enoughmoneyto pay fora smoothie incash.Youare likelytorecordthe dailyincome andthenlateryoucan forecast the dailyincome. Rent and Commission Anotherrevenue income isthe rentreceived,thisiswhere asbusinessownspropertiesandrents themout to otherstouse them,in returntheygetincome fromthis, andthe same appliesto houses,landandoffices.Thisdoesnotapplyto you;however,youmayrentbuildingsfromone of these companiesatfirst.The final formof revenue incomeiscommissionreceived.Thisiswhere a
- 3. businessmaysell anotherbusiness’sproductsactingasanagent ormiddle man.Bysellingthe productson behalf of thatbusinesstheygetasmall portionof the income made onit whichiscalled commission.Howeverthisdoesnotapplytoyoursmoothie businessunlessyou were goingtosell the smoothie productsof anotherbusiness. Revenue expenditure The revenue expenditure isthe same asthe revenue income exceptitisspendingratherthan receivingsothese are expendituresthatare made ona dailyor regularbasis.These caninclude premisescosts,administrative costs,staff costs,sellingcosts,finance costsandthe cost of stock. Premises costs The premisescostsare what the businesshastomake regularlytooperate initsarea, these include the rent,the rates,heatingandlightingandinsurance.Likelyratesare onessuchascouncil tax and insurance needstobe purchasedforbuildings,contentsandpublicliability. Administrative costs There are alsoadministrative costs,thisreferstothe legal paperworkthathasto be carried outsuch as accounts andtelephone charges, andyou have nochoice butto pay these because theyhave to be done. Staff costs There are alsostaff costs,eventhough youare a sole traderyoucan still have staff aslongas you can affordthem. Insteadof havinga few staff thatoperate all dayyou can have several staff which operate inshifts,thishelpscutdowncostsforstaff. The staff costs include the salaries,thisisanannual figure paidtoemployeesinmonthlypayments. Thismoneyisthe amount receivedbefore taxessuchasNational Insurance,tax andpension contributions. Wageswhichis an hourly rate that staff getpaidwhichmeansmore workinghoursresultsinhigher wagesoverall whereasthe salariesare unaffected. Some staff mayneedtrainingsothe businesswill have topayfortrainingcosts,forexample a securitycompanywill needtomake sure thattheiremployeesgetSIA licences. Insurance isneededtomake sure thatthe businessisnotresponsibleforanyinjuriesonthe staff at workand therefore theyneedtogetemployersliabilityinsurance meaningthatif an employeeis injuredthentheyare notresponsibleforanyclaimsforcompensationoranylegal costs. Finallythere are some pensions schemesthatbusinessesmaydecide toofferasan addedbonus. Both the businessandemployeesregularlycontribute tothis. Forsomeone toadministerthiscost the businessmayalsohave topay more money.
- 4. Selling and distributioncosts Thereare sellinganddistributioncostswhichare necessaryforthe businesstooperate;the business needstomake enoughsalestocoverthese costs.To do thistheymustbe able toattract enough customersandbe able tomake sales. Firstof all there are salesstaff salarieswhichiswhere abusinessemploysworkersforthe specific task of makingsalessothismay be a salesrepresentative whotravelsandtriestoincrease sales. There are alsosalesassistantsandaccountsmanagers. There isthe carriage of sales,whichisthe cost of sellingthe productforexample havingtosend packagesor mail containingthe producttothe customersandhome deliverieswhichwoulduse vehicles. There isalso marketingwhichcoversthe costsof attractingcustomersand convincingthemto purchase items. Finance costs Finance costsare importantforthe businessastheyneedtobe able to receive moneyinvarious formats,so the businesscanbe paidthoughcash,cheque,card or directtransfer.Banksmaycharge to have thisservice availabletocustomers.Bankchargesare generallyfree forthe businesswhereas loanand mortgage interestcanbe quite costlybutthe advantage of beinga businessis thatyoucan receive offerstohave cheaperrepaymentsandinterestsbecausebanksare more confidentthat businesseswillpayback. Purchase of stock Finallythere isthe purchase of stockwhichiswhere the stockis purchasedsothat itcan be sold.It may be eitherrawmaterialsorthe finalisedproductswhichare readyto sell.Forexamplea hairdresserwillneedproductssuchasshampoo.Itispossible topayfor stockon creditmeaningyou pay laterwhichisusuallyaperiodof 30 days.Biggerbusinessescanreceivecheaperstockbybuying inbulkamountsand payingbackearlierif purchasedoncredit.