The aim of this unit is to enable learners to understand the purpose of accounting, and the associated processes and its role in the managing of a business. Learners will develop the skills and knowledge needed to understand financial information.
On completion of this unit a learner should:
Understanding how a business operates and what makes it successful, requires knowledge of the accounting process. Accounting involves recording business transactions and, this in turn, leads to the generation of financial information which can be used as the basis of good financial control and planning. Inadequate record keeping and a lack of effective planning ultimately lead to poor financial results. It is vital that owners and managers of businesses recognise the indications of potential difficulties. Remedial action can then be taken.
The unit is divided into two parts. The first develops an understanding of the accounting processes necessary to provide accurate and relevant financial information. The second part covers the practical aspect of carrying out those accounting activities.
Learners will be introduced to accounting terminology as they study the purpose and function of accounting and consider the various categories of business income and expenditure. It is important to know the sources of an organisation's income and the nature of its expenditure, as this clarifies the basis of its profitability and enables more effective control of the business. Control begins with the planning process and learners will study the use of a cash flow forecast which requires managers to set cash flow targets that can be monitored and adjusted on a regular basis. Learners will consider the effective management of cash flow and the implications of cash flow problems. The link between business failure and cash flow problems will be highlighted.
The measurement of an organisation's financial performance and position requires an understanding of a basic profit and loss account and balance sheet with this understanding learners can analyse profitability, liquidity and efficiency of the organisation through the application of ratio analysis. Analysis will always require comparison of current figures with those from a previous accounting period, or those of a similar business organisation. Learners will discover how to carry out ratio analysis as well as the meaning and implication of the figures.