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Business BTEC Pearson 2023-2024-2025 > Learning Outcome C > Flashcards

Learning Outcome C Flashcards

1
Q

What is the purpose of accounting?

A
  • Provide the information that is needed for sound decision making.
  • To prepare financial reports that provide information about a firms performance.
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2
Q

What are the 5 purposes of accounting?

A

Recording transactions, management of the business, compliance, measuring performance, control.

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3
Q

What is the explanation of Recording Transaction?

A
  • Business owner must record all sales (income) and bills (expenses).
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4
Q

What is the explanation of Management Of The Business?

A
  • Planning, monitoring and controlling of resources they are responsible for. – involves coordination of resources e.g. staff and stock.
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5
Q

What is the explanation of Compliance?

A
  • Financial reporting is governed by laws and regulations.
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6
Q

What is the explanation of Measuring Performance?

A
  • Without accounting it would be impossible to know whether the business is making a profit or a loss.
    The key indicators of financial performance:
    = Sales revenue.
    = Gross profit.
    = Net profit.
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7
Q

What is the explanation of Control?

A
  • Assisting with the prevention of fraud, trade receivables, and trade payables.
  • Accounting allows the business to take control of its finances as it knows the income and outgoings.
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8
Q

What are Trade Receivables in terms of control as a purpose of accounting?

A

Are amounts billed by a business to customers when it delivers goods or services to them – documented on formal invoices.

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9
Q

What are Trade payables in terms of control as a purpose of accounting?

A

Amount of money that a business owes to suppliers.

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10
Q

What are benefits of the purpose of accounting : Recording Transactions?

A

+ Helps to make informed and precise decisions at any time.
+ Helps to remember to pay bills as, failure to chase payments or forgetting to pay bills can mean trouble with HMRC.

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11
Q

What are benefits of the purpose of accounting : Management Of The Business?

A

+ Ensures there are sufficient funds to pay wages, order new stock, pay bills & and meet other cash outflows by balancing with income from sales.

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12
Q

What are benefits of the purpose of accounting : Compliance?

A

+ Comply with laws and regulations to ensure shareholders are not misinformed.
+ Being compliant prevents the risk of fraud.

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13
Q

What are benefits of the purpose of accounting : Measuring Performance?

A

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14
Q

What are benefits of the purpose of accounting : Control?

A

+ Enable the business to have a clear picture of its trade receivables and payables.
+ Helps to prevent fraud as transactions will flag as being unusual.

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15
Q

Profit definition:
+ calculation

A

When total revenue (income) from sales is higher than the total costs to. a business.
Total Revenue - Total Costs.

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16
Q

Loss definition:

A

Shortfall suffered when total revenue from sales is lower than the total costs to a business.

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17
Q

Gross profit:
+ Calculation

A

Sales Revenue - Cost Of Goods Sold.

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18
Q

Sales revenue:
+ Calculation

A

Quantity Sold x Selling Price.

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19
Q

Net profit:
+ Calculation

A

Gross Profit - Other Expenses.

20
Q

What are 5 sources of CAPITAL income?

A

Loans, Mortgages, Shares, Owners Capital, Debentures.

21
Q

What are loans?
(CAPITAL income)

A

The transfer of money by one party to another with an agreement to pay it back + interest.

22
Q

What are mortgages?
(CAPITAL income)

A

A loan used to buy a property or land.
If pay early = fine.
Most run for 25 years.
Repossession of do not pay regular payments.

23
Q

What are shares?
(CAPITAL income)

A

Buying shares gives the buyer part ownership of the business. - unit of ownership in a company.

A company can issue shares to raise capital. Shareholders are owners of the business and usually receive voting rights. A shareholder receives income in the form of dividends if the business is profitable.

24
Q

What is owners capital?
(CAPITAL income)

A

The amount the owner of a business has invested in their business using their personal savings. (The proportion of the total assets funded by the owners money).

25
Q

What are debentures?
(CAPITAL income)

A

A debenture is an instrument used by a lender, such as a bank, when providing capital (money used to build, run or grow a business) to companies and individuals.

26
Q

What are the main points about debentures?

A

= Money used to build, run or grow a business.
= Medium to long term source of finance.
= Large companies use them to source income - Credit worthy? Good reputation? = Small companies not use them as may not have built this.
= Pay an interest rate.
= Redeemable or repayable on a fixed date.
= Company typically makes these scheduled debt interest repayments before they pay stock dividends to shareholders.
= Advantageous to companies as carry lower interest rates and longer repayment dates.

27
Q

What are 5 sources of REVENUE income?

A

Sales, Rent Received, Commission, Interest Received, Discount Received.

28
Q

What are sales?
(REVENUE income)

A

Income from selling products or services. Can be from cash or credit sales.

29
Q

What is rent received?
(REVENUE income)

A

The rent which is received by the owner from the tenant for providing facilities to the tenant for a specific period of time.

30
Q

What is commission?
(REVENUE income)

A

When a business or individual sells a product on behalf of another business. If sale is successful then the seller receives commission e.g. YouTubers.

31
Q

What is interest received?
(REVENUE income)

A

Money made from savings or investments.
Revenue income = If a business is paid interest for an investment they have made or the balances they have in their account.

32
Q

What is discount received?
(REVENUE income)

A

A business pays a reduced price for goods or services. If a business pays a supplier quickly then that business may receive a discount, this in turn has decreased the cost to the business.

33
Q

What are intangibles?
(Expenditure)

A

Something you cannot touch, not a physical item.

34
Q

What are 5 examples of intangibles?
(Expenditure)

A
  1. Patent.
  2. Trademark.
  3. Goodwill.
  4. Brand Recognition.
  5. Intellectual Property.
35
Q

What are Patents?
(An intangible)

A
  • A patent is the legal protection of an invention, such as a unique feature of a product.
  • Allows the business to exploit this in the future by launching an innovative product at a premium selling price.
36
Q

What are Trademarks?
(An intangible)

A
  • A symbol, logo, brand name or even a colour that sets apart one’s business or goods from those of its competitors.
  • Can be a key influence on consumer choice and build strong brand loyalty.
37
Q

What is Goodwill?
(An intangible)

A
  • Purchasing an existing business, its name and reputation will already be known, it may have an established customer base.
  • Increases value of the business and increases the selling price of the business.
  • A sum of money is added to the value of the business to reflect the value of this goodwill.
38
Q

What is Brand Recognition?
(An intangible)

A
  • A feature of a business recognised by customers and distinguishes a business from its competitors.
39
Q

What is Intellectual Property?
(An intangible)

A
  • Intellectual property is something that you create using your mind. For example, a story, an invention, an artistic work or symbol.
40
Q

What is capital expenditure?

A

Funds used to acquire or upgrade physical assets such as property, buildings or equipment and also intangibles.

41
Q

Capital expenditure is a long term source of income?

A

TRUE.

42
Q

What are examples of capital expenditure?

A

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43
Q

What is revenue expenditure?

A

Money spent by the business on the day to day running of the business.

44
Q

Revenue expenditure is a short term source of income?

A

TRUE.

45
Q

What will the amount of money spent by a business depend on?

A

It depends on the type of the business being run.

Business BTEC Pearson 2023-2024-2025 (13 decks)

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