2.1 Introduction to finance

Finance

The various available money an organization has to fund its business activities. Without money a business cannot operate.

Capital Expenditure

• Capital is a man-made factor of production (e.g. machinery).
• Capital expenditure are funds spent on fixed assets and/or capital equipment of a business whose life exceeds 1 year (long term).
• It increases the range of activities and services a company can offer or adds some economic benefit to the operation (e.g. increases it).

Revenue Expenditure

• Is the sum of the expenses that a business incurs in the production of goods and services which helps for revenue generation of the company in less than a year.
• Usually to maintain or support current operations; payments to support the daily running of the business.
• Also includes indirect costs like advertising.
• e.g. wages, rent, raw materials, etc.