Essay
Unit 5 Business Accounting
- Module
- Business Accounting
- Institution
- PEARSON (PEARSON)
Full Business Accounting unit coursework including accounting ratios. Grade achieved is Distinction without any corrections
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Unit 5: Business AccountingP1: Purpose of accounting
The main purpose of accounting is to work out how much money the business has in
their account and whether they have made a profit or loss. This is because it is
important to know how much revenue the business has, also to know what
expenditures they have so they can be able to work out if they have made a profit or
loss. As a result of this they will be able to make changes according to the outcome.
If the outcome is a loss, then they will be able to decrease their expenditures, to
decrease the cost of sale or to increase the price of goods sold.
This will help Dave with his planning as it will identify whether the business is
successful and it makes profit and if it will continue to be successful in the future.
This is because by identifying if the business is successful or not, he will be able to
see if he can plan an expansion, if not successful he will be able to loot at what is
making the business lose money and fix the problem. As a consequence of this he
will be able to identify future problems that may occur and stop them.
P2. Income and Expenditure
Capital income is the income generated by an asset over time, rather than from
work done using this asset, (generated from the capital expenditure). Similar to
capital expenditure the assets the Vinyl Cafe has are used to generate extra income
for the business, aside from its main products, vintage albums/records.
For the Vinyl Cafe this means that the money that Dave has put into the business
as assets such as coffee machine will produce him coffee which when he sells he
will receive money.
As a result one day, after expansion, if Dave wants to sell his business he will
expect to receive the amount he has invested in his business and even more. The
profit from selling the business will be his Capital Income.
Capital expenditure is where a firm spends a large amount of money on fixed
assets.
For the Vinyl Cafe this means that the owner should invest money on fixed assets
like coffee machine, chairs, desk, till, table to be able to run the business properly.
Overtime, Dave might have to upgrade, and maintain physical assets such as
property, buildings, an industrial plant, technology, or equipment.
As a consequence maintaining the fixed assets does not certainly mean that the
value of the business will increase/increase drastically. For example, if Dave needs
to fix the ceiling because of leakage that will not increase the value of the business
because it is something necessary to be done. However, if he buys another building
and renovates it, the value of the business will increase.
Revenue income refers to the way of the business earning its income from its
day-to-day activities.
For the Vinyl Cafe this means that the business should sell products and services
on daily basis to cover its expenses.
, Unit 5: Business Accounting
As a result the business will have to carry out day-to-day activities which will allow
them to produce products, sell them, serve the customers.
Revenue expenditure is when you spend money on day-to-day running costs or
expenses. This involves spending money with nothing to physically see for your
money.
For the Vinyl Cafe this means that the business will have to pay for expenses like
electricity, gas, rent and shipping to be able to operate.
As a consequence of this the business will be able to continue to make its products,
sell them and offer services to customers.
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