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Business P2 Essay

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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 …show more content…

The interest rates on a loan are usually lower than the interest rates of an overdraft. The advantages of a business taking out a loan is that a reasonable amount of money can be borrowed, also a business can be more organised with repayments as they are fixed. Disadvantages of getting a loan from a bank is that the repayments are completely inflexible meaning the business cannot afford to miss any payments. Revenue Income Revenue income is money which is made by the business by selling goods or providing a service. The amount of revenue income depends on what methods the business uses to make money. Sales is one way of making money, this is done by selling goods or services. Sales turnover is determined by the price and the number of customers. Rent received is when a business owns a property, offices, land and charges others to use it and the money they receive from this is their main source of income. Commission received is a percentage paid on a sale to the person or business responsible for making that sale. For example when an estate agent sells a house they would receive a commission on top of their usual wage/ salary. An example of a business making commission would be when they sell a product which is made by another business and take a percentage of the sales price, (e.g. 10-15%). Capital Expenditure Expenditure is the money which a business

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