The purpose of accounting is to keep track of transactions and recording revenue and expenses are important business processes often applies to an accounting department or a financial manager. Accounting is a business conduct that allows companies to record and analyse financial information that can be used to decide a company’s financial status. Financial accounting statements are mainly to show the financial position of a business at a particular point in times and to show how the business has achieved over a specific period. The three main financial accounting statements that help achieve this aims are
* The profit and loss account for the reporting period
* A balance sheet for the business at the end of the reporting period
* A cash flow statement for the reporting period
A balance sheet shows at a specific point in time what resources are owned by a business and also shows how much has been invested in the business and what sources of that investment finance were. However the profit and loss account provides a perspective on a longer time-period.
Monitoring business activities are Records will be updated on a regular basis this indicates how the company is doing for example there sales, receiving payments, paying expenses. The owner would realise if the money going it seemed to be increasing while the sales were going down. Controlling the business accounts describes the Accounts receivable and accounts payable are the most commonly used in control accounts, and their balances are controlled of the accuracy of associated subsidiary records. The manger should be responsible for planning, monitoring, and controlling all the resources they are responsible for. The management of the business is important and needs to be carefully coordination of resources including staffs, materials, stock and money. Finance records are very important without it, it would be impossible to know if the business is making profit or a loss. The key indicators if financial performance includes gross profit, net profit, and value of owed to the business and value owed by the business.
To conclude the accountants have a very important job they keep tracks of money flows of organizations and individual. Their main job is to manage, control and assess the money flow into the company and also out of the company and find out the profits.
Expenditures means the amount spent. All capital expenditures represent either an asset or liability and are shown in the balance sheet. All revenue expenditures have to be taken away from the income by the firm. All revenue items will be taken to the profit and loss accounts. The differences between capital and revenue expenditures can change the fundamental principle of a correct accounting. All items of capita and expenditure will be included in the profit and loss account. If any incorrect adjustment or commission is made between these expenditures, these will promote the final results as disclosed by revenue accounts or the balance sheet.
Capital income –
* Capital income can be described as the income that a person or business makes from the sale of their capital investment assets.(internet)
* Capital income is the money that is used to set up a business(book)
* The money, property, and other valuables which collectively represent the wealth of an individual or business.(internet)
* Capital income might also be used to buy opening stock.
Capital expenditure –
* Capital expenditures are purchases that are reduced from expenses in the years after the item is purchased.(book)
* A capital expenditure usually creates a realized benefit over a time frame greater than a year. Items that last for many years are considered capital expenditures.(internet)
* Capital expenditure is money spent by a business and can be split into two categories; capital expenditures and revenue expenditures.(book)
* Capital expenditures are expenditures creating future benefits.(internet)
* Revenue expenditure is spending on items on day-to-day or regular basis.(Book)
* The money spent on items that will be used within a year(book)
D) The Bay Horse Bar and Bistro (Moulsham Street).
Capital Income: The Bay Horse was reopened in July 2011, after being closed for 6 years. The property was leased out, using the owners savings and dividends from other private ltd companies. A long term loan was also taken out from the bank, to cover the costs until the company breaks even.
Capital Expenditure: Using the money under capital income, the whole building was renovated. The capital income was firstly spent on redesigning the interior and exterior. The whole inside was changed, with walls removed and new walls put up. The patio outside was demolished with a modern outside area put where the patio previously was. The car park was also re surfaced, as well as the building re painted. The money was then spent on the interior decorating, to completely change the look and hope to attract new customers. Capital income was also spent on the fixed assets that were purchased; these include a bar, tables, chairs, kitchen utilities and surfaces. The building lease was also paid with capital income.
Revenue Income: The company’s revenue income is provided mainly by the car parking spaces being rented out to local workers; the 32 spaces are rented out on a 6 monthly contract. The company also gain money from their food and drink sales within the bar and bistro.
Revenue Expenditure: The majority of the expenditure is currently spent on advertising the business. Money is also spent on purchasing the food that is used to prepare all the meals that are supplied. A large amount of drinks are sold daily, so they have to be restocked. Other expenses include staff wages, cleaning fees, insurance and repairs.
Boots the Chemists
Boots the Chemists make revenue income by providing their day to day product sales and services, such as pharmaceutical contracts, product sales, healthcare consulting, fitness clubs and photo developing services. All these combined help Boots to make the profit that they do on a day to day routine. Boots receive regular payments from their pharmaceutical contracts; this means that companies Boots deliver to have to pay Boots on a regular basis in order for Boots to keep delivering the goods, for example, hospitals and care homes pay Boots to deliver medicines and various medical supplies on a daily basis.
Boots would possibly be purchasing vans, shelving and fixtures, tills, computers, renovations, photo development equipment, lighting, food fridges, trolleys, new stores, and baskets and security cameras. These all come under the capital expenditure category because they would all be staying in the business for a long period of time and are necessary for Boots to create a profit.
In order for Boots to keep running it’s day to day functions it would need to pay for certain things on a regular basis, such as staffing costs, electricity costs, gas costs, fuel costs (petrol , diesel, biodiesel). Boots will spend a lot of money on advertising campaigns in order to stay ahead of competing companies, such as Superdrug.
Boots would raise capital income in various ways, such as selling off multiple shares in the company to investors wanting to be a part of the company. Boots could also gain money from collecting debentures.