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GCSE: Accounting & Finance

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How to calculate 'break even'

  1. 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. 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. 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. 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. 5 The margin of safety is the number of items being produced, over and above the break even point.

What is cash flow?

  1. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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.

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  1. Compare and contrast the approach of the US and UK financial regulatory bodies and comment upon the major issues and events which have shaped the regulatory environments of both countries over the last twenty years.

    A policy of full disclosure of information about the company's performance is necessary in order to make all the financial information be comparable! (3) Professional autonomy The profession in both of UK and US are autonomous (i.e. self-regulating) and credible. The profession take a leading role in the establishment and maintenance of standards; Therefore accounting standard setter in both countries is the private and independent. Financial regulatory system in UK: In case of UK, the ultimate legislative or say regulatory body is EU Council of Ministers.

    • Word count: 3602
  2. A life in the Day Of....

    I don't eat breakfast I don't know why I just don't. At about twenty to twenty-five past eight I walk out of the door and get in to my dads car, I always wish that I could get in to a luxury car with comfortable seats and go back to sleep for a while but that's not very likely to happen. When I get to school I wander about for a couple of minutes until I find my mates then we play football (a game at which I am hopeless).

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  3. Management Accounting Cost Allocation - Graffiti/BBDO Sofia.

    The company is privately owned the founders are Romanian. They own Graffiti/BBDO Bucharest too. The Bulgarian company benefits from the affiliated institution BBSO Worldwide with base in New York, as well as from the Romanian Graffiti/BBDO, which has a little longer history, the agency in Sofia uses the know how as well receives some of its biggest clients - Pepsi Co, Wrigley directly from the mother company. Today, 8 years after the opening of Graffiti/BBDO Sofia, the agency has around 15 full service clients, and more than 30 employees.

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  4. Project DR: Manufacturing Division

    It is molded to fit into most shirt pockets. It is available in a variety of colors and will hold up to 15 pens or pencils. A solar calculator is also included and attached to the Pocket Pal as the total accounting aid. 2) The Accruer -- This is a fanny pack designed for the accountant on the go. It is specifically targeted at the auditor. It will hold a 10-key calculator, ledger pad, highlighters, tape measures, and other crucial accounting gear. Built into the pack is a rechargeable battery kit, enabling the accountant to work in any condition.

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  5. Why should financial comparisons of multi-national companies with subsidiaries in different countries be undertaken with caution?

    An example of this is the American word 'stock' which describes what in the UK is 'shares' and the British use of the word 'stock' is labelled as 'inventory' in the US.3 The more experienced users of financial statements would understand these problems and as a result they may not be affected. On the other hand the less experienced would find it more difficult to understand. One of the benefits of having a multinational operation according to David Gayfer is to generate long-term capital in the countries where their are subsidiaries of the MNCs.4 However, certain stock markets require stringent rules i.e.

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  6. Professor Zeff [Accounting and Business, February 1999; p. 16] views the US Securities and Exchange Commission [SEC] as a 'control agency'. Examine this statement and some of the major issues currently facing the SEC.

    In 1983, Watts and Zimmerman stated that in the nineteenth-century, companies voluntarily published accounting information and carried out audits in the USA.5 This means that within Puxty's (1987) model on the regulation of financial reporting the USA system was left entirely to the market forces. Each company chooses its own rules, influenced by pressures from, in particular, the US capital market. The US stock exchange is about five and half times that of the UK,6 therefore it has strong equity (Nobes, 1988).

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  7. International Harmonisation of Accounting.

    As with any set of rules there will always be arguments both for and against and accounting harmonisation is no different. I will now present arguments for both cases. Obviously when we speak of international harmonisation, businesses with multi-national dealing will be the main targets for any changes, reasons why they desire a standardised single set of rules include, accounting harmonisation is important because companies want to operate in a business environment in which they can trade, raise capital, list their securities and attract investors in different countries.

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  8. Harmonisation Of Accounting.

    It is for this reason that if each different country has a different set of practices things become difficult especially if there is a lot of financial capital at stake. Not just business, investment and capital markets suffer. The other people that suffer are companies. Companies suffer from the consequences of different accounting requirements in several ways. For example, they suffer increased costs when they have to convert the financial statements of subsidiaries from one set of requirements to another for the purpose of preparing consolidated financial statements.

