A business buys a new piece of machinery for £14,500.

Capital Expenditure (Asset)

SoFP

The machine is adjusted to make it run quietly. This costs £1,500.

Revenue Expenditure (Expense)

IS

A car salesman buys a second hand car for £2,100.

Revenue Expenditure (Purchase)

IS

A sole trader buys the car for use in his business, paying £3,000 for it.

Capital Expenditure (Asset)

SoFP

Of the £3,000 paid for the car, there was £210 for vehicle tax.

Revenue Expenditure (Expense)

IS

A company redecorates offices. £500 is spent on paint, and £3,500 is spent on new furniture.

Capital Expenditure (Asset)

SoFP

Revenue- IS short term less than 12 months

Revenue - IS short term to be sold

Capital - SoFP long term

Revenue - IS short term vehicle tax

Capital - SoFP long term redecoration and furniture

Capital expenditure  

SOFP  

The machine is adjusted to make it run quietly, costing £1,500.  

Capital expenditure  

SOFP  

A car salesman buys a second-hand car for £2,100.  

Revenue expenditure  

IS  

A sole trader buys the car for use in his business, paying £3,000 for it.  

Capital expenditure  

SOFP  

Of the £3,000 paid, there was a £210 vehicle tax.  

Revenue expenditure  

IS  

A company redecorates offices, £500 is spent on paint and £3,500 is spent on new furniture.  

Capital expenditure  

SOFP  

The machine is adjusted to make it run quietly. This cost is £1,500 (Its a maintenance cost so its a Revenue expenditure). Income statement

A car salesman buys a second hand car for £2,100 (Capital Expenditure) Income statemen

A sole trader buys the car for use in his business, paying £3,000 for it (Revenue expenditure) Balance sheet

Of the £3,000 paid for the car, there was £210 for vehicle tax (Revenue expenditure) Income statement

A company redecorates offices, £500 is spent on paint, and £3,500 is spent on new furniture (Revenue and Capital Expenditure because the paint is maintenance of the office and new furniture is the tangible asset). Balance sheet

(i)                  Write down the Accounting Equation:

Profit = Income - Expenses

(ii)                For each of the following terms, give a definition and a simple example:

·       PROFIT

Money left after expenses deducted from revenue

Revenue (10) – Cost (5) = £5 profit

·       (LOSS)

When expenses are higher than revenue

Revenue (5) – Costs (10) = £5 loss

·       INCOME (REVENUE)

Money generated from sales

20 books sold at £5 each = £100 revenue

·       EXPENSES

Cost of doing business

20 books purchased at £2 = £40 cost

Example: A shop makes £5,000 in sales and spends £3,000 on rent and wages → profit = £2,000.

·       (LOSS)- Definition: The financial shortfall when a business’s expenses are greater than its income.

Example: A café earns £1,200 from customers but pays £1,500 in costs → loss = £300.

·       INCOME (REVENUE)- Definition: The money a business earns from its normal operations, usually from selling goods or services.

Example: A cinema earns £10,000 from ticket sales in a week.

Income Statement:

Profit (Loss) = Income – Expense

(ii)                For each of the following terms, give a definition and a simple example:

·       PROFIT -  Positive value – what was made from the sale after taking away the cost of sale e.g sandwich is sold for £3.00, ingredients cost £1.50. Therefore Profit is £1.50.

·       (LOSS) - Negative value – what was made from the sale after taking away the cost of sale e.g. sandwich is sold for £1.00, ingredients cost £1.50. Therefore loss is £0.50.

·       INCOME (REVENUE) – quantity x cost of sale. Total earning from sales. E.g sold 100 Cakes at £3, revenue is £300

·       EXPENSES – Day to day running costs of a business, e.g petrol

Example: A taxi firm pays £500 for fuel and £800 in driver wages.

Income: Profit + Expenses

Expenses: Income - Profit ( or + loss )

Loss- When a business's expenses are greater than their income

Income (revenue)- Money made from sales

Expenses- Running costs of the business

Sales  = 120 

Less cost of sales  

70 

Opening inventory  = 0 

Add purchases  

100 

Less closing inventory  

30 

 Cost of sales  

 70 

Gross profit  

 50 

12,000

What was the gross profit?

£8,000

2,500+11,300−1,800 =12,000

What was the gross profit?

20,000−12,000 =8,000

20,000 - 11,700 = 8300 gross profit

What was the gross profit? £8,000

= 2,500 + 11,300 − 1,800 = £12,000.

Gross Profit = Sales − Cost of Sales = 20,000 − 12,000 = £8,000.

£2,500

£11,300

£-1,800

£12,000

What was the gross profit?

Sales        – £20,000

Less COS - £12,000

                    £8,000

Gross profit = 8,000

13,800-1,800 =12,000 cost of sales

20,000-12,000 =8,000 gross profit

£5,000

What was the net profit for the year?

£8,000 - £5,000 = £3,000

Net Profit - £3000

1,200+300+500+3,000+12,000 = £17,000

What was the net profit for the year?

£20,000 - £17,000 = £3,000

What was the net profit for the year? £3,000

Net profit = 3,000