Part 1 a) Explain why a business needs to keep accounts.
A business needs to keep accounts because a business need to
Monitor activity – There are records in business, record will update daily and therefore we need accounting to provide the business a good indication of how the business are doing in terms of sales, receiving payments and paying expenses.
Control – We needs good records in order to control the balance between cash flow of the business. We need to calculate the closing stock and bring the closing stock to opening stock to know the cash flow, how much stock we need to buy with the opening stock.
Measurement of financial performance – We need financial records to find out if the business is making profit or a loss, or whether the business has own dept. or not. Accounting helps to separate the balance sheet and cash flow. The cash flow will measure our financial performance, the balance sheet will measure value of the organization.
Prevent fraud – Finical reports need to be shown to public or your investors of the business, you can brag how well your business you are doing when your business is actually making a lost. The finical report can be the evidence of how well your company is doing.
Record transactions – Keeping records accurate and up to date for business help the business run smoothly. And to not get in trouble with the HMRC, because if you don’t keep them accurate you may miscount the money you needed to pay HMRC.
Give a description AND example of * Capital income – The income of money for you to establish the business to start a business, it needs huge amount of money to buy assets or intangible assets like equipment, building and machinery. We can borrow capital income from the bank or a montage. Capital income could come from banks, from montage and loans, the business owner’s money, money from partnership and shares. 1) Montage – Montage is kind of like a loan, it is a long term thing, the way you ask for a montage is, you give the bank a house or land to keep and exchange for money, if your house and land is big, you will get more money. The amount of money depends on the valued of what you offered the bank. If you can’t pay them the money back on time, the bank will take your house or land off you. 2) Loan- When you simply go to the bank and ask for money, the bank will have an interest rate (fixed loan or alterable) each month or each year on the loan. 3) Owner’s money – Capital income could come from the owner’s money, the owner of the business will be willing to pay for the fussiness especially if you are a sole trader. Or if you company is ownership, you can ask to borrow from your partners. 4) Shares – Shareholders will pay in money to the organization to buy some shares of the limited companies to receive dividend in return. Buying shares is a huge amount of money so the money can be used as capital income. * Revenue income – Money that comes into the business from performing it is day to day function. This could be selling products or providing a service. Normally revenue income are from 1) Sales – Companies will sell their goods or a service to consumers to gain income, this is called sales. Sales could be cash sales and credit sales. Cash sales are when you get cash from sales. Credit sales are when customer pays with credit card, so you have to wait for the next month to get your money. 2) Rent received – When you let other people or company to use your equipment and stuff, this equipment or stuff could be land, machinery or cars, and they pay you money for using your stuff. 3) Commission received – For example, if your company helps other company to sell their product, before you help them, you will negotiate on how much commission you will receive (a certain percentage of the profit)m the percentage of the profit is called commission. * Capital expenditure – Money that you need to spent to start a business. Buying assets that will