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Unit 5 Introduction to Accounting

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Name: Shannon Somford Class: 2D Unit: Unit 5 Introduction to Accounting First Date: Friday 13-03-2009 List of contents Activity 1 P1 Page Activity 1 P2 Page Activity 2 P3 Page Activity 2 M1 Page Activity 2 D1 Page Activity 3 P4 Page Activity 4 P5 Page Activity 4 M2 Page Activity 4 D2 Page Activity 1; This activity covers the requirements for the P1 and P2 grading criteria. * P1. Describe the purpose of accounting. The main purpose of accounting is to give information that is needed in the process of economic decision-making that will help to create sound and feasible decision. It focuses on the process of preparing different financial reports that will show the information regarding the performance of the company or organization to the external parties or stakeholders that are involved with the company or organization such as investors, creditors, tax authorities etc. On the other hand, the management accounting focuses on the different issues that are related and important to the overall internal process of decision making. Furthermore, the two is also different in terms of the influence of the impact of the standard setting bodies in the decision making process or regarding their creation of laws and regulations. The financial accounting is being affected greatly by the different organizations and authorities in different countries, while the management accounting varies from different perspective of different organizations and companies. The accounting process of different companies and organization in the world is considered as one of the most important factors, due to the fact that it enables them to see as well as control the financial flow inside and outside of their business or organization. It is also important to the different stakeholders of that organization, in order for them to know the current financial situation of the entire establishments. Because of the different factors such as technology and globalization, the process of accounting is facing different dilemmas and changes. ...read more.


Businesses will often need to offer credit facilities to encourage growth in sales. Credit sales involve the business supplying the goods or service to the customer but allowing the customer time to pay for the item. This will mostly be 28 days. Rent received If a business owns property and rents out to another company or person, the rental income received will be a source of revenue income for that business. If there are unused rooms in a company's premises or buildings that they do not currently need, it makes sense to earn some income for the business by renting these out. Commission received A business could sell products or services on behalf of another company and may receive a commission for the work they have done. For example you could think of a dealer from Volvo or a mobile phone shop that sells a contract to a customer it receives commission from the network operator, such as Orange or Vodafone. That is an important form of revenue income for many businesses. Capital expenditure Capital expenditure is the amount a company spends on buying fixed assets, other than as part of acquisitions. As this expenditure is an investment it is not immediately shown. The amount of cash expenditure is shown in the cash flow statement and the effects of Capital expenditure obviously show on the balance sheet. Most companies also comment on Capital expenditure in their results. It can be difficult to distinguish between maintenance Capital expenditure to keep existing operations going at their current levels and investment made to drive future growth. Investors may be able to infer a certain amount from comments and by looking at a company's circumstances and track record. Capital expenditure that is continuously high which has not lead to high growth is likely to be maintenance Capital expenditure. Apparent profits or operating cash flows are not actually making shareholders, if high maintenance Capital expenditure requirements soak up the money. ...read more.


Increase prices The additional revenue could avoid the need for an overdraft, as long as customers are willing to pay the increased prices. Look for alternative suppliers Can the business get gas and electricity cheaper elsewhere? Can advertising costs be reduced by using a different printer? Move premises A more long-term solution, but a cash flow forecast may indicate that the firm will not be able to afford its premises. Better to know this early and make alternative arrangements. Anticipating cash flow needs gives the managers of a business time to make these changes to their business plans. However, if managers do not plan and examine the finances carefully problems may occur which may then be much harder to solve. Activity 3; This activity covers the requirements for the P4 grading criteria. * P4. Explain the component parts of a profit and loss account and balance sheet in a given organisation. Profit and Loss Account The purpose of the profit and loss account is to: Show whether a business has made a profit or loss over a financial year. Describe how the profit or loss arose. By categorising costs between costs of sales and operating costs. A profit and loss account starts with the trading account and then takes into account all the other expenses associated with the business. Trading account The trading account shows the income from sales and the direct costs of making those sales. It includes the balance of stocks at the start and end of the year. Trading is a basic process of business. The trading account shows how much profit the organisation makes by the basic process. The profit earned by this kind of process is called gross profit. An example of the trading account of a business would look this: Trading account for Kimman B.V. for the year ended 31 March 2008 Category � � Sales 1200.000 Opening Stock 150.000 Purchases 400.000 Less Closing Stock (220.000) Cost of Sales 330.000 (330.000) Other Costs (70.000) Gross profit 800.000 The closing stock figure would appear in the balance sheet under Stock. ...read more.

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