Level 3 BTEC Foundation Diploma Business/Law/Finance PDF

Level 3 BTEC Foundation Diploma Business/Law/Finance Unit 3: Personal and Business Finance Lesson 5 – Learning Aim C Break Time – STARTS AT RETURN AT  Ground Rules Do not use your mobile phones unless you have been asked by a teacher Wear your lanyards at all times Learning Outcom...

Level 3 BTEC Foundation Diploma Business/Law/Finance Unit 3: Personal and Business Finance Lesson 5 – Learning Aim C Break Time – STARTS AT RETURN AT  Ground Rules Do not use your mobile phones unless you have been asked by a teacher Wear your lanyards at all times Learning Outcomes  By the end of this session you will be able to…..  Explain the purpose of accounting.  Identify forms of capital and revenue income.  Identify forms of capital and revenue expenditure. ACTIVITY  Class Discussion…..  What is the purpose of accounting?  recording transactions  management of business (planning, monitoring and controlling)  compliance (preventing fraud; complying with law and regulations)  measuring performance  control: assisting with the prevention of fraud, trade receivables and trade payables. Types of Accounting  Financial Accounting  Recording money coming in and going out of the business  Financial position of the business  Management Accounting  Using historical data (from the past) to forecast what will happen  Planning for the future Recording transactions  It is important that all transactions are recorded accurately to meet legal requirements, aid the smooth running of the business, 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  RECORDING TRANSACTIONS e.g. Wages & salaries National insurance PAYE Payroll Pensions Sales Asset Attachment of invoice registe earnings Ride to s r work scheme e.g. Supplie Transaction s Cheque r e.g. Taxes payments invoice Corporation s Cheque receipts tax BACS & CHAPS VAT Cash Bank accoun Orders PAYE withdrawals t Cash receipts MANAGEMENT OF THE BUSINESS Examples include: 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 Monitorin Controllin Planning g g Compliance  Preventing fraud  Key to petty cash  Monitor expense claims  Monitor shrinkages or wastage levels of raw materials, WIP and finished goods  Internal audits e.g. inventory checks, invoicing  Validating new suppliers  Check for falsification of records  Compliance with International Financial Accounting Standards  Working with external auditors Activity  Open the links below about Tesco, read the articles and answer the following questions  What happened at Tesco regarding their profit level?  Why did this happen?  What action did the authorities take?  Was this the right decision?  Tesco Fraud  Tesco cooks the books 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  Other aspects of legislation that an accountant may be involved with include health and safety at work and the data protection act Measuring performance  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 later in the term)  Benchmarking Control  Assisting with the prevention of fraud  Restricted access to key systems  Passwords for important and confidential information  Internal and external audits  Clear procedures – allowing for audit trails Activity  Research vacancies for accounting roles in your local area  Match the job details to the purposes of accounting. Where are the links? Break Be back and ready to start at C2 – types of income There are two forms of income for a business 1. Capital Income Money received that could be used to start a business venture or cover a shortfall in funds. 2. Revenue Income Money received from the sales of goods/services. Capital & Revenue Income Capital Income Money received that could be used to start a business venture or cover a shortfall in funds. Revenue Income Money received from the sales of goods/services.  Capital income Capital income is the money invested by the owners or other investors that is used to set up a business or buy additional equipment. It tends to be used to buy things that will stay in the business for a medium-to-long period of time – for example, premises, vehicles or equipment. These are called fixed assets. When setting up a business, capital income might also be used to buy opening stock, but, as the business develops, stock should be paid for by sales income. The sources of capital income available to business owners are influenced by the type of business. Capital income Here are some forms of capital income – we have already looked at some of these as they form sources of funds. loan mortgages shares owner’s capital debentures  Revenue income Revenue income is the money that comes into the business from performing its day-to-day function – selling goods or providing a service. The nature of the revenue income depends on the activities that the business does to bring in money. Revenue income  Here are some forms of revenue income  cash sales  credit sales  rent received  commission received  interest received  discount received. C3 Types of expenditure Expenditure is money spent by a business and can be split into two categories: 1. Capital expenditure 2. Revenue expenditure. Capital expenditure These can be subdivided into Non-current assets Intangible assets Non-current assets Non-current assets are items owned by a business that will remain in the business for a reasonable period of time (usually more than 1 year). These are shown on a business’s statement of financial position (or balance sheet) and include land and premises, machinery and equipment, vehicles, and fixtures and fittings. These are sometimes referred to as ‘tangible assets’ because they can be seen, touched and felt. Intangible Assets An intangible asset is something owned by the business that cannot be touched but adds value to the business. Here are four common intangibles that exist within businesses. Goodwill, Patents, Trademarks, Brand names Revenue Expenditure Revenue expenditure is spending on items on a day-to-day or regular basis. These are the expenses incurred by a business that are shown on the profit and loss account (also known as a statement of comprehensive income). The types of costs incurred vary from business to business. Can you think of some examples? Revenue expenditure:  Insurance  Straight-line depreciation  Administratio  Reducing balance depreciation n  Discount allowed.  Telephone  Inventory  Postage  Rent  Stationery  Rates  Salaries  Heating and lighting  Wages  Water  Marketing  Bank charges  Interest paid  Task Employers in the UK, by law, have to pay a minimum wage to all employees over 16. 1. What is the current minimum wage in the UK? 2. Should business pay a National living wage? Justify your answer 3. What is the difference between a National Minimum Wage and a Living Wage? 4. Debate the arguments for and against the living wage? 5 mins to gather the info and have a think, then we will have a class discussion. ACTIVITY Think of and share a range of capital and revenue expenditures and capital and revenue Income that a business may need to pay out for? Capita Capital Revenu Revenue l Expenditu e Expenditu Incom re Income re e Learning Outcomes  By the end of this session you will be able to…..  Explain the purpose of accounting.  Identify forms of capital and revenue income.  Identify forms of capital and revenue expenditure.