Key Idea: Finance is the money a business uses to start, survive and grow. In 3.1, IB mainly tests whether you understand why finance is needed and whether you can correctly classify capital vs revenue expenditure in real situations.
🏗️ Capital expenditure: Spending on **long-term assets**. Usually lasts **more than 1 year**. Examples: machinery, vehicles, buildings, IT systems. Shown on the **balance sheet**.
🔄 Revenue expenditure: Spending on **day-to-day running costs**. Used up **within 1 year**. Examples: wages, rent, utilities, advertising, stock. Shown on the **income statement / profit and loss account**.
A business can be profitable and still fail if it runs out of cash. Profit ≠ cash flow.
Important: Repairs and maintenance are usually revenue expenditure, not capital. Also, do not confuse profit with cash — many students lose marks here.
- Identify if the question is about purpose of finance or expenditure type
- Use precise terms: start-up, operating, expansion, capital, revenue
- Explain clearly (1–2 sentences per point)
- Apply to the business in the case
- For classification: ask → does it last more than 1 year?