Unit 3 Personal & Business Finance LOC

Unit 3: Personal & Business
Finance
Moving onto Business
Finance
From this point forward everything is relating to
business finance and not personal finance like
it did in Outcome A & B.
© Two Teachers 2020. Copying permitted for purchasing institution only.

Learning Outcome C
Understand the Purpose of

Accounting

Learning Outcome C1
Purpose of Accounting

Activity 1 – Create a Glossary
of Accounting Terms
During learning Outcome C there may be some
new terms that you have not come across before.
Revisit this glossary throughout the learning

outcome when you come across a word you are
unsure about or need to remember.
Look up the word if needed and add more rows

where necessary.

What is the Purpose of
Accounting?
The purpose of accounting is to provide the
information that is needed for sound decision
making.
The main purpose of accounting is to prepare

financial reports that provide information about a
firm's performance.

The Purpose of Accounting
The following are the key purposes of accounting.
Each purpose has a reason and has an importance
to the businesses ongoing success.
• Record Transactions
• Management of the Business
• Compliance
• Measuring Performance
• Control

Activity 2 - What is the
Purpose of Accounting?
Complete the activity in the student workbook
regarding the purpose of accounting and the five
reasons for accounting.
Whilst we discuss each of the five purposes of

accounting fill in the table with what that purpose
is and the benefits of it to a business.
Don’t forget to fill in your glossary!

Recording Transactions
It is very important that business owners make a habit of
recording their business transactions every day. It will assist
in making informed, efficient and precise decisions at any
time.
Proper Bookkeeping involves maintaining up to date

accounting systems, which includes recording business
transactions as they occur, as well as keeping important
receipts and expenses incurred on behalf of the business.
If the business does not record income and outgoings then it

can have serious impacts such as the business paying
incorrect taxes to HM Revenue and Customs.
Management of the Business
(Planning, Monitoring and Controlling)
When following accounting procedure well and recording

transactions accurately it can provide a business with vital
information that can help manage the business in terms of
planning for the future, monitoring current performance and
making changes to control the performance of the business.
The purpose for a manager of understanding the accounts of

the business allows them to make informed decisions about the
direction of the company.
It can allow them to plan for staffing levels, monitor levels of

stock and control costs such as wages and budgets.

Compliance
In terms of accounting, compliance simply means making sure
that a company’s financial matters are being handled in
accordance with laws and regulations.
At any point in time, a corporation should be able to provide

accurate information about its accounts to its shareholders or to
regulating authorities.
To ensure compliance, it’s necessary to have processes in place

for recording, verifying, and reporting the value of a company’s
assets, liabilities, debts, and expenses.
Being compliant means that you prevent fraud (the inappropriate

use of company funds) of as much as physically possible and
also that you are meeting the laws and regulations set.
Measuring Performance
How can you measure a businesses performance without accurate
accounting?
You can’t!
Without accounting it would be impossible to know whether the

business is making a profit or a loss. There are key indicators of
financial performance such as;
• Sales revenue (number of sales x selling price)

• Gross profit (Profit left after Cost of goods sold is taken from revenue)
• Net profit (Gross profit minus expenses)
In learning aim F we will investigate how to calculate these, however for

now you need to understand that they can be used to show the financial
performance of a business.

Control
Assisting with the prevention of fraud, trade receivables and trade
payables.
Just like allowing compliance, accounting allows the business to

take control of its finances as it knows the income and outgoings
therefore helping prevent fraud as transactions will flag as being
uncharacteristic or unusual and therefore will be investigated.
One really key form of control is that it enables the business to

have a clear picture of its trade receivables (money owed to the
business) and its trade payables (money the business owes).
Being able to control these two things means that the business will
ensure its survival as it will not owe too much money and it can
also manage the payments it is owed to establish good credit
control.

Activity 3 – Ranking of
Accounting Purposes
Rank the purpose of accounting and justify why
you have ranked the most important and least
important purposes.
Discuss which purpose of accounting would the

CEO of the company be most concerned with?
(weigh up a variety of purposes)

Activity 4 - Knowledge Check C1
Understand the Purpose of Accounting
• Name the 5 purposes of accounting
• Describe two of the purposes of accounting
• How do you calculate sales revenue
• What is the calculation for net profit
• Explain the benefit of compliance for a business
• Explain how accounting can be used to measure performance

Learning Outcome C2
Types of Income

Types of Income
Income is the money a business receives either
through a lump sum investment or from the sale
of its goods or service.
A businesses income can be split into two types:
1. Capital
2. Revenue

Activity 5 – Capital Income
As we discuss each type of capital income
available use the space provided to take notes
on the key features of each type of capital
income.

