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Unit 6 – Business Finance and Accounting

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1 Unit 6 – Business Finance and Accounting
Balance Sheet 18/02/2019 Unit 6 – Business Finance and Accounting Business Accounting

2 Balance Sheet 18/02/2019 Aims Explain the meaning of accounts, and understand why businesses need to keep them Explain the interests of various users of business accounts

3 Balance Sheet 18/02/2019 Accounts Accounts are the financial records of a firm’s transactions. FINAL accounts are prepared at the end of a financial year and give details of the financial performance of the business. To create these accounts, accountants need to record business transactions and activities using a number of financial documents…

4 Balance Sheet 18/02/2019 Financial documents Read the information in the case study on pages and match the correct description to the terms in the table on your worksheet

5 Balance Sheet 18/02/2019 Payment methods Businesses can take payment for goods and services in several ways – a range of accepted/supported methods ensures customer satisfaction.

6 Activities Read page 109 and answer revision question 1
Balance Sheet 18/02/2019 Activities Read page 109 and answer revision question 1 Complete the activities from previous lessons… Use the answers at the back of the textbook and the back tables to self-assess. Textbook 8.3 and 8.4 (p.130) 9.5 (143) 9.6 (145) Cashflow Worksheets 2.1 (introduction) 2.2 (makeum and useum) Quizes Financing business activity Cash flow

7 Unit 6 – Business Finance and Accounting
Balance Sheet 18/02/2019 Unit 6 – Business Finance and Accounting Trading, Profit and Loss Account

8 Trading, Profit and Loss Account
Balance Sheet 18/02/2019 Trading, Profit and Loss Account Trading Account – shows how the difference between the cost of goods sold and what they we sold for Gross Profit – sales revenue minus cost of sales Cost of Sales – the cost of producing or buying goods sold by the business during a period of time. Opening stock plus purchases minus closing stock

9 Gross Profit = Sales Revenue – Cost of Sales
Balance Sheet 18/02/2019 Trading Account e.g. if a shop bought $50,000 of goods during the year and sold them for $75,000, the gross profit would be $25,000 Gross Profit = Sales Revenue – Cost of Sales Gross profit is not the final profit for the business – overheads and expenses are not deducted yet.

10 Cost of Sales = Opening Stock + Purchases – Closing Stock
Balance Sheet 18/02/2019 Trading Account Cost of sales does not JUST include good purchased. There will be goods left from the last time period (opening stock) and goods left over for the next period (closing stock). Cost of Sales = Opening Stock + Purchases – Closing Stock

11 Cost of Sales = Opening Stock + Purchases – Closing Stock
Balance Sheet 18/02/2019 Trading Account In summary… Gross Profit = Sales Revenue – Cost of Sales Sales Revenue = number sold x price Cost of Sales = Opening Stock + Purchases – Closing Stock

12 Have a go… Complete activities… 7.1 7.2 Balance Sheet 18/02/2019
7.1 a=1,500; b=9,000; c=60,000; d=75,000 7.2 b=11,000; c=1,000; d=60,000

13 Profit and Loss Account
Balance Sheet 18/02/2019 Profit and Loss Account This shows how the ‘net profit’ is calculated to determine the final profit of the business after all expenses have been deducted. Net Profit = Gross Profit – Expenses/Overheads Look at the example on page 112

14 Appropriation Account
Balance Sheet 18/02/2019 Appropriation Account This final part of the Trading Profit and Loss Account shows what the company has done with the profits it made during the time period. Profits can be… Distributed to shareholders in the form of dividends Retained for future use Look at the example on page 113

15 Trading, Profit and Loss Account
Balance Sheet 18/02/2019 Trading, Profit and Loss Account Complete the following activities… Worksheet 3.1 (Introduction to profit and loss) Worksheet 3.2 (Makeum and Useum Ltd.) Rev 280 COS 100 GP 180 Expenses 30 Profit BT 150 Tax 40 Interest 15 NP 95 Div 25 RP 70

16 Unit 6 – Business Finance and Accounting
Balance Sheet 18/02/2019 Unit 6 – Business Finance and Accounting Balance Sheet

17 Balance Sheet 18/02/2019 Balance Sheets This account shows how much a business is worth at a particular point in time. ‘Worth’ is worked out by calculating the value of the assets and liabilities of a business… Liabilities – the money that has been borrowed or invested by a business to buy assets. Assets – the items that the money raised has been spent on

18 Assets Assets can either be:
‘fixed’ (long term, that are likely to be kept in the business for more than 1 year) or ‘current’ (short term, that are likely to be held by the business for 1 year or less)

19 Examples? FIXED ASSETS CURRENT ASSETS

20 Assets in the Balance Sheet

21 Interest on borrowed finance
Liabilities Liabilities can either be… Current (money that the business owes back within 1 year) Non-current (money that a business owes back in 1 year or more) Current Liabilities Non-Current Liabilities Bank overdraft Bank loan Creditors Share capital Interest on borrowed finance

22 Liabilities in the Balance Sheet

23 Task Complete the balance sheet for Makeum and Useum Ltd using the information provided. Extension – write your thoughts/comments about the financial position of the business underneath.

24 Key principle of a balance sheet
must equal all assets all liabilities It is essential that businesses account for exactly how all money borrowed has been spent. If a company is unable to balance where their money has been spent with where their money has come from, they will inevitably get into financial difficulty. In addition, the information in a balance sheet is of particular interest to those who have invested in the business, for example shareholders. They will want to know exactly how their money has been spent and will doubtless question any discrepancies which arise. Which means that: must equal where money has been spent where money came from

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