BTEC C1- Purpose of Accounting -ERH.pptx

BTEC National Diploma Business Level 3 Unit 3: Personal and Business Finance C1 - Purpose of Accounting

1. Purpose of Accounting C1 Purpose of accounting Unit 3: BUSINESS FINANCE

2. Purpose of Accounting Learning Aims Understanding the purpose of accounting for businesses

3. Purpose of Accounting DO NOW: (In your books, independently, 5 mins) What is Bank of England? How does a person facing financial difficulties (unable to pay debts) can get help tackling their debts? Why is bankruptcy the "last resort"?

4. Purpose of Accounting DO NOW: (In your books, independently, 5 mins) Bank of England is the central bank of England in charge of the finances of the government. A person facing financial difficulties (unable to pay debts) can get help tackling their debts by contacting Citizens Advice, consulting an Independent Financial Advisor or Debt Counsellors, Getting an Individual Voluntary Arrangement or declaring bankruptcy Bankruptcy the "last resort" because it has restrictions on your spending, drops credit score and makes it difficult to get a loan again. Max loan can be £500.

5. C1 PURPOSE OF ACCOUNTING 1. Recording transactions It is important that all transactions are recorded accurately and timely to meet legal requirements , aid the smooth running of the business and to accurately produce end of year and interim accounts Transactions can be: Internal e.g. expense claims by employees External e.g. paying a supplier Expenditure e.g. buying an asset Income e.g. cash sales Key Word: Transaction (noun): an instance of buying or selling something.

6. 1. Recording transactions Task 1: Who is paying whom? Internal e.g. expense claims by employees ………….Paying ……………. Receiving External e.g. paying a supplier …………..Paying ……………. Receiving Expenditure e.g. buying an asset …………….Paying ……………. Receiving Income e.g. cash sales …..………..Paying ……………. Receiving

7. 1.Recording transactions Cheque payments Cheque receipts BACS & CHAPS Cash withdrawals Cash receipts Wages & salaries National insurance PAYE Pensions Attachment of earnings Ride to work scheme Corporation tax VAT PAYE

8. 2. Management of business To foresee likely financial commitments To check performance & spending To ensure sufficient funds are available to cover outgoings

9. Budgets i.e. targets or limits for expenditure and income in a given period of time such as a marketing budget or sales budget Cash flow forecasts i.e. a prediction of the amount and timings of cash flowing in and out of a business over a period of time Inventory control e.g. reorder quantities and avoiding holding too much stock that may become obsolete Capital expenditure e.g. purchase of new machinery Production including costs and output levels Forecasts for profits 2. Management of business

10. 3. Compliance Compliance & Preventing fraud All businesses have the responsibility to comply with financial reporting requirements in accordance with laws and regulations. Ex:  Compliance with International Financial Accounting Standards Working with external auditors I nternal accounting controls help to combat fraud. Fraud (noun): Deliberate manipulation of accounting records, financial statements, disguising the true financial performance of a company or stealing financial resources. 

11. 3. Compliance

12. 3. Compliance Compliance with law and regulations HMRC compliance in relation to corporation tax, VAT and employee payroll Appropriate insurance cover e.g. professional indemnity and employer’s liability PCI security council standards – applicable to any business accepting credit cards Credit legislation HMRC :  ABBREVIATION (in the UK) Her or H is M ajesty's R evenue and C ustoms, the government department responsible for assessing and collecting taxes .   What is HMRC? | Tax Facts - YouTube

13. 3. Compliance Other aspects of legislation that an accountant may be involved with include,  health and safety at work and the Data Protection Act

14. 4. Measuring performance Accountants measure how well the business is performing financially through its: Gross and net profit Sales revenue Efficiency in collecting money owed to the business Expenditure  Costs Identifying and investigating variances between target or budgeted outcomes and actual outcomes e.g. target profit v. actual profit Inter and intra firm comparisons Ratio analysis (to be covered in topics F3 to F5) Benchmarking

15. 4. Measuring performance Task 2: What if a local business person / entrepreneur told you that their revenue (earnings from sales)  last month from their high street bakery business was £1800. Would you, Congratulate them because this is a great revenue? Ask them how much profit they actually made? Ask them what her previous months revenues were? Ask them how much her total expenditures are? Hint: Does one number mean anything by itself?

16. 4. Measuring performance Task 3: Why do we use ratios to determine/measure/understand the financial performance of a business?  Think : What if on the parents evening I tell your parents/carers that for example you got 28 marks in your last exam? Would they be happy or disappointed? What would be the first question they would ask me?

17. Purpose of Accounting DO NOW: (In your books, independently, 5 mins) Name 2 purposes of accounting? How can a business measure its financial performance? Why would knowing 1 financial figure (ex: profit for 2022) not be sufficient to understand the financial health of a business ?

18. Purpose of Accounting DO NOW: (Correct/Complete your answers in green pen ) 1).Recording transactions 2) Management of business 3) Compliance 4) Measuring performance By using ratio analysis, profit & loss, sales revenues Because it's important to understand it in perspective, compared to last year, compared to what was budgeted (planned), compared to other businesses. It can be performing well in one criterion but not so well in other criteria. 

19. 5. Control Trade receivables Money owed to the business by customers but not yet received resulting from selling on credit Clear payment terms Contracts with customers Credit checks Credit control Trade payables Money owed by the business but not yet paid resulting from buying on credit Contracts with suppliers Relies upon data being accurately input upon receipt of invoices Control = > conditions, periods of payments from customers Control = > payment terms to creditors

20. 5. Control Assisting with the prevention of fraud Restricted access to key accounting systems Passwords for important and confidential information Internal and external audits Clear procedures – allowing for audit trails

21. Purpose of Accounting Task 4:  While you watch the video take a few short notes. Video:  Why do we need accounting? - YouTube   Question: Name and Explain the benefits accounting can provide a business? (4 marks)

22. Purpose of Accounting Use your Mini white boards  Task 5:  Match the purpose of accounting with an example 1). Recording transactions 2). Management of Business 3). Compliance 4). Measuring performance 5). Control A). Keeping a list of all expenditures B). Be aware of trade receivables and trade payables  C). Understanding if it's doing well financially, such as making a profit  D). Making sure all taxes are paid timely and accurately to HMRC. E). To ensure that sufficient funds are available to cover outgoings

23. Purpose of Accounting Use your Mini white boards  Task 5:  Match the purpose of accounting with an example 1). Recording transactions 2). Management of Business 3). Compliance 4). Measuring performance 5). Control A). Keeping a list of all expenditures B). Be aware of trade receivables and trade payables  C). Understanding if it's doing well financially, such as making a profit  D). Making sure all taxes are paid timely and accurately to HMRC. E). To ensure that sufficient funds are available to cover outgoings 1..A 2. E 3. D 4. C 5. B

24. Name 2 things..... (2 Marks) => You can just use bullet points  Explain how........ (4 marks) => 2 separate ideas developed in 2 paragraphs 1 Point (Knowledge) + 1 Example (Application) + 1 Explanation (Evaluation) Discuss … (6 marks) Compare and contrast Pros and Cons Give a scenario/ a situation/examples (application) EXAM TECHNIQUE