Unit 3 P1
Describe the purpose of accounting for an organization
P1
* Purpose of Accounting in Business
The main aim of any business is to earn profits and also to remain solvent, i.e., it should have enough resources to pay its employees, creditors and to carry on with the day-to-day activities of the business. The main purpose of accounting system is to prepare financial statements, that will help the various external and internal parties of the business to appraise the profitability as well as the solvency of the business. The three main financial statements that are prepared for the purpose of accounting information are as follows.
Balance Sheet
A balance sheet is the most important financial statement of a company. The balance sheet …show more content…
The financial statements include the details of the salary and wages of the employees. They also indicate the deductions made from these salaries. Maintaining records of these ensures that the organization is being fair to its employees, who are a part of the society
P2
Explain the difference between capital and revenue items of expenditure and income 1. Defined
Capital expenditures are purchases a company will make that result in an addition or replacement of an asset. These assets are typically long-term items the company will use to generate sales. Revenue expenditures relate to money spent maintaining the company’s operating facilities and equipment.
Features
Capital expenditures affect balance sheet accounts and can increase the economic wealth of a company. Revenue expenditures are typically classified as expenses, meaning they go against the income a company generates during an accounting period.
Significance
Keeping these two items separate and correctly classified in the company’s accounting books is important. Companies that record revenue expenditures as assets will create a distortion in their accounting figures, resulting in the fraudulent increase of net income.
M1 Analyse the cash flow problems a business might
P1
* Purpose of Accounting in Business
The main aim of any business is to earn profits and also to remain solvent, i.e., it should have enough resources to pay its employees, creditors and to carry on with the day-to-day activities of the business. The main purpose of accounting system is to prepare financial statements, that will help the various external and internal parties of the business to appraise the profitability as well as the solvency of the business. The three main financial statements that are prepared for the purpose of accounting information are as follows.
Balance Sheet
A balance sheet is the most important financial statement of a company. The balance sheet …show more content…
The financial statements include the details of the salary and wages of the employees. They also indicate the deductions made from these salaries. Maintaining records of these ensures that the organization is being fair to its employees, who are a part of the society
P2
Explain the difference between capital and revenue items of expenditure and income 1. Defined
Capital expenditures are purchases a company will make that result in an addition or replacement of an asset. These assets are typically long-term items the company will use to generate sales. Revenue expenditures relate to money spent maintaining the company’s operating facilities and equipment.
Features
Capital expenditures affect balance sheet accounts and can increase the economic wealth of a company. Revenue expenditures are typically classified as expenses, meaning they go against the income a company generates during an accounting period.
Significance
Keeping these two items separate and correctly classified in the company’s accounting books is important. Companies that record revenue expenditures as assets will create a distortion in their accounting figures, resulting in the fraudulent increase of net income.
M1 Analyse the cash flow problems a business might