Btec Business Level 3 Year 1 - Introduction to Accounting

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Unit 5 – Introducing to Accounting

Pass one

Introduction – In the section, I am working as a trainee for one of the retail company mentioned, which has been trading for many years. I have been asked to spend some time in the company’s accounting department.

In the purpose of accounting, there are many reasons why accounting is necessary to a business.

Recording Transactions – Appropriate records are vital: if reports or documents are lost the Next store may forget to demand payment for some jobs that have been done or forget to pay bills that become due. It must be avoided at all costs because not paying your debts promptly or quickly is technically an act of bankruptcy or ruin.

Monitoring activity and controlling the business – The recording of day to day accounts activities allows the Next managers of the organisation to keep track of orders, the sales and bills that means they must have a good idea of how business is doing well.

The management of the business – Accounting records also helps the management of business and assist the board to make better decisions in dealing with investment. It is important to prepare accounting statements for Next managers to monitor the progress of the company and to endure day to day activities runs smoothly and proceed over activities.

Measuring the financial performance of the business - Profit is the aim of the Next Store business and enjoyable accounting records will enable managers to assess accurately the levels of profit that are being achieved. Account records will also give clues about strategies that will be able to improve the profitability of the business. The accounting documents that they will consider and reveal a number of key figures:

  • Gross profit – it is the diversity between Next total revenue and how much it cost to make the product or buy goods in.
  • Net profit – it is the gross profit minus (take away) the general expenses of the firm.
  • Value owed to the business – it is the amount the business can expect to receive from customers in the near future.
  • Value owed by the business – it is the amount that the business owes to suppliers and other people or companies from which it has bought goods or services.  

Accounts are kept for example:  

Legal reasons, All UK businesses, from sole traders to Plc's must produce annual accounts and submit them to the Inland Revenue, and (in the case of Limited Companies) to Companies House. Tax liabilities are calculated from the annual accounts and expert knowledge of tax law is essential to minimise those tax liabilities.

Internal use

  • Employees: They will be interested in Accounts records because they want to know how much profit Next has made over the financial year. They also want to know if they will get a salary increase.  
  • Managers: Accounts records can help the managers to make important financial decisions.

External stakeholders - People who have interest in the decisions that business make are called stakeholders. Most decisions affect a number of stakeholders.

  • Suppliers want steady orders and prompt payment. They also want to feel valued by the company that they supply. Keeping Account records helps business to ensure records of weekly payment to suppliers.  
  • Customers: They want a company to produce high quality, valued for money products. Customers often identify with the brands they buy. For example, clothes purchasers want their clothes to be the best available within a particular collection. Account records stabilised a company or business. And if a company is stabilised, with no financial problems customers will be happy with that company.

Shareholders
In small private firms shareholders are in direct contact with managers and in, many cases are directors of the company. They have the ability to influence the accountant to keep the records of both history and future. However, shareholders can exert influence through threatening by selling shares. As a result, managers and directors must at least keep shareholders satisfied.

Pass two

Discuss the differences between capital and revenue items of expenditure and income

Three businesses that I have selected for this task that are given below also with information:

Capital income include on introduction paragraph about the essay and purposes the money contributed by the proprietors to an organisation to enable it to function; thus share capital is the amount provided by way of shares and the loan capital is the amount provided by loans. Items of capital income include the following:

Sole traders: A sole traders is an individual that owns a small business such as a plumber. A sole trader generates all the income needed to start a business by himself. If something needs doing for the business like buying or paying for a shortage item/broken item, the sole trader has to find the money all by himself and provide a solution.  

 

Partners: Unlike a sole trader, when 2 or more people are together, a partnership is formed. This means it is the responsibility of all partners to contribute into the business also liable for all debts and other obligations of the venture as well as for the management and operation of the partnership.

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Shares: Shareholders can also come together and contribute capital into the business. Selling is a nice way to raise larger amounts of money for the organisation. There are other types of shares such as ordinary shares (ordinary shareholders are entitled to receive dividend, which are a share of the firm’s profits each year, since profits will vary from year to year, ordinary share dividends may rise and fall annually). And deferred shares (the deferred share requires that dividends are only paid after certain amounts are paid out to ordinary shareholders).

A mortgage is a large loan, income coming ...

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