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Business Accounting Spec Essay

3910 words - 16 pages

Unit 5:

Business Accounting

Unit code:


QCF Level 3:

BTEC National

Credit value:


Guided learning hours: 60
Aim and purpose
The aim of this unit is to enable learners to understand the purpose of accounting, and the associated
processes and its role in the managing of a business. Learners will develop the skills and knowledge needed to
understand financial information.

Unit introduction
Understanding how a business operates and what makes it successful, requires knowledge of the accounting
process. Accounting involves recording business transactions and, this in turn, leads to the generation of financial
information which can be used as the basis ...view middle of the document...

The link between business failure and cash flow problems will be highlighted.
The measurement of an organisation’s financial performance and position requires an understanding of a basic
profit and loss account and balance sheet with this understanding learners can analyse profitability, liquidity and
efficiency of the organisation through the application of ratio analysis. Analysis will always require comparison
of current figures with those from a previous accounting period, or those of a similar business organisation.
Learners will discover how to carry out ratio analysis as well as the meaning and implication of the figures.

Learning outcomes
On completion of this unit a learner should:


Understand the purpose of accounting and the categorisation of business income and expenditure


Be able to prepare a cash flow forecast


Be able to prepare profit and loss accounts and balance sheets


Be able to review business performance using simple ratio analysis.

Edexcel BTEC Level 3 Nationals specification in Business
– Issue 2 – June 2010 © Edexcel Limited 2010


Unit content
1 Understand the purpose of accounting and the categorisation of business income
and expenditure
Purpose: record transactions; monitor activity; control; management of the business (planning,
monitoring, controlling); measurement of financial performance (gross profit, net profit, value
owed to and by the business)
Capital income: sole traders; partners; shares; loans; mortgages
Revenue income: sales (cash and credit transactions); rent received; commission received
Capital expenditure: fixed assets (land and buildings; office equipment; machinery; furniture and fittings;
motor vehicles); intangibles eg goodwill, patents, trademarks
Revenue expenditure: premises costs eg rent, rates, heating and lighting, insurance; administrative costs
eg telephone charges, postage, printing, stationery; staff costs eg salaries, wages, training, insurance,
pensions; selling and distribution costs eg sales staff salaries, carriage on sales, marketing; finance costs
eg bank charges, loan and mortgage interest; purchase of stock (cash and credit transactions)

2 Be able to prepare a cash flow forecast
Cash flow forecast: structure; timescale; credit periods; receipts (cash sales, debtors, capital, loans, other
income); payments (cash purchases, trade creditors, revenue expenditure, capital expenditure, Value
Added Tax (VAT)); opening and closing cash/bank balances
Cash flow management: problems within the cash flow forecast eg insufficient cash to meet payments
due; solutions eg overdraft arrangements, negotiating terms with creditors, reviewing and rescheduling
capital expenditure

3 Be able to prepare profit and loss accounts and balance sheets
Profit and loss account: purpose and use; trading account and calculation of gross profit (sales, purchases,
opening and closing stocks); calculation of net profit (overheads, other...

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