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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
(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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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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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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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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I think that this could be a possibility for my company as it will need capital at the start and I would not mind selling a section of the company if it were to provide capital which would take the business further. > Retained Profit - This is finance which is obtained from successful trading, when the business makes money and it keeps it in the business it is known as retained profit. The advantage is that the money is already in the business and your not borrowing any money, however a disadvantage is that it will only work with more successful companies that turnover a large enough profit to be able to do it.
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( Reference: BTEC First Business 2nd edition, Carol Caryforth and Mike Neild, Page 108, 113 and 114) In my opinion i think a cash flow is the balance of amount being recived and paid by a business during a period of time. A cash flow statement is a statement that shows a business cash flow, what means it shows the money that is coming in and out what is called cash flow in- and outflows. This statement shows the changes in balance and income. A cash flow forecast is a business cash flow over a specific time what means is the change in cash frome one period to the next period.
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However, by the end of the 1980's the tourist industry had caused immense environmental damages. The gorgeous mountains were in the shadows of the humongous resorts, which were filled with masses of noisy tourists, who threatened wildlife away. (Waugh 151) The hundred and fifty kilometers of sandy beaches were now littered with rubbish all over, as well as the serene ocean was polluted with tourist effluents. (Waugh 151) The environment, which attracted them it the first place, had been ruined. The Spanish language is the third most widely spoken language in the world, all though, during the 1960's till the 1980's, it had slowly began to change, as well as become less spoken around Costa del Sol, which was largely due to tourists, who spoke English.
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Cash outflow Cash outflow is the money that goes out such as purchases for example manufacturing businesses will buy raw materials, wages, rent etc In flows is the money the business expects to receive and pay into its bank account. It then needs to add up its cash out flows. This is the difference between these two figures is the cash balance. Every business will always aim for a positive cash balance, which occurs when inflows are greater than outflows.
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Countries from the European union (EU) are set to comply with the new Basel rules from January 2007. The same deadline applies to advance countries in Asia. However, banking regulators in the US decided to delay adoption at least until January 2008. At the same time they are proposing adoption of different approaches for the US banks. In September 2006, the four regulators proposed that the IRB (internal ratings-based) approach should apply to the largest and internationally active banks only (26)
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2.0 The Original Intentions of Basel II According to Cornford (2004), the initial purpose of Basel II, which was published in June 2004, was to create an international standard that banking regulators can use when creating regulations on how much capital banks need to put aside to guard against the types of financial and operational risks banks face. Advocates of Basel II believe that such an international standard can help protect the international financial system from the types of problems that might arise should a major bank or a series of banks collapse (Cornford, 2004).
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Distance to market- the people who by the products. If your setting up something like the paper shop for people of the local public. Depending on the business you would locate you business would be located near the customers. If you're a corner shop you would need to be near the market, if you own a corner shop near an industrial area you would get the odd customers, whereas if you locate the corner shop near a public area there is more likely to be customers. Another example is a postal order then you don't need to be near the market because you are using the postal system, the customer doesn't need to come you, you would go to them.
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CASE CONTEXT: September 14, 1979. St. Louis National Bank was considering a loan request from a company located in a nearby city, Hampton Machine Tool Company. Since its establishment in 1915, the company had successfully weathered the severe cyclical fluctuations characteristic of the machine tool manufacturing business and had experienced record production and profitability during the mid- and late- 1960s. But Hampton sales had bottomed out in the mid- 1970s and the several years prior to 1978 had been a steady rebuilding of sales.
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Case Context Wilson Lumber Company experienced growth in its business the past three years (1982-1984). It enjoyed increasing profits within this period. But the company is now experiencing financing problems as it can no longer sustain its continued growth. With the expectation of a higher sales level of 2.5 million for 1985, the company is in need of more resources. The company can choose to establish a new line of credit with the Northrup bank and have access to $325,000 as a revolving credit line, however this would mean severing its relationship with its present bank, the Suburban National Bank.
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> Airports taxes are the same at Manchester airport and at Leeds and Bradford airport. > Leeds and Bradford airports advertise on billboards - so do Manchester airport - this is cost effective. > Leeds and Bradford airports don't advertise on TV - Manchester airport do - this is very expensive- too expensive for Leeds and Bradford airport. > Leeds and Bradford airports advertise in local press - this is cheap and it reaches Leeds and Bradford airports TARGET AUDIENCE. > Leeds and Bradford airports sponsor local sport teams as a form of advertising - Manchester airport do not as they advertise on a bigger scale.
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Manchester Airport Staff Internal The Manchester airports are another important group who have an interest in the business. The airport will really upon the business to provide them with a regular wage or salary. Manchester airport customers will hope for job security, safe working conditions and perhaps training and the chance of promotion. Manchester airport need the business to be successful and profitable but, equally, they will hope to see their or salary rising. Manchester airport managers on the other hand may be expected to hold down staff wage cost to improve the profitability of the business so there is the potential for conflict.