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  9. Discuss about the International accounting practice between countries.

    Accounting and auditing standards are interrelated. Accounting standards defines as, the "useful" financial information, auditing standards guide an auditor in determining whether it is "reliable," and with both useful and reliable information, users are in a position to make better decisions. In the United States, Companies today are global players, compete against each other for the same pool of capital and face the same business pressures. Most multinationals, US-based and otherwise, must set performance objectives, observe each other's activities, and implement similar practices to ensure that their competitor does not have a competitive advantage.

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  10. In this assignment I am opening a tuck shop in the school grounds and outside of the normal school system. I decided to open a tuck shop because there was no there was no tuck shop in the school grounds so there was a market opportunity.

    Start - up cost: Start - up costs are costs which need to be met before the business can be start selling new products. * Buying premises * Market research * Cost of buy equipment EG tables and shelves * Safe * Stock room Running costs: Running costs are costs which the business will have to be continually met as part of the on going process of the producing and selling the goods. * Rent * Buying stock * Paying bills * Paying suppliers Goods are something which you can touch, fell and buy, a service is something that does something for the customer but it cannot be touched.

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  11. The different types of borrowing.

    Without this certain charges could be hidden: for example, while a headline interest rate in an advert may claim to be only 1% a month, the APR may be 15%. In other words the monthly interest rate quoted cannot be correct (15% a year is more than 12 times the 1% monthly charge). The lender has to include everything in the APR, whereas they can effectively lie about the monthly rate. The APR is a legal requirement. Lenders have to make clear what the APR is on each of their loans and make it more prominent than the headline rate.

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  12. How can organisations ensure that their financial administration is going to guarantee their profitability and liquidity?

    Costs are grouped into certain classifications, which assists us in being able to understand and analyse them further. The three most common groups of classification are: * Costs * Functional costs * Behavioural Costs 2.1 Costs Costs can be broken down into three core elements * Material costs * Labour costs * Expenses Each of these elements can then be further divided into direct or in-direct costs. * Direct Costs are those costs which are incurred as a direct result of a product or service. * Indirect Costs are those which are not directly attributed to a product or service.

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  13. Break-even Analysis.

    These figures are only rough estimates. Having got figures from both my cash flow forecast and break - even graphs for both my total income and total number of drinks, I am able to say that my business, from these figures, will be a making a loss of (-�13,200). Also I do not have the required number of drinks to break - even in the first year. The cash flow chart shows my bar's expenses and income over the first year of business.

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  14. Developments in Management Accounting.

    This gradually led to variances being developed around 1900 - information on variances was first published in 1918. * value stock. Financial accountants saw its potential use in valuing stock, but standard costs were not legally accepted for this purpose until after the Second World War. With the development of standard costing the cost analysis era had ended and the cost accounting era began. The CIMA definition of cost accounting in the Official Terminology is: 'The establishment of budgets, standard costs and actual costs of operations, processes, activities or products; and the analysis of variances, profitability or the social use of funds.'

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  15. Business systems Babatunde Onaola - Identify and use planning, control methods in conjunction with an engineering project.

    Determine marginal cost and break even point in relation to an engineering activity Marginal cost point The Break-Even Point The break-even point is the point at which the income from sales will cover all costs with no profits. The business owner or manager usually considers several factors when studying break-even analysis: To fully understand break-even formulas, it is important to know that different types of costs exist. The total fixed cost is the sum of all costs that do not change regardless of the level of sales.

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  16. Describe what financial accounting and management accounting are and what the main differences are.

    This has to be in relation to the concepts, principles, accounting standards and legal requirements. They then use these to give a precise a view as possible as to the effect of those transactions over a certain period of time. Management accounting is where both internal and external transactions are recorded. More importance is put on the analysis of costs, this is because you are able to calculate the net profit of certain divisions, departments and products. The results of the analysis is to do with an individual responsibility therefore it can be used to monitor how well divisional and product managers are getting on.

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  17. Explain two methods of Full Costing together with a discussion of the advantages and disadvantages of each method.

    cost of pursuing some activity or objective' (Accounting: An Introduction, McLaney &Atrill (2002) Page 564) Now we have a reasonable understanding of what full costing entails, we can look at some of the many methods of it. The two most renowned methods of full costing are Activity Based Costing, otherwise known as ABC, and Absorption Costing. Both of these methods are practiced in business today, as ways of allocating overheads to associated units of production. Absorption Costing is looked upon as being the more traditional approach, which has been updated with ABC. Both of these methods of full costing have their benefits and drawbacks, which I will look into over the course of this essay.

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  18. International reporting Standards.

    U.S. The U.S Generally Accepted Accounting Principles (GAAP) is a largely rule based approach to financial reporting. It is based on tens of thousands of pages of accounting rules that have been accumulated over decades. For example, there are around six hundred pages on derivatives alone. U.S GAAP contains many so-called 'bright lines' (Nobes, 1995). This system extends beyond the U.S. into Canada, Mexico and more recently Japan. U.K. GAAP in the U.K. differs significantly than in the U.S., largely due to the differences in the size of the economies. While the U.S. concept of GAAP draws on the a hierarchy of official recommendations headed up by the FASB (Sauder, 1991)

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  19. Factors associated with buying or leasing a car.

    Also, when leasing a car the buyer is forced into a constant program of spending more money. Leasing is like renting a car for a long period of time. The leaser never owns the car, and there are limits to what can be changed about it and how many miles that can be put on the car (Citrome). Leased cars cannot be modified and society this is very popular. "Modifying cars has been a popular past time for as long as cars have been about" as posted on Street Racers website. When buying a car, changing the appearance of the interior or exterior by installing new speakers or changing paint colors is acceptable.

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  20. Management Accounting Report.

    Finding out if the company will make profit and not have a bad effect on other products. Management accounting techniques will be taken in to consideration to produce this report. The ways that will be used to help the Oakdene Engineering limited company are by using: 1. Break-even 2. Marginal costing 3. Investment appraisal 4. Budgetary control 5. Standard costing and variance analysis 6. Overhead absorption and job costing Using these management accounting techniques the company will be able to know advantages and disadvantages of the problems that will be mentioned on the report.

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  21. Report: Mayday Printers.

    and they must be reliable and turn up to work everyday or night otherwise the service is no better than any other which takes over a day to process. It is essential the business has a good reputation of being reliable because they offer a service that aims mainly at emergency situations were people need things to be processed and printed for the next day. They will not go to a business that has a bad reputation of being unreliable and they won't risk not having their order ready as usually it is an urgently needed job.

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  22. Finance For Managers.

    The origin of the business and the type of product that it produces will determine what equipment it purchases. A disadvantage is that equipment can be seen to be a minor expense than that of the premises. Therefore, the concept that all equipment are fixed assets can be untrue. * Motor vehicles A business may need to purchase vehicles such as lorries or cars so that it can deliver suppliers or stocks. In some businesses, company cars are provided for workers to visit clients, for example.

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  23. The purpose of this report is to explain the legal and regulatory influences on the production and presentation of financial statements and assess the implications of such policies and concepts for users of financial statements and final account.

    The business's financial structure and prospects will also be let known, which is essential to owners and shareholders. Financial sphere of influence is colossal it will determine its own employees future, advisors/brokers in advising their clients, the business's ability to make repayment to lenders, customer relations, community interest, competitors own decision making, suppliers concerns and of course government agencies such as the inland revenue concerns on payments to employees and subcontractors as well as taxes on level of business profits.

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  24. International Accounting Standard.

    It is therefore necessary that items are placed correctly so as to make the financial information understandable; IAS 16 illustrates how to deal with items of property, plant and equipment. The main principles within this accounting standard is the timing of recognition of the assets, the determination of their carrying amounts and the depreciation charges to be recognised in relation to them. It is necessary to establish however what exactly property, plant and equipment are. They are tangible assets that are held by an enterprise for use in the production or supply of goods or services, for rental to others or for administrative purposes.

    • Word count: 1414
  25. Why was the site of Quarrybank mill chosen by Samuel Greg.

    His inheritance gave him the security to take a risk - even if his venture at Styal failed, he would still have business. Another factor in Greg's decision to set up his mill at Styal could have been the land, which was very cheap and suitable. Source 3 says that he identified the land as cheap and available for lease. He also identified the fact that an old corn mill already existed there. Source 5 includes references to buildings before the mill was set up, so someone had already built on the land.

    • Word count: 793

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