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Capital Expenditure
The finance spent on fixed assets (or non current assets)
These are items of monetary value that have a long-term function for businesses, so can be used repeatedly.
Fixed assets are not intended to be sold (in the short-term) but used for the purpose of production
Revenue Expenditure
Refers to the finance spent on the daily operations of a business
Includes the payment of direct costs and indirect costs involved in producing goods and services
Reasons for Capital Expenditure
To add extra production capacity as the business grows
To improve efficiency by utilizing the latest technologies, including IT systems, and production technologies
To replace worn-out, damaged, and/or obsolete capital equipment and machinery
Why does Revenue Expenditure matter? (expenditure = the action of spending funds)
Are incurred during the daily operations of the business funded by working capital
Short-term sources of finance would be used if external finance is needed
Must be monitored and kept under control in order to maintain profitability
_________ ______________ are included as “cost of sales” or “expense” on the Profit and Loss account in the period they are incurred
Why does Capital Expenditure matter? (expenditure = the action of spending funds)
Often involve large amounts of money
Long-term sources of finance may need to be used
Businesses may need to assess the value of the investments using investment appraisal techniques
_______ _____________ are spread over their useful life on the profit and loss account
