GCSE: Accounting & Finance
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How to calculate 'break even'
- 1 There are three ways this can be done. All will give the same answer which is the number of products the business must make or sell to ‘break even’. This means they receive as much revenue as their costs.
- 2 A break even table will list the fixed cost, variable cost, total cost (fixed plus variable cost), revenue and profit or loss for each level of output. As profit or loss is the revenue minus the total cost this can be calculated relatively easily, especially if you use a spreadsheet program..
- 3 A break even graph plots the total cost and revenue for all the levels of output. Where the total cost and revenue intersect is the break even point. This can be easily produced from the table using the chart wizard.
- 4 The break even formula gives you the break even output. The formula is fixed cost divided by the price of one unit minus the variable cost.
- 5 The margin of safety is the number of items being produced, over and above the break even point.
What is cash flow?
- 1 Cash flow looks at the cash flowing through a business. It is not the same as the profit being made as businesses may be receiving goods on credit or giving credit to customers. This means that although a business may be profitable, it may still run out of cash. This could cause the business to go bankrupt.
- 2 A cash flow forecast predicts the flow of cash going through the business. A business may use it to see if there are any months when it will run out of cash.
- 3 Knowing that it may run out of cash in any month means that a business can plan for this by possibly arranging a bank overdraft.
- 4 A bank overdraft is an agreement arranged with a bank whereby if the business runs out of cash, the bank will lend it money to keep it trading. This overdraft will normally be at a high rate of interest but is better for a business than running out of cash.
- 5 A business may also cover a period of negative cash flow by deferring payment to suppliers or getting payment early from customers.
What could be a source of finance?
- 1 Many students go wrong when discussing sources of finance by not relating them to the size of the business or the reason they need it. A new business starting up has different needs to an existing business looking to expand.
- 2 Sources of finance available to sole traders and partnerships include the owner’s funds, borrowing from friends and relatives, bank borrowing or funds from venture capitalists that specialise in lending to new businesses.
- 3 A problem for sole traders and partnerships is unlimited liability. This means that the owner is responsible for all the debts of the business, not just the amount they have invested.
- 4 Private limited companies and public limited companies have limited liability. This means that investors in the businesses can only lose the amount they have invested. This makes it much easier for them to raise finance as people are more likely to lend to them knowing the maximum amount they can lose.
- 5 A benefit of selling shares compared with borrowing from the bank is that the money does not need to be repaid. Share holders will expect a share of the profits. With a loan, the amount borrowed has to be repaid with interest.
- Marked by Teachers essays 5
- Peer Reviewed essays 7
Cash flow. A cash flow forecast is a document that predicts cash requirements in the future. It helps a business save money for things it may need in the future4 star(s)
A business can improve their financial situation by borrowing money from a bank, cutting costs or increasing sales. Businesses use cash flow forecasting to anticipate months where they may have a shortfall and get ready for them by taking action before they happen. It may help the business if they identify areas where the business was weak or strong and change strategy to deal with any problems and maximise potential. The five parts of a cash flow forecast are: Receipts, payments, excess of receipts over payments, opening bank balance and closing bank balance. Cash Inflow: This section shows how much the business (in this case, a garden centre)
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Examples of start up costs are premises, machinery, equipment, fixtures and fittings and market research to start up the business. Running Costs- Running costs are paid everyday to run the business, examples of these are wages, bills, raw materials and insurance. Fixed Variable Rent £40 Each Box purchased each day: £5.50 License for Trade £20 Block of Ice £50 Delivery Charge (weekly) £14 Total £124 Total : £27.50 Overall Total: £151.50 Fixed Variable Rent £40 Each Box purchase £55 License of Trade £20 Block of Ice £50 Delivery Charge £14 Overall Total: £399 Task Two The following section I will be explaining the importance of costs, revenues and profits.
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(Source: www.brunswickis.co.uk) Budgetary control is a process of monitoring and analysing financial control within organisation. Budget "A budget is a plan, which is set out in numbers. It sets out figures that an organisation or company hopes to achieve in the future." (Source: THE TIMES 100) Budget is a financial plan, sets out financial targets and a plan expressed in money over a given period. Organisations prepare budgets for sales, production, costs, assets, liabilities and cash flow and prepare in advance then compared with actual performance. Managers are responsible for the controllable costs within their budget and they are require to take appropriate action if there are any mistakes.
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Business Finance. There are a number of sources of finance, which businesses will need in order to start up a new business, make their business expand and buying materials required for their business.3 star(s)
You can Retain Ownership; this means instead of raising funds by selling a share in the property or the business to an investor you retain complete ownership. There is also Tax Advantage because interest expenses on your mortgage are tax deductible and are made with pre-tax money. Disadvantages The Disadvantages using this method are that the longer you take to return the money, the higher the interest rate. Another disadvantage is that if the mortgage is not paid back, debt collectors will repossess your belongings so that you can pay back the mortgage.