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You my have to pay interest if you do not pay back with in 30 days. 2 Bank loans (short term) A bank loan is where you take an amount of money from your bank but you will have to pay a high interest on top of the amount you have borrowed for example you borrow �100 you will have to pay back anther �10 on top so you will be paying back �110 back to the . There are disadvantages high interest and I not paid back it can be taken back by your asset taken away.
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> Taking action if advising and supporting the store managers are not meeting the targets. > Checking stock orders sent in by the stores. We check both the type of stock and the quantity ordered. > Communicating with all stores to give regular feedback and advice. > Deciding the minimum staffing level (MSL) of each store. > Organising stores visits and obtaining regular feedback from colleagues. > Customising individual stores to meet local needs in relation to layout, opening hours or prices.
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The role of the internal auditor The keys to an internal audit are independence, risk, and control. Independence from the rest of the bank is essential. This is because an auditor sometimes has to comment on unsatisfactory procedures. This may be compromised if conflict of interest situations arise. The risk is an internal auditor's starting point. It is important for auditors to focus their energy on contributing their efforts to the greatest risk in order to make an effort in remedying it.
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In this report, I will outline key accounting policies and records for Harrington Books. As Harrington Books is a new company, I am going to try and keep my comments and recommendations as straightforward as possible.
They will likely not support aggressive accounting methods. Since the bank has provided assets as collateral, I are going to presume them to be the most important user. It is essential that the information is useful for their purposes. As sole proprietor, Peter Harrington will be second, with key objectives of maintaining a strong system of internal control and tax minimization. Key Facts Some key facts we need to keep in mind as we assess accounting policies are: * the bank is presumably a sophisticated user of financial information, and therefore will understand the importance of HB minimizing taxes.
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Nowadays, with the increasing awareness of the importance of environment, accounting is no longer just for the economic aspect or financial aspect. For example, the Global Reporting Initiative Guidelines (GRIG) defined their framework for reporting on 3 parts: the economic, environmental and social performance of an organization. Similarly, it can be seen in Accountancy and Business journal (Stikich, 1997), in which high lights that there are three aspects of core values of a modern sustainable business, one of them is environmental responsibility.
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This is usually computerised operation in Tesco and virtually all organizations pay their staff monthly, direct into their bank account, usually using a system known as credit transfer. Tesco bank transfers the money from their account to all their employees' accounts each month. Normally in Tesco this data is held on a computer, which does the calculations for the payroll staff. However, there may be differences once the data in Tesco is input into the computer which must be sorted out by payroll staff such as maternity leave, sick pay, temporary workers.
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Victoria Kite Company is a small Melbourne firm that sells kites on the Web wants a master budget for the next three months, beginning January 1, 2005. When developing the master budget it was discovered that only 60% of the current sales are
$ 66,100 $51,500 Cash Disbursements for Purchases $ 35,550 $ - $35,450 Rent $ 8,050 $ 250 $ 250 Wages & Salaries $ 15,000 $ 15,000 $15,000 Miscellaneous $ 2,500 $ 2,500 $ 2,500 Fixtures $ 3,000 Dividends $ 1,500 Net Cash receipts and disbursements $(15,400) $ 48,350 $(4,700) Excess (deficiency of cash before financing $(15,400) $ 48,450 $27,992 Financing Borrowing $ 15,500 Repayments $(15,500) Interest $ (258) Total Cash from financing $ 15,500 $(15,758) Ending Cash Balance $ 5,100 $ 37,692 $32,992 Budgeted Income Statement (Covering 3 months Jan - March)
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Ethical and Legal Obligations in Accounting The recent and past scandals of major corporations such as Enron, WorldCom, Qwest, Tyco, HealthSouth
The GAAP is not considered a written law, although the United States Security and Exchange Commission (SEC) do require it to be followed by all publicly traded companies. The United States government, through the Securities and Exchange Commission has taken steps to ensure that financial reporting of privately held companies are following the rules of generally accepted accounting principles. The SEC works closely with private organizations that set the generally accepted accounting principles, but it does not set the rules themselves.
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"If management accountants are to remain useful to the organisations within they work, they need to keep current with changes in management practices" (Horngern, 2002) Management accounting was evolved from financial accounting in the 19th century
In the 1950's efforts were made to calculate the total costs involved in producing one unit of X. This emphasised the importance of absorption costing and the accurate apportionment of costs betweens overheads, labour etc. Then in the 1960s the main issues related to planning and control. No method existed that could be applied to every situation. This paved the way for a user orientated approach. A distinction was made between actual and opportunity costs. The main problem with this was the cost of obtaining information wasn't taken into consideration. This was eventually recognised and integrated into the accounting procedures.
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