Capital Income
Capital income is income that comes from
capital invested in the business by investors /
owners of the business. It is not money that
comes from any form of production or work.
Capital income is usually used to buy assets for

the business that are within the business for the
medium to long term such as premises or
equipment.

Sources of Capital Income
• Loans
• Mortgages
• Shares
• Owners Capital
• Debentures

Loans
• A loan is when money is given to a business usually from a bank and
the business repays the loan amount plus interest
• Loan terms are agreed to by each party before any money is paid
• A loan may be secured by collateral such as a mortgage or it may be
unsecured in the form of credit cards
• Monthly payments must be repaid regardless of whether the business is
making a profit or not
Mortgages
A mortgage is a loan taken out to buy property or land. Most run for 25
years but the term can be shorter or longer. The loan is 'secured' against
the value of your home until it's paid off. If you can't keep up your
repayments the lender can repossess (take back) your home and sell it so
they get their money back. A business may use a mortgage to buy a
premises for their business such as a factory.

Shares
A company can issue shares to raise capital.
Shareholders are owners of the business and
usually receive voting rights. A shareholder
receives income in the form of dividends if the
business is profitable.
Owners Capital
This is when the owner funds the business
through their own personal savings.
Debentures
Medium to long term sources of finance. Large companies
use them to secure income. These debt instruments pay an
interest rate and are redeemable or repayable on a fixed
date.
A company typically makes these scheduled debt interest

payments before they pay stock dividends to shareholders.
Debentures are advantageous for companies since they

carry lower interest rates and longer repayment dates
compared to other types of loans and debt instruments.

Activity 6 – Capital Income
Infographic
Create an infographic that explains the types of capital income
available to a business.
Ensure the infographic is visually appealing and it investigates the

advantages and disadvantages of that source of capital income.
This can be created in your activity booklet by hand, on word or

on www.canva.com
For information on how to use Canva to create infographics click

the link below
https://designschool.canva.com/tutorials/

Revenue Income
Revenue income is the money that is flowing into the
business via the day to day operation of the
business.
Whereas capital income is an injection of money into

the business. Revenue income is a by-product of the
business performance. How the business receives
revenue income will depend on the sector the
business is in.
How can a business receive income?

Activity 7 – Sources of
Revenue Income Table
Complete the table with the sources of revenue
income. Use research where necessary.
Then answer the questions regarding revenue

income.

Table - Sources of Revenue
Income
Source of Revenue Income Explanation
Sales These can either be cash or credit sales and it is money

made from the sales of goods or services. For example if
a T-shirt brand sells 1 T-shirt for £30 then they will have a
revenue income from sales of £30.
Rent received A property mogul who owns residential or commercial
property would receive revenue income in the form of
rent as they charge others to use the properties.
Commission When a business or individual sells a product on behalf of
another business. If the sale is successful then the seller
receives a commission. YouTubers are a clear example of
this when they sell products they use on behalf of other
businesses. Once you purchase through their link then
the YouTuber makes a commission for that sale.

Table - Sources of Revenue
Income
Source of Revenue Income Explanation
Interest received Money made from savings or investments. If a

business is paid interest for an investment they have
made or for positive balances they have in their
account then this is classed as revenue income.
Discount received This is when a business pays a reduced price for
goods or services. If a business pays a supplier
quickly then that business may receive a discount,
this in turn has reduced the cost to the business.
Don’t forget to answer the two questions below the table in

your activity booklet

Activity 8 – Capital or Revenue
Income
From the list of different ways a business can receive income, identify whether it is a form of
capital income or revenue income.
Type of Income Capital or Revenue Income?
Loan from a bank Capital
Sales for hairdressing services Revenue
Commission on sale Revenue
Mortgage on a commercial property Capital

Argue whether it is better
Discount received for paying early Revenue
to have capital income or
Owners investing their money in the Capital revenue income
business
Debenture Capital
Money from the sale of shares Capital
Interest on cash in the bank Revenue
Rent from a tenant Revenue

Activity 9 - Knowledge Check
C2 Types of Income Crossword

Activity 9 - Knowledge Check C2
Types of Income Crossword
ANSWERS

Learning Outcome C3
Types of Expenditure

What is Expenditure?
Expenditure is the money that the business
spends. This can come in the form of;
1. Capital Expenditure
2. Revenue Expenditure

Capital Expenditure
Capital expenditure is funds used to acquire or
upgrade physical assets such as property,
buildings or equipment and also intangibles.

