This is the first task of Unit 5 containing P1 and P2, in which you need to find a local business near your area and you need to use the business to describe the purpose of accounting and explain the differences between capital and revenue items of expenditure and income.
P1 – Describe the purpose of accountnn for a small business of your choice.
The purpose of accountnn for a business like Litle Heath Food and Wine is to keep track of
their funds. This is because if they keep track of their funds then they know how much they
currently have, meaninn that they can start to pledne future noals and how much they’re
noinn to spend each year. As a result of this, Litle Heath Food and Wine will be more
ornanised, meaninn that they can operate the business efciently.
As planninn for future noals has been mentoned, this is also another purpose of accountnn
because if a business like Litle Heath Food and Wine have a proft and loss account, then
they have the ability to plan out their budnets and predict how much proft they’ll have by
the end of the next few years. As a result of this, Litle Heath Food and Wine will have a set
out structure of their budnets and proft and loss accounts.
Another purpose of accountnn for a business like Litle Heath Food and Wine is to help the
mananement of the business and ensurinn that they can monitor their actvity of their
business, i.e. orders, sales, bills etc. and therefore evaluate the business performance
efciently. This is because mananinn with their fnances and producinn their fnancial on a
renular basis will help the mananers of Litle Heath Food and Wine make beter decisions,
therefore Litle Heath will be able to monitor the pronress of their plans.
The fnal purpose of accountnn for a business like Litle Heath Food and Wine is to be able
to measure the fnancial performance of the business as a whole. This is important because
Litle Heath Food and Wine need to know how they’re pronressinn with their performances
and without knowinn, they wouldn’t be prepared to plan any future noals or even perform
well. Therefore, Litle Heath Food and Wine need to measure the fnancial performance
usinn accountnn because of knowinn whether they have made a proft or a loss, meaninn
that they can manane their stratenies to keep makinn proft.
P2 – Explain the diference between capital and revenue items of expenditure and
income.
Capital and Revenue are diferent to each other as a whole because Capital is more based
on the fxed assets of the business, whereas Revenue is based on runninn the business. Also,
Income and Expenditure are diferent to each as Income is the money noinn into the
business, whereas Expenditure is the money noinn out of the business.
The two diferent Incomes are Capital Income and Revenue Income. Capital Income is how
much money businesses like Litle Heath Food and Wine are receivinn that are lonn term,
which is more than one year. For example, Litle Heath Food and Wine could have savinns,
loans or investments as Capital Incomes. On the other hand, Revenue Income is how much
money businesses like Litle Heath Food and Wine receive from runninn as a business. For
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