Business Accounting P1,P2

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P1

Why is it important to keep accurate financial records?

Financial records tell you how much income your business is generating and how it’s being spent on things like overheads and products etc. You can then create a profit and loss balance sheet, this is important so that your financial advisor can then tell you what is going good or what is going bad and from that he can direct you on what to do. If a business doesn’t keep it right with the bill then they cou8ld end up in trouble with the HM Revenue and customs (HMRC). If the business doesn’t record the cash transactions correctly then it cannot report its financial bills. The sales records will be updated regularly; this should give you a good idea on how the business is doing through sales, receiving payment, paying expenses and so on. The money going out seems to be going out faster than the money coming in then the owner or bookmaker should keep a close eye on the bank balance to ensure that they have sufficient funds for future transactions.

Record Transactions

Keeping an accurate and up to date record of your transactions is a very crucial part of maintain a healthy business. Either the owner or bookmaker will make an accurate record on what is coming in and out of the business such as money in from sales or money out through bills and expenses. If you don’t record your transaction correctly then you end up in trouble with the HM Revenue (HMRC).

Monitoring Activity

Records should be updated regularly so that you can have a clear look at how your business is doing in terms of paying your expenses, receiving payments and sale records. From this you can see if your expenses and so on are raising or falling. You should also keep an eye on the bank balance so you have sufficient funds for future transactions and day to day expenses.

Control

If you keep an accurate record of the transactions and closely monitor it then you can take better actions in controlling the balance between money coming in and money going out. If the money was flying out compared to coming in then the owner would be looking for ways to control or cut the costs to a certain degree.

Management of the business

A manager is the person who is responsible for the monitoring, planning and the controlling of the resources that they are responsible for. A manager who is good and familiar with the business accounts will be better to make informed and future decisions. The manager carefully organises and co-ordinates the resources’ including materials, staff, stock and money. The manager must make sure that there are sufficient funds in the account to order new stock, pay wages and bills and meet other cash demands and to balance out the money flow

P2
Explain the difference between capital and revenue items of expenditure and income.

Capital Income

Capital income is the money that is used to start up a business or buy additional equipment and is normally invested by the owners or investors. It is used to buy fixed assets, these are things that will be there for a considerable amount of time e.g. vehicles, premises or equipment. Capital income is usually used to buy opening stock, although as time goes by and the business develops the sales should start paying for the stock. A business can have different sources of capital income depending on the owner or type of business.

Partnership

This is when two or more people come together to start a business, they are both expected to pull their weight and contribute to the financial side of the business. This puts more money in the bank to play about with. They share the profit together but also share the debt, this can be secured by the partners own assets so it is a risky business.

Shares

Shares are basically a we part of the business that is divided up between the owners and shareholders, the shareholders all pitch in and contribute to the capital income of the business. The shareholders have so...
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