Non-current assets
Capital expenditure can be used to purchase non-current assets.
Non-current assets are a companies long term investments (longer
than a year).
Such items can be found on a businesses statement of financial

position and can also be called tangibles (physical items).
Examples of non-current assets are:
- Property
- Land
- Vehicles
- Equipment

Intangibles
Capital expenditure can also fund purchases of intangible
assets. Intangibles are things that are not physical.
Examples of intangibles include:
- Patents
- Trademarks
- Goodwill
- Brand recognition
- Intellectual property

Activity 10 - Intangibles
Whilst we discuss the most common types of intangibles complete the spider
diagram in your booklets with key points for each intangible.
Patents
A patent for an invention is granted by the government to the inventor, giving the
inventor the right to stop others, for a limited period, from making, using or selling
the invention without their permission. A patent is an asset as it prevents other
businesses possibly copying their unique selling point.
Trademarks
A trademark is a unique symbol or word(s) used to represent a business or its
products. Once registered, that same symbol or series of words cannot be used
by any other organisation, forever, as long as it remains in use and proper
paperwork and fees are paid. Unlike patents, which are granted for a period of 20
years.
Trademarks are valuable to a business as over time, trademarks become
synonymous with a company name, so that you don’t even need to see the name
to recognize a particular business. Think of the biggest brands such as Apple,
McDonald’s and Nike. Those businesses are associated with their iconic symbols.
Activity 10 - Intangibles
Goodwill
Is a sum of money added to a businesses value based on its customer
base, reputation and overall good name. When a business acquires an
existing business goodwill is factored in and an amount paid based on
the above customer base etc.
Brand recognition
A valuable intangible asset. Brand recognition cannot be touched
however it can be a deciding factor of whether an individual does
business with you. Brand recognition instills trust in the customer and is
therefore a valuable asset. People are more willing to shop with brands
they trust.
Intellectual property
Intellectual property is something that you create using your mind - for
example, a story, an invention, an artistic work or a symbol.

Activity 11 – Capital
Expenditure
Answer the questions in your workbook on capital expenditure.
• Define capital expenditure
• Explain with examples what a non current asset is
• Identify two types of capital expenditure
• Describe what is meant by an intangible asset
• Give two examples of intangibles
• Justify why brand recognition is an asset to a business.

Revenue Expenditure
Revenue expenditure is money spent by the
business on the day to day running of the
business.
The amount of money spent will depend on the
type of business being run. An online business
may have significantly lower revenue
expenditure than a manufacturing business with
lots of employees and buildings.

Types of Revenue Expenditure
Inventory
Rent
Rates
Heating & Lighting
Water
Insurance
Administration
Salaries
Wages
Marketing
Bank Charges
Interest Paid
Depreciation

Activity 12 – Types of Revenue
Expenditure
In your booklet draw a line from the type of revenue expenditure
to the correct definition and answer the questions in your booklet.

Activity 13 – Capital or
Revenue Expenditure
Answer the 10 questions in your activity booklet
regarding capital and revenue expenditure.

Activity 14 - Knowledge Check
C3 Types of Expenditure
Create a piece of work that covers the following for a business of your
choice:
• Explain the capital expenditure they have (provide examples)
• Explain revenue expenditure they have (provide examples)
• Discuss at least two intangibles the business has and why they are
important to them
• Assess the impact depreciation will have on the business financially
This can be in any format you wish. Make it visually appealing and
informative.
Activity 15 – Learning
Outcome C Kahoot Quiz
Attempt the Kahoot quiz to test your knowledge of Learning
Outcome C of Unit 3: Personal and Business Finance.
Once you have completed the quiz, answer the questions
below to assess your strengths and areas for development.
Kahoot link:
https://create.kahoot.it/v2/share/unit-3-personal-business-fi
nance-outcome-c/2a46c6be-773e-4df5-a854-e03fde7dc01
2
What did/20
you score on the Kahoot quiz?