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In my opinion cash flow refers to the difference between the cash flowing into the business for example through sales revenue and the cash flowing out of the business for example bills and wages. A cash flow statement is a Financial document, which shows the cash inflows and the cash outflows for our business over the past 12 months. It includes those months in which our business suffered a negative cash flow (where cash outflows were greater than cash inflows)
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Many of the investors had to borrow money to buy stocks but they only had to have 10% equity and 90% margin to buy securities. Speculations on stocks stimulated further price rises and created an economic bubble. The P/E ratios in 1929 were far beyond historical norms. The high level of speculations increased anxiety of the investors, so when on October, 24 prices started falling, many investors decided to sell their shares. The leading Wall Street bankers tried to stabilize the situation on Friday, but could not find a proper solution.
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If all the products together make enough contribution then the business will make a profit. Fixed & Variable Fixed costs are costs which do not vary. They are mostly indirect costs - Management salaries, telephone bills and office rent.
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Calculation based on the difference between 4,010 and 3,600, over 3,600. At the same time cost of sales fell. We can straight away tell the company's gross profit has also increased. Taking these into account, we are able to calculate the Return on capital employed (ROCE), which for 2002 is 12.1, 2003 figures are better but 2004 are even better (13.0), showing the company is making use of its assets. An increase of 0.9 % in ROCE can be significant, especially in comparison to the amount of money the company may have borrowed. Therefore the company needs to ask it self is the ROCE sufficient enough, if it is in need of extra funds by means of debt.
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But the company's success, were based on artificial inflated profits, dubious accounting practices, and some say fraud. The firm's success turned out to have involved an elaborate scam. Enron lied about its profits and stands accused of a range of shady dealings, including concealing debts. The profits eventually did not show up in the company's accounts. As the depth of deception unfolded investors and creditors retreated, forcing the firm into bankruptcy in December For Enron employees and retirees themselves, the consequences were crystal clear from the day the company crumbled. To put it simple, they lost their savings.
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This makes them hard to deal with, notably in break-even analysis. Examples of semi-variables include maintenance expenditure and telephone bills. In the latter case, it is clear that although a doubling of customer demand would not necessarily double a firm's telephone calls or bills, it is reasonable to expect that they would increase. Therefore the telephone is neither a fixed nor a variable cost. It is important to classify costs because it helps with spending, it helps with budgets and help in producing break-even charts.
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For this task I am going to compare three different types of loans which are provided by Halifax, NatWest and Alliance and Leicester. I have chosen to get a loan from these banks because they are reliable.3 star(s)
NatWest Personal Loan NatWest offer a selection of loan products tailored to meet our customers' varying needs. So, whether you're looking to buy a new car or conservatory, need a financial boost during your studies or require a helping hand as a graduate, they're there to help. Their rate for fixed-rate personal loans of £10,000 or more is just 7.4% APR typical. I have chosen to take up a loan from Alliance and Leicester because they have the lowest interest rate of the three, which means I won't have to pay as much interest as I would to NatWest or Halifax.
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This is called depreciation. Each accountants must work how much depreciation to allow each fixed assets. This can then be used in the balance sheet and profit and loss account. The balance sheet will show the book value the book value of assets. This is their original value minus depreciation.
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Cash Flow for The Sea View Hotel. Evaluate how using cash flow forecasts and financial recording systems can contribute to managing business finances at The Sea View Hotel:
They have an irregular inflow for the refurbishments (£12000), but they spent over the money given (£15000), so more money went out than money went in. Task 3 Describe how each of the following financial transactions/documents could be recorded in order to prevent fraud in The Sea View Hotel: * Order Form: The purpose of the order form is to order goods from a supplier. It is completed by the buyer who then sends it on the company selling the required goods.
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Subway Groningen doesn't have that because all the money will goes straight to the sole trader and he will have to pay subway LLC for the franchising of subway and the rest of the money will end up going into the business. As we look all the overheads from Groningen subway they have a lot of fixed cost to pay such as, rent and rates, heating and lighting, telephone and general expenses this is because they are running a business and is dealing with customers, now the subway LLC you can say is the head office of the subway industry, they more have office supplies and vehicles and the equipment which I would guess sells to the franchising companies.
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Finance for a new business. Mischa and Claire will need money to get them started. There are two basic costs linked with starting a new business, capital costs and start-up working capital.
