Business Expenditure and Finance
In this chapter we will look at:

Current v Capital Expenditure

Definition of a Fixed Asset

Internal v External Finance

Short term/medium term/long term expenditure
Questions to consider

What is the difference between current and
capital expenditure with examples for each?

What is the difference between internal and
external finance with an example for each?

What is the difference between shortterm/medium-term/long-term expenditure.

Discuss 3 examples of short-term/mediumterm/long-term expenditure.
BELIEVE IT OR NOT….SOME OF THIS STUFF WILL BE REVISION
OF WHAT WE LOOKED AT IN PREVIOUS CHAPTERS
Current v Capital Expenditure

A business needs money to finance its
expenditure. This money goes towards day to
day items (current) and long term items
(capital).

Can you remember these definitions with examples? Take 2 minutes
to find them on your I-Pad. ( You can look at the next 2 slides for
help if you need it)
From Our Expenditure Chapter 2
From Our Expenditure Chapter 2
Note- Another
word for a long
term asset is a
FIXED ASSET- as
its value doesn’t
change with
day-day activitye.g. machine.
Therefore….

Current expenditure is known as short- term (up to a
year)

Capital expenditure is known as medium- term (will be
replaced every 3-5 years) or long- term (for the long term
future) expenditure
Drag the following boxes into Short-Term/
Medium- Term/ Long- Term Expenditure
Short Term
Wages
Medium Term
Electricity Bill
Land
Petrol
Photocopier
Factory
Buildings
Stationary
Long Term
Delivery Van
Furniture
Nuclear Power Plant
Computer
Internal vs External

A business will match its source of finance to expenditure. There is no
point in taking out a mortgage to buy a pencil for your desk or trying
to use a credit card to pay for a few acres of land. You assess what
you need and what source of finance suits you best.

Therefore, you must decide what source of finance you will use that
will best benefit your company. These sources can be internal- as
the money comes from inside the company )e.g. profits/ shares, or
external- as the money comes from outside the company- e.g. bank
loan.
Firms Own Cash
Internal
Creditors
Extrenal
Short-Term Finance
Bank Overdraft
External
Accruals
External
Factoring of Debtors
External
Short- Term Finance
Own Cash: This is the firm using their own money available to pay for goods and services. You
should take into account the opportunity cost of having the money in the bank earning interest.
Creditors: A creditor is a firm that supplies goods on credit- you buy now, pay later. A company
therefore gets use of a good now and pays for it at a later date. This will free up cash to be used
elsewhere in the business and allows you to pay for goods at a later date. Be careful as you owe
creditors back the money once goods are sold.
Bank Overdraft: An agreement with the bank to overdraw and repay at a later date( see banking
chapter).
Factoring of Debtors: A debtor is a person who owes us money and we are their creditor.
Sometimes companies will need cash ASAP and what factoring does is buy the debt off you for
less cash and then they will collect the full debt when it is due, giving you less money than your
owed, but instant access to cash.
Accruals: Delay the payment of bills until the very latest time possible in order to keep money in
your bank account.
Leasing
External
Medium-Term Finance
Hire Purchase
External
Term Loan
(External)
Medium-Term Finance
Term Loan: Borrowing money from the bank to purchase an
assest. Be mindful of interest rates
Taken from Personal Saving
and Credit Purchasing Chapter
Debentures
External
Shares
Internal
Long-Term Loan
Extrenal
Retained Profits
Internal
Long- Term Finance
Grants
External
Sale and Leaseback
External
Long- Term Finance
Shares: The firm sells shares to the public and uses the cash to pay for things. Any profits
made are shared to the public
Long-Term Loans: This would be like a mortgage over a period of over 20 years. Repayments
would need to be paid
Retained Profits: This is putting the firms profits back into the company
Debentures: A certificate issued that is secured against a long term debt. Interest is also
paid
Sale and Leaseback: This is the selling of an assest and leasing back over time. The firm
receives a large injection of cash and the rent back the property.
Grant: This comes from the government. It is used to set up or expand the business