Activity 16 – Learning Outcome
C Key Word Scramble
1. OECMCAINPL ________________________________________
2. OCSATARTSNNI ______________________________________
3. ASSEL UENEREV _____________________________________
4. ETSPY FO NECMOI ___________________________________
5. NNSMTVEITE ________________________________________
6. LPACATI ___________________________________________
7. PSTEY FO DITPUNXEERE ______________________________
8. VRNEEUE ___________________________________________
9. ALOSN _____________________________________________
10. SROAEGGTM _________________________________________
11. GINEILBTANS _______________________________________
12. SCAUINNRE _________________________________________

Activity – Key Word
Scramble Answers
1. OECMCAINPL __Compliance____________________________
2. OCSATARTSNNI __Transactions________________________
3. ASSEL UENEREV __Sales Revenue______________________
4. ETSPY FO NECMOI __Types of Income__________________
5. NNSMTVEITE __Investment____________________________
6. LPACATI __Capital__________________________________
7. PSTEY FO DITPUNXEERE __Types of Expenditure________
8. VRNEEUE __Revenue__________________________________
9. ALOSN __Loans______________________________________
10. SROAEGGTM Mortgages______________________________
11. GINEILBTANS __Intangibles__________________________
12. SCAUINNRE __Insurance______________________________

Activity 17 – Learning
Outcome C Word Search

Activity – Word Search
Answers

Activity 18 – Learning Outcome
C Crossword

Activity – Crossword
Answers

Activity 19 - Personal & Business
Finance Outcome C Checklist
Well done, you have now completed the input and set activities for Learning Outcome C, you
have one final task which is to complete the specification checklist below. First, you should
explain the terminology and topic areas in the space provided and then tick the box in the
last column when you feel exam ready with regards to that specific element of the
specification.

Unit 3 Personal &amp; Business Finance LOC

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Unit 3: Personal & Business

© Two Teachers 2020. Copying permitted for purchasing institution only.

Understand the Purpose of

© Two Teachers 2020. Copying permitted for purchasing institution only.

© Two Teachers 2020. Copying permitted for purchasing institution only.

Revisit this glossary throughout the learning

Look up the word if needed and add more rows

© Two Teachers 2020. Copying permitted for purchasing institution only.

The main purpose of accounting is to prepare

© Two Teachers 2020. Copying permitted for purchasing institution only.

© Two Teachers 2020. Copying permitted for purchasing institution only.

Whilst we discuss each of the five purposes of

Don’t forget to fill in your glossary!

© Two Teachers 2020. Copying permitted for purchasing institution only.

Proper Bookkeeping involves maintaining up to date

If the business does not record income and outgoings then it

When following accounting procedure well and recording

The purpose for a manager of understanding the accounts of

It can allow them to plan for staffing levels, monitor levels of

© Two Teachers 2020. Copying permitted for purchasing institution only.

At any point in time, a corporation should be able to provide

To ensure compliance, it’s necessary to have processes in place

Being compliant means that you prevent fraud (the inappropriate

Without accounting it would be impossible to know whether the

• Sales revenue (number of sales x selling price)

In learning aim F we will investigate how to calculate these, however for

© Two Teachers 2020. Copying permitted for purchasing institution only.

Just like allowing compliance, accounting allows the business to

One really key form of control is that it enables the business to

© Two Teachers 2020. Copying permitted for purchasing institution only.

Discuss which purpose of accounting would the

© Two Teachers 2020. Copying permitted for purchasing institution only.

• Describe two of the purposes of accounting

• How do you calculate sales revenue

• What is the calculation for net profit

• Explain the benefit of compliance for a business

• Explain how accounting can be used to measure performance

© Two Teachers 2020. Copying permitted for purchasing institution only.

© Two Teachers 2020. Copying permitted for purchasing institution only.

A businesses income can be split into two types:

© Two Teachers 2020. Copying permitted for purchasing institution only.

© Two Teachers 2020. Copying permitted for purchasing institution only.

Capital income is usually used to buy assets for

© Two Teachers 2020. Copying permitted for purchasing institution only.

© Two Teachers 2020. Copying permitted for purchasing