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Credit value: 10

5

Business accounting

In this unit, you will learn about how important money is to a business. Whether a sole trader or a large business, the owners and managers need to keep a close eye on their finances to ensure that enough money is coming in to cover and preferably exceed the amount of money going out.
Business accounting considers why it is so important for businesses to keep track of their finances to ensure their survival. In particular in this unit, you will learn about the flow of money in and out of the business and the importance of the timing of these cash flows. Imagine if you wanted to go out this Saturday but had no money – you may know that you will be getting paid in two weeks’ time, but you would have a cash flow problem. The same can be true in business. You will learn how to draw up a cash flow forecast for a business and why this is important. You will also learn how to draw up financial records for a business so that at the end of a year, a business can work out if it has made a profit or a loss, and also what the business is worth. Most people who are in business are interested in how much money they are making and try to find ways of increasing the amount of money made by controlling the cash coming into and going out of the business. Often learners say that they do not like finance because it is like maths. This is not true. The numbers are straightforward and really it is about money!

Learning outcomes

After completing this unit, you should: 1. understand the purpose of accounting and the categorisation of business income and expenditure 2. be able to prepare a cash flow forecast 3. be able to prepare profit and loss accounts and balance sheets 4. be able to review business performance using simple ratio analysis.

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