1. Questions on Financial Management

2. Question In your own words, explain the role and importance of financial management to a manufacturer whose objective is to improve quality. (4 marks)

3. Solution to make sure there are sufficient funds for the organisation to buy all the resources it needs to achieve its objectives i.e. appropriate quality of raw materials, correctly trained staff, well maintained machinery (1) to make sure there is enough money to recruit and train appropriately skilled staff to satisfy the objective of improving quality. (1) to make sure that all the costs/expenses are under control (1) to make sure that the organisation is performing profitably and efficiently without compromising quality (1) to reduce costs of raw materials by ensuring the best value for money from suppliers. (1)

4. Question Outline 2 reasons why the marketing and financial departments may face conflicts of interest within an organisation (2 marks)

5. Solution Marketing department may require cash in order to carry out promotional activities e.g. advertising, free gifts Marketing may wish to discount price Marketing may wish to use techniques like BOGOF All of the above are costs to the business and may result in reduced profits.

6. Question Distinguish between a cash account and a credit account. (1 mark) Describe the advantages of using the BACS system to pay wages.(3 marks)

7. Solution A cash account is normally paid using petty cash whereas a credit account is where a business receive goods or services and pay at a later date.

8. Questions Distinguish between the following financial terms 1.Opening stock and closing stock 2.Gross profit and net profit 3.purchase returns and sales returns 4.Purchases and sales(4) Identify and describe 2 expenses which might appear of the P & L account.(4) Describe the term “other income received” (1)

9. Questions Distinguish between the following financial terms 1.Fixed Assets and Current Assets 2.Long-term liability and Current Liability 3.Capital and drawings (3)

10. Question Describe the purpose of an organisation preparing a profit and loss account and a balance sheet. (2 marks)

11. Solution An organisation would produce a profit and loss account because its shows the income and costs of the business over a financial period. This enables a business to work out if it has run at a profit or loss. They would prepare a balance sheet because it lists the assets and liabilities of the business, how it is financed and the value of the business at that particular time.

12. Solution The trading account shows the gross profit This is achieved by deducting the cost of goods sold from sales revenue The profit and loss account shows how much net profit the business has made This is achieved by deducting expenses from the gross profit The balance sheet shows the financial worth of the organisation. It is calculated by deducting the liabilities of the business from the assets

13. Solution The trading account shows the gross profit This is achieved by deducting the cost of goods sold from sales revenue The profit and loss account shows how much net profit the business has made This is achieved by deducting expenses from the gross profit The balance sheet shows the financial worth of the organisation. It is calculated by deducting the liabilities of the business from the assets

14. Question Outline the main elements in the final accounts of a business and how each of these elements is calculated (6 marks)

15. Solution The trading account shows the gross profit This is achieved by deducting the cost of goods sold from sales revenue The profit and loss account shows how much net profit the business has made This is achieved by deducting expenses from the gross profit The balance sheet shows the financial worth of the organisation. It is calculated by deducting the liabilities of the business from the assets

16. Solution An organisation would produce a profit and loss account because its shows the income and costs of the business over a financial period. This enables a business to work out if it has run at a profit or loss. They would prepare a balance sheet because it lists the assets and liabilities of the business, how it is financed and the value of the business at that particular time.

17. Questions Distinguish between the following financial terms 1.Fixed Assets and Current Assets 2.Long-term liability and Current Liability 3.Capital and drawings (3)

18. Question Describe the purpose of an organisation preparing a profit and loss account and a balance sheet. (2 marks)