Business Accounting Case Study

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Purpose: record transactions; monitor activity; control; management of the business (planning, monitoring, controlling); measurement of financial performance (gross profit, net profit, value owed to and by the business)
Capital income: sole traders; partners; shares; loans; mortgages
Revenue income: sales (cash and credit transactions); rent received; commission received
Capital expenditure: fixed assets (land and buildings; office equipment; machinery; furniture and fittings; motor vehicles); intangibles eg goodwill, patents, trademarks
Revenue expenditure: premises costs eg rent, rates, heating and lighting, insurance; administrative costs eg telephone charges, postage, printing, stationery; staff costs eg salaries, wages, training, insurance, pensions; selling and distribution costs eg sales staff salaries, carriage on sales, marketing; finance costs eg bank charges, loan and mortgage interest; purchase of stock (cash and credit transactions)

2 Be able to prepare a cash flow forecast
Cash flow forecast: structure; timescale; credit periods; receipts (cash sales, debtors, capital, loans, other income); payments (cash purchases, trade creditors, revenue expenditure, capital expenditure,
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They should also describe clearly what each category means. At this stage, learners are not expected to calculate profit or to know the impact of income and expenditure items on profit.
For P3, learners should construct a 12-month cash flow forecast from the information given in a scenario, accurately calculating each month’s receipts, payments, opening and closing balances. For M1, learners should comment on the cash flow, highlighting any problems that are evident, such as a shortage of cash resulting from costly capital expenditure in one month. For D1, learners will make appropriate recommendations to solve the cash flow problems, such as re-timing large payments or arranging an overdraft. Learners should show awareness of the dangers and costs of poor financial planning.
For P4, learners will prepare a profit and loss account and balance sheet for an organisation. They will also show how gross profit and net profit are calculated by indicating the kinds of income and expenditure that are included. Learners will be presented with a trading and profit and loss account and a balance sheet

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