Topic 3: Finance and accounts

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IB Business & Management (HL)

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4 Terms

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What is the role of finance for businesses?

Capital and revenue expenditure

2
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Capital expenditure

Capital expenditure refers to investment spending on fixed assets, such as the purchase of machinery, equipment, land and buildings.

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Reasons for capital / investment expenditure

  • To add extra production capacity as the business grows.

  • To improve efficiency by utilising the latest technologies, including IT' systems and production technologies.

  • To replace worn-out, damaged and/or obsolete (outdated) capital equipment and machinery.

  • To comply with changing legislation and regulations, such as green technologies.

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Revenue expenditure

Revenue expenditure refers to spending on the day-to-day running of a business, such as payment of rent, wages, salaries, and utility bills.