Unit 5 Business Accounting
Credits: 10 Level: 3
© Challenge College
Assignment brief
Unit number and title
Unit 5 – Business Accounting
Qualification
BTEC Level 3 Certificate, Subsidiary Diploma & Diploma in Business
Start date
March 2011
Deadline
June 2011
Assessor
M. Drury
CRITERIA COVERED
P1, P2, P3, M1, D1
Assignment title
CASH FLOW
Purpose: The aim of this unit is to enable learners to understand the purpose of accounting the associated processes
and its role in the managing a business. Learners will develop the skills and knowledge needed to understand financial
information.
Scenario: You are working as a trainee for a retail clothing company called Bombay Stores, which has been trading in
the area you are looking at for five years. You have been asked to spend some time in the company’s accounting
department.1
Evidence you must produce:
 A report on the on the purpose of Accounting
 Presentation on Income and Revenue.
 A 12 month Cash Flow Forecast.
Task 1
Describe clearly the main purpose of accounting for an organisation. The description may be brief but should be
accurate and incorporate historical data in order to be able to check on current financial performance and position, as
well as the planning aspect of management accounting.
Purpose: record transactions; monitor activity; control; management of the business (planning, monitoring, controlling); measurement of financial
performance (gross profit, net profit, value owed to and by the business)
This provides evidence for P1
Task 2
Produce a Presentation that explains the different categories of capital income, capital expenditure, revenue income
and revenue expenditure as listed in the unit content (below) for a specific organisation.
.
Capital income: sole traders; partners; shares; loans; mortgages
Revenue income: sales (cash and credit transactions); rent received; commission received
Capital expenditure: fixed assets (land and buildings; office equipment; machinery; furniture and fittings; motor vehicles); intangibles eg goodwill,
patents, trademarks
Revenue expenditure: premises costs eg rent, rates, heating and lighting, insurance; administrative costs eg telephone charges, postage, printing,
stationery; staff costs eg salaries, wages, training, insurance, pensions; selling and distribution costs eg sales staff salaries, carriage on sales,
marketing; finance costs eg bank charges, loan and mortgage interest; purchase of stock (cash and Credit transactions)
This provides evidence for P2
1
Source:
Unit 5 Business Accounting
Credits: 10 Level: 3
© Challenge College
Task 3
1) Explain what a cash flow forecast is and how it helps businesses
2) Construct a 12-month cash flow forecast from the information given in (additional information) below,
accurately calculating each month’s receipts, payments, opening and closing balances .
Cash flow forecast: structure; timescale; credit periods; receipts (cash sales, debtors, capital, loans, other income); payments (cash purchases, trade
creditors, revenue expenditure, capital expenditure, Value Added Tax (VAT)); opening and closing cash/bank balances
This provides evidence for P3
Task 4
Analyse the cash flow problems a business might experience by commenting on the cash flow, highlighting any
problems that are evident.
Cash flow management: problems within the cash flow forecast eg insufficient cash to meet payments
due;
This provides evidence for M1
Task 5
Justify actions a business might take when experiencing cashflow problems by making appropriate recommendations
to solve these cash flow problems, such as re-timing large payments or arranging an overdraft. You should show
awareness of the dangers and costs of poor financial planning.
Cash flow management: solutions eg overdraft arrangements, negotiating terms with creditors, reviewing and rescheduling capital expenditure
This provides evidence for D1
Sources of information:
Bevan J, Dransfield R, Coupland-Smith H, Goymer J and Richards C – BTEC Level 3 National Business Student
Book 1 (Pearson, 2009) ISBN 9781846906343
Bevan J, Goymer J, Richards C and Richards N – BTEC Level 3 National Business Student Book 2
(Pearson, 2009) ISBN 9781846906350
Coupland-Smith H and Mencattelli C – BTEC Level 3 National Business Teaching Resource Pack
(Pearson, 2009) ISBN 9781846906367
www.bbc.co.uk/business BBC Business website
www.bbc.co.uk/news BBC News website
www.becta.org.uk British Educational Communications and Technology Agency
www.bized.ac.uk Business education website including learning materials and quizzes
www.careers-in-business.com Information on a variety of business careers
www.carol.co.uk Online company annual reports
www.direct.gov.uk Gateway to public services
This brief has been verified as being fit for purpose
Assessor
Signature
Date
Internal verifier
Signature
Date
P1 describe the purpose of accounting for an organisation [IE]
P2 explain the difference between capital and revenue items of expenditure and income [TW]
P3 prepare a 12-month cash flow forecast to enable an organisation to manage its cash [CT, RL, SM]
M1 analyse the cash flow problems a business might experience
D1 justify actions a business might take when experiencing cashflow problems
Additional Information for cash Flow forecast:
Unit 5 Business Accounting
Credits: 10 Level: 3
© Challenge College
Create a 12-month cash-flow forecast using the details given below:
Sales and Purchases for the 12 months will be as follows:
January
Total Sales
37800
Purchases
27000
February
34020
24300
March
31500
22500
April
37800
27000
May
37800
27000
June
36540
26100
July
31500
22500
August
21420
15300
September
37800
27000
October
44100
31500
November
50400
36000
December
60000
44000
These sales and purchase figures do not include VAT, so you must also have rows for VAT on sales and VAT on
Purchases. VAT will be added at 20%.
In March the company will purchase a company vehicle. The owner will be injecting £5000 of their own savings to the
business and borrowing a further £3000 from the bank. Both of these amounts will enter the bank account in March, and
in the same month the vehicle will be paid for, costing £9000. Repayments on the loan will begin the following month; the
amounts will be £50 per month capital repayment and £25 interest.
The owner has some living accommodation above the shop which they rent out. The rent is £250 per month. The
business mortgage on the shop costs £950per month. Business rates are likely to be £360 per month, which is payable in
10 monthly instalments beginning in March.
The owner’s drawings will be £1700 per month and will pay £175 per month on advertising. This is expected to rise to
£300 in September and October and $450 in November and December. Insurance will be £110 per month. The wage bill
will be £7600 per month rising to £8000 per month in June. The owner is contemplating taking on another employee to
help as the shop has been busy lately. If this happens the new employee would start in June and their wages would be
£750 per month.
Overdraft interest would be charged at 12% per annum on a monthly basis. Interest will be paid monthly based on the
previous months closing balance. The opening balance will be £1050.
Do not forget to claim back excess VAT or pay excess VAT collected on your forecast. This needs to be shown every 3
months as a Payment to HMRC or it being reclaimed. To calculate this work out the total VAT received on sales and
deduct it from the VAT paid on purchases. If you end up with a positive figure the business can reclaim this amount!