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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. We are going to compare and contrast the way in which Domino's Pizza UK & IRL Plc and Pizza Express PLC discharge their responsibilities of disclosure of information.

    People such as Investors, shareholders would like to concentrate on those figures because it can tell you the capacity, potential of the companies in the quickest way. However, if we only look at the Profit and Loss Account, Balance Sheet, or Cash Flows are not enough for us to understand the whole company because as we know only the figures cannot reflect all the situations and also somehow you would misunderstand the figures because of the different explanation behind. As a result, we should understand more about the general principle of the accounting methods, policies and the associated disclosures.

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  2. What Purposes Are Served By Financial Accounting?

    The Cash Flow Statement is also sometimes a required accounting statement in annual reports. In general, the financial statements are prepared in a summarized form because too much detail is of little interest to the users and it is likely to obscure the important trends. In addition, a too detailed information might be used by competitors to find out the company's strengths and weaknesses. There are two kinds of users of these financial statements. They are the internal users and the external users. The internal users are more concerned about the management of the business and will require management accounting.

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  3. The different accounting regulatory environments in the U.S. and France.

    The keeping of accounting records and taxation report to owners and creditors as well. They include not only a Commercial Code but also a national accounting plan. Accounting standards U.S. In the United States, accounting is regulated by the Financial Accounting Standards Board (FASB), which is a private sector body. However its standards are supported by the Securities and Exchange Commission (SEC), which is a governmental agency. Another private sector body, the American Institute of Certified Public Accountants (AICPA), is responsible for setting auditing standards. 'Generally accepted accounting principles (GAAP) are the sum total of all financial accounting standards, rules, and regulations that must be observed in the preparation of financial reports' (Choi F, Frost C and Meek G, 1999)

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  4. During the 20th century financial accounting regulation appears to have developed as a series of responses to the evolving requirements of an ever-more complex and inter-related business environment.

    The FRRP and the ASB are operational bodies. The ASB makes, amends and withdraws accounting standards. The FRRP examines apparent departures from the accounting requirements of the Companies Act 1985, including applicable accounting standards, and if necessary seeks an order from the court to remedy them. The Financial Reporting Council and its companion bodies the Accounting Standards Board and the Financial Reporting Review Panel were established following the report in 1988 of the Review Committee on the making of accounting standards chaired by Sir Ron (now Lord) Dearing CB.

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  5. Hopwood claims that there are three styles of management evaluation using budgets. Discuss these (using illustrations) and some of the dysfunctional effects of using budgeting control systems in large organisations.

    For instance, with regards to performance evaluation, budgets are used to provide lower-level managers with well-specified targets (feed-forward) and provide higher-level managers with information about the extent to which those targets have been met (feedback). One of the principle ways in which senior managers motivate others managers and their employees towards effective performance is by linking organisational rewards to the level of their performance. The impact, which any accounting system has on managerial and employee behaviour, is dependent not only upon its design and technical characteristics but also upon the precise way in which the information is used.

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  6. Accounting can be defined diversely. It can be seen a complcated and difficult simple calculation, while it is the dynamic and never-ending art of finance. Namely, it depends on how relevant people find it out.

    and themselve. So, they find that accounting is the necessity evil unlike Nat West Bank. Recommendation for Oriental Supermarket include : 1, the appropriate perception and understanding of the need of accounting. 2, specialisation of the finance department. 3, recognization of competitor. 4, collecting previous financial accounts for forcast. INTRODUCTION According to the interviewers who we had words with, accounting is defined as a simple description of income and payment of business and as complicated procedure to reach right balance of business. As they define accounting respectively, the definition of accounting can be various. Back in 1941, the Committee on Terminology of the American Institute of Accountants (now the AICPA)

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  7. Accounting for Colin's Cars.

    Sum of Year's Digit on the internet, http://beginnersinvest.about.com/library/lessons/bl-sumoftheyearsdigits.htm Sum of the Year's Digits Depreciation: This includes the sum of the year's digit and the reducing balance method. This assumes that the fixed asset loses most of its value in the first few years. To calculate depreciation charges using the sum of the year's digits method, take the expected life of an asset (in years) count back to one and add the figures together. i.e. useful economic life of 10 years = 10 + 9 + 8 + 7 + 6 + 5 + 4 + 3 + 2 + 1

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  8. Break-Even Analysis and Business Plans.

    > The Total Cost of Insurance which is payable by the 1st of November 2003 (�620) > The Total Cost of Additional Staff. (�4,200) My Variable Costs are: > Electricity (�0.60) > Maintenance (�0.20) > Consumables (�0.40) So to calculate my Fixed and Variable Costs, I will have to just simply add up all of my FC and VC. Fixed Costs = �22,620 + �1,120 + �620 + �4200 = �28,560 Variable Costs = 60p + 20p + 40p = �1.20 Selling Price = �8.00 per session To put my FC into the break-even table, all I have to do is just keep copying the same figure, which is �28,560 because my FC do not vary with the level of output.

