BTEC Business Accounting (Assessment activity 5.1 & 5.2)
Introduction P1:
In this assignment, I will be describing the purpose of accounting in the business. By
explaining how each purpose help the entrepreneurs and how the financial
statement help the business company. And last of all, I will give all the accounting
definition terms to help you to understand it easily.
P1-Describe the purpose of accounts.
What is accounting?
Accounting is the process of identification, measurement, accumulation, analysis, preparation,
interpretation, and communication of financial information. Which is use to plan, evaluate,
decision-making and control the organization.
Accounting can also be used for the preparation of financial reports for manager or non-
management groups such as Owner.
How this would help them in setting up and running a business?
Record transaction- To record a data, which details all the money coming into the business
(sales), but also the money going out (expenses). If these are not listed, the information could
be forgotten or not paid. This means the business unable to make the financial report & there will
make the tax payments wrong, which could lead to legal issues.
Monitor Activity- Updating financial reports every day is important. So the owner/managers
could clear the picture of everything going in and out of the business. This also outlines any
activity that could be rising or decreasing. Also, by monitoring day to day funds in the account,
can guarantee everything is being paid when it should be and the correct amount.
Control- if transactions are maintained and monitored. Business can gain more control over the
accounts. This also allows actions to be put in place to take control the balance between money
flowing in and out of the business.
Management of the business- A manager that is responsible for planning, monitoring and
controlling resources such as staff, stock, money, materials etc. This means the manager are
responsible of managing the business accounts, decision-making and plan for the future.
Measurement of Financial Performance – If there’s no measuring profit or loss, there
would be no debt control within the business. This would mean the business will falling behind on
payments or loosing track of repayments.
There are different types of profits that need to be calculated to give an accurate and up to date
record, which will give an end result on whether the business is succeed or fail.
➢ Sales Revenue - the total amount of money received from sales.
Sales Revenue = Quantity Sold * Selling Price
➢ Profit - When total revenue is higher than total cost.
Total Sales GREATER than Total Cost
➢ Loss - When total revenue from sales is lower than the total costs of a business
Total Sales LOWER than Total Cost
➢ Gross profit - This is the money left after the costs of producing/buying the
goods/services
Gross Profit = Sales Revenue – Cost of Goods Sold
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, ➢ Net profit - it is the gross profit minus the general expenses of the firm.
Net Profit = Gross Profit – Overheads
➢ Value owed to the business - it is the amount the business can expect to receive
from customers in the near future.
➢ Value owed by the business - it is the amount that the business owes to
suppliers and other people or companies from which the business has bought goods
or services.
Why an entrepreneur would have to keep accurate financial records?
Good financial records will help running the business better, also increasing the profit. The
financial record help the entrepreneur to make sure the business is successful and goes
smoothly. So, having a good statement and complete record can identify all of the company's
assets, liabilities, income and expenses. Which mean, it can result a good outcome of statement
for helping them to make a right decision for their future planning aspect. It also allow business to
know how much money they are spending as well as how much money they are making for
profit. In addition, with the financial records entrepreneur can prepare good financial
statements, such as the income statement (gain or losses) or Balance sheet, Trial balance…
etc. Moreover, it allow entrepreneur to have good relationships with the banker or the tax
collector since the entrepreneur keep a good records that makes a payment taxation and other
business transactions much easier and to monitor how the business is going.
http://careertechcenter.blogspot.co.id/2012/11/importance-of-business-keeping-accurate.html
Why is important to have historical data for planning aspect of accounting?
Historical data is very important to the business because it is used for determine how much
money would be use for their next projects. Moreover, historical data from the previous years,
can show the business performance such as their assets, liabilities, income and expenses.
Which can help the business to make their future planning aspect. It allow the company to
understand what they have spent on such as their expenses and to determine trends in revenue
production which can make the business to plan on expanding the profitability in the business.
Furthermore, it can be used to proof the company is safe investment to the Potential investors
and lenders.
http://smallbusiness.chron.com/accounting-information-relevant-business-decisions-22765.html
Term Definition:
Asset - what the business own.
Liabilities - what the business owes.
Income – Money that receives into the business.
Expenses -The money that goes out.
Financial Statement – Is a report that record the business activities and the position of it. This
include the balance sheet, Income statement, and Cash flow statement.
Balance sheet - This is the summaries of the position of a business, in monetary terms on a
certain date.
Trial balance – is a list of statement of all debits and credits in a double-entry account book.
Cash flow statement – Cash flow statement are include in financial statement which it state the
money in and money out of the business.
Introduction for P2:
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