Bank Loans - this is where money is borrowed for a fixed period and repayments (including interest) are paid monthly. Normally, banks ask for some sort of personal security, such as the owner's property which they could claim if the business defaulted on the loan. The government has setup a Small Firms Loan Guarantee system to help businesses which cannot provide security. Often, banks will offer new businesses incentives to open an account and provide an adviser. Grants and Loans - there are several types of grants and special loans available from local, national and European governments.
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Due to the said factors, internationalization of accounting standards is considered as a significant and essential part of the rapidly globalization economy. Recording transactions Accurate records are essential. If documents are lost of the business, the business could forget to demand payment for some jobs that already are done or another problem could be the payment of bills. These problems must be avoided at all costs because it could lead to bankruptcy. Monitoring activity and controlling the business Sound record keeping allows managers to keep track of orders, sales and bills.
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2. Cheque: A cheque is usually the best way for a business to make payments (to other businesses) and receive payments from others. A cheque will also provide a record of any transaction that takes place. 3. Recording money coming into a business and going out of a business: Henry will need to use a two column cash book that will record payments he makes and payments he receives. Task 2 Part 2 / Part 3 / Part 4 In this section I will carry out the various financials that my DJ business will have to carry out in order to operate or function effectively.
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Term Definition Overdraft When you owe bank money and your balance is in minuses. Bank loans When you borrow money from a bank and pay it back with interest. Mortgages including remortgage of own house When you borrow money to buy a house (like the bank buying you a house) and you paying it back with interest normally per month. Loans from friends and family When you borrow money from people you know so normally comes with minimal risk as you can probably pay them when it suits you.
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By doing this the payment is delayed between 1-3 months. Leasing: The renting of perhaps: equipments, machinery and premises. Leasing is paid by parts(instalments) over a period of time normally within 1-3 years. Sale and lease back: In this case the business sells one of its main buildings to a financial institution and then leases it back from them by paying a rent. Businesses sell one of their main buildings to a financial association. Thereafter it is leased back from them by paying rent.
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If the business is making loss, cash flow forecast could be used to identify the problem by looking at the various out flow of the business and observing why are they higher than the cash inflow. JJ Supermarket receives its revenue (cash inflow) from sales of stock, capitals owner etc. JJ Supermarket will also have outflow from the business because in order to run a business they will have to pay for things like purchase of stock, business rates, electricity, advertisings etc.
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The company would also be able to continue despite the death, resignation or bankruptcy of management and members. Alton Towers could become dependant and not be a part of MEG, although I don't think this is a good idea because they might not get as many customers because other MEG attractions would not be advertising them, also MEG pay for things in the park and Alton Towers may not be able to cover the costs alone. On the other hand Alton Towers could do things without having to make a decision with MEG.
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In this assignment I will illustrate in a report the financial state of Domestic Dog Homes by use of accounting ratios. The ratios I will be using are: -Solvency -Profitability -Performance
The Acid test ratio formulae show us how the business can pay its liabilities without selling stock. Acid test ratio formulae: Acid test ratio = Current assets - Stock / Current liabilities Domestic Dog Home Acid test ratio: 1.46 = 40275 - 16300 / 16367 Profitability Equation Gross Profit Percentage To work out the Gross profit percentage you have to divide the gross profit with the turnover and multiply it by 100. The Gross Profit Percentage shows how well the business is managing its spending on stock.
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is because it is winter time and so your business may not be busy at this period of time. It is very important to fix this cash flow problem because if we do not fix this cash flow problem your business will not be able to make daily transactions and will be soon in a liquidity crisis. So, to solve this problem there are many solutions which can be put into action. Firstly, the obvious method to decrease cash outflow would be to reduce expenditure to improve your cash flow. The steps you can take in order to reduce expenditure are asking for a longer credit from your suppliers, so that you have time to pay for your expenses until cash is available.
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Different types of Costs My warrens restaurant goods product for fixed cost and variable cost Fixed Cost Variable Cost Microwave Ovens and Microwave Grills- Quantity 4- price £2316.00 Food stock e.g. Flour, vegetables, ingredients £500 per stock Samsung Medium Duty Microwave CM1329 - Touch Control 1300W Stainless Steel quantity 2 - £918 Chair =Kentucky armchair Sizes: 550 mm- price £1470 Kitchen utility e.g. plates = LSA MIKA DINNER PLATE, SET OF 6, Glass = LSA YOLA TUMBLER SET OF 6, LSA ILYA CHAMPAGNE FLUTES SET OF 2 - price £895 This is the table for my fixed cost and variable
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Businesses will always endeavour to achieve a positive cash balance which happens when the income is greater than the outgoings. It also helps to plan for large, future purchases within the business. If they were to build an extension, buy more delivery vehicles or invest in another product idea then they can use the forecast to predict the totals costs such ventures will involve and whether they would be able to afford it.
- Length: 393 words