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  9. Stock Control.

    If the stock bought is extra and not going to be in use then that money spent could have been put to better use. - When too much stock is held, then the stock might expire or deteriorate thus having to sell it at a cheaper price or having to dispose of it. - Extra stock takes up space, thus the company might need a bigger warehouse which is cost effective. * Disadvantages of holding too little stock - If the company holds too little stock then customer will be dissatisfied if they go to shop ad would not find the product wanted on the shelves and thus the company would be losing customers.

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  10. Errors that do not affect the Trial Balance.

    Example: a Purchase of goods, Lm 17 from G. Bandi, was entered in error in G. Bambi's account. G. Bambi Lm Lm 12-Nov G. Bandi error corrected 17 12-Nov Purchases 17 G. Bandi Lm 12-Nov Purchases: entered originally in G. Bambi a/c 17 The journal entry would be: Journal Dr. Cr. Lm Lm G. Bambi 17 G. Bandi 17 Purchase invoice No. ... entered in wrong personal account, now corrected Error of Principle Error of principle is like error of commission, just that it is not referring to personal accounts.

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  11. Exporting Goods.

    The exchange rate at present is �1.50 = �1. This means that �1.50 can be exhanged for �1. A �40.00 pair of Nike Cortez trainers from Fit - for - Life will therefore cost a French customer �60.00 (�40.00 x �1.50). If the exchange rate fell, the value of the pound may also fall, so that �1= �1. Fit - for - Life will now have to decidewhether to change its prices. If it chooses to keep the price at �40.00 the price in Euros will fall. The price of the same trainer in Euros will be �40.00 (�40.00 x �1).

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  12. Accounting is being able to provide financial information on any economic entity.

    A ledger is a book which contains groups of related accounts. Ledgers record all the necessary values as credits and debits in suitable places in the bookkeeping system. Ledgers are where the summary of the transactions of the books of original entry are kept. The ledgers that are being used by most businesses are the Sales, Purchases and General Ledgers. Nominal or general ledgers keep track of impersonal accounts while the Private ledger is available for those accounts which the owner wishes to be kept classified.

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  13. Financial Accounting.

    From these double entries a trial balance is compiled which checks all the figures and calculations. After both credit and debit figures match a statement of profit (or loss) is made these are called final accounts and include trading, profit and loss account and balance sheet. Accounting records Records of account are kept in two forms handwritten and computerised. Written accounts and is the traditional way of keeping accounts and is usually favoured by smaller businesses. Nowadays the large leather-bound volume is usually disbanded for ledgers and other accounting books, which can be bought in stationary shops.

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  14. Evaluate the use of break even analysis as a decision making aid.

    Thus the impact of it as a decision making aid holds two different foot holds in its use generally and its use as an aid. Breakeven analysis is useful, not for its use as a major decision making tool but more for its use as a simplistic way in which firms can collaborate a clear and effective method of analysis. Its job is to assist in decisions such as setting prices or accepting one of orders. It shows the consequences of a certain decision by displaying how a certain decision such as raising the price of a product or moving premises would effect the fixed cost the variable costs and the total costs , total revenue.

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  15. Describe the financial and political problems facing the French Government in 1787.

    paid little or no tax to the government, while the third estate paid by far the most. Problems stem twofold from this, firstly, that the richer people in the third estate wanted nothing more than to buy their way into the second estate, thus avoiding the taxation net, and secondly meaning considerable distress amongst the poor, who paid a majority of their wages as tax, some estimates being as high as 65%. The result of high taxes was the growth of movements in France for change, lead by writers such as Jean Jack Rousseau, who conveyed his feelings about the monarchy to the masses.

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  16. This report has been produced as evidence for Unit 9 - 'Financial Services' - as part of a Vocational A' level in Business Studies.

    However, they require you to pay more on a monthly basis than interest-only. Capital repayment loans require payments to the lender, which consist of a combination of Interest and capital repayment. In the early years the interest element forms the major component of the payments and as a result the borrowing will reduce very slowly during the first third of the mortgage term. The repayment of the amount borrowed then accelerates and the amount outstanding falls rapidly during the last third of the term of the loan.

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  17. Costs, Profits and Break-even Analysis.

    We also need to make certain that we understand what is meant by the term profit. What comes into the business via sales is the revenue and what goes out are the costs. So, the costs taken away from the revenue gives us our gross profit or surplus. When thinking about how we construct a break-even diagram we also need to look at CONTRIBUTION. This means how much the sale of one product puts towards the fixed costs of the company. Once the firm has met its fixed costs, the revenue that then comes in contributes to profit.

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  18. Sales forecast limitations.

    The forecast then shows the effect of each month's cash flows upon the firm's cash balance/total. It is like a mini bank statement. One essential rule when constructing a cash flow forecast is that money is shown when it is received or paid. The cash flow forecast will show if there is sufficient cash available each month. A negative cash flow in any time period will indicate that the company has insufficient funds. If the firm has an overdraft facility, this may be sufficient to cope with the period of negative cash flow. If not, preventative action must be taken quickly.

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  19. Consider the environment factors impacting on organizations today.

    We intend to actively pursue both acquisitions and joint ventures that would support our long-term objective of accelerated growth and increased return on investment necessary to enhance shareholder value. In July 2002, President George W. Bush of United State of America signed the Sarbanes-Oxley Act into law and into the collective consciousness of business leaders and government officials around the world. This is largely in response to a number of major corporate and accounting scandals involving some of the most prominent companies in the United States, for example, Enon and World.com.

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  20. This informal report endeavours to examine the current accounting environment that exists in the UK. A combination of both desk and primary research shall be conducted prior to the final compilation and conclusion of the piece of work.

    * High profile cases1 underscore the defective nature of current regulations governing accounting and the need for augmented directives. 1969 * The ICAEW2 declared the Companies Act too basic to suitably regulate accounting practices. 1970 - 1976 * ICAEW formed ASSC (Accounting Standards Steering Committee), * First of a total twenty-five Statement of Standard Accounting Practice (SSAP) published in 1970 titled 'Accounting for Associated Companies'. * ASSC merged with the six other major accountancy bodies in the UK and Ireland enhancing uniformity and simplifying procedures, after which it was renamed the ASC (Accounting Standards Committee). 1987 - 1990 * ASC became unable to carry out the standard setting role that it was required to, due to increasing pressure on complex accounting issues.

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  21. The task of writing a finance plan for a business idea to raise at least £100 for charity has been assigned to me. The particular business idea that I shall be assessing is that of setting up and running a sweet stall.

    At first, a questionnaire was drafted with only questions relevant to the finance section of the plan. It was then revised, and questions were added that would benefit the marketing section. The questions asked were ones that would help me to predict revenue, with respect to: 1) how many people were interested in the idea of a sweet stall; 2) how many times they would visit the stall (both daily and weekly) and 3) the price people were willing to pay for the product. This would allow me to draft supply and demand graphs, break even charts, a profit and loss account and a cash flow chart.

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  22. Responsible accounting is the ability to conduct business in a way that is not harmful and which positively benefits as many people as possible and themselves.

    The concept of responsible accounting has been seen to mean various things to different people, but usually it's knowing what is right or wrong in the workplace and doing what's right in regard to products, services and the company's bottom line. A focal point on responsible accounting in the workplace shows and alerts leaders and staff on how they should act. An attention to these practices in the workplaces helps ensure that when leaders and managers are struggling in times of crises and confusion, they retain a strong moral focus.

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  23. Financial documents for purchase and sales.

    The computer at the same time adjusts the company's accounts to show the transaction has taken place. Understanding the financial documents used in business transactions is important for several reasons. First, you are unlikely - ever - to work for an organisation that does not issue and receive such documents. Second, in your personal life you may receive such document - particularly if you buy goods on mail order. Knowing how the documents have been complied, why they are used - and how to check them - gives you an advantage. The main financial documents you need to be able to issue and check are described briefly below.

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  24. Compare and Contrast 'Break, Break, Break' and 'Crossing the Bar'.

    It is not delivered in a melancholic, morose way, but rather is a dignified acknowledgment that death comes to all, and his "one clear call" is approaching. There is, one may suggest, majesty in the simplistic view of death that is expressed in 'Crossing the Bar' and it is an analysis of death much preferable to that of 'Break, Break, Break'. The severity and relentless nature of the poem is expressed immediately in the title and the first line, both 'Break, Break, Break'.

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  25. Performance measurement and rewards within organisations.

    Finally, I will see what further researches can be used to test the effectiveness of these two approaches. 2 Deficiencies in Traditional Accounting Measure Under-investment problem and Myopia Defining performance in terms of profitability has long been known to results in under-investment since maximizing ROA (Return on Assets) or ROI (Return on Investment) may involve rejecting positive NPV projects that dilute the overall ROA or ROI.. This may also mean that managers are looking at short term profits rather than long term, so they would often give up R&D or marketing projects which incur current expenses and reduce profits.

    • Word count: 2327

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