UNIT 5 – LEARNING OUTCOMES
To understand the purpose of accounting and the
categorisation of business income and expenditure
Be able to prepare a cash flow forecast
Be able to prepare profit and loss accounts and balance
sheets
Be able to review business performance using simple
ratio analysis
THE ASSESSMENT CRITERIA
INFORMATION REQUIRED FOR ASSIGNMENT 1
• Why is it important to keep accurate financial records? P1
• How will these records help the entrepreneur? P1
• What is meant by revenue and expenditure? P2
• What is the difference between revenue expenditure and capital
expenditure? P2
• What type of revenue and capital income can they expect to
incur? P2
• What is the difference between revenue income and capital
income? P2
• What type of revenue and capital income can they expect to
receive? P2
ACTIVITY
What is it to be a chartered accountant?
Complete the handout - 15 minutes to complete
RECORDING TRANSACTIONS
• Must record money coming in (from sales)
• Must record money going out (expenses)
• Must not forget to pay bills or chase payments
• Must not get in trouble with HMRC (UK) IRD (HK)
• Must ensure tax is correct
Sales that have not yet been paid for – value owed to the
business
Goods or services purchased but not yet paid - value owed by
the business
MONITOR ACTIVITY
Keeping an eye on the bank balance to ensure there are
funds to meet day to day expenses
CONTROL
If transactions are recorded, and activities closely
monitored then there should be control between what
is going in and out of the business
e.g. if sales were staying the same but expenses
increasing the owner could step in and control costs
MEASURING FINANCIAL PERFORMANCE
• Check whether the business is making a profit or a loss
• Does the business owe any money?
• Key indicators:
• Gross profit
• Net profit
• Value owed to the business
• Valued owed by the business
SALES REVENUE
The money that is brought into the business through
selling items
How to calculate sales revenue
Selling price x quantity sold
e.g. selling 100 items at $25 each
$25 x 100 = $2,500 sales revenue
Complete handout activity part 1
GROSS PROFIT
Profit after the cost of goods sold or cost of sales* has
been taken away from sales revenue
*Cost of sales are the sales incurred from directly generating revenue.
If your gross profit is low, what might be the problem?
Complete activity 2
NET PROFIT
• Net profit is gross profit minus other
expenses e.g. rent or advertising
• Complete activity 3
HOW WILL THESE RECORDS HELP AN
ENTREPRENEUR?
Unit 5 Assignment 1
Begin work on first two parts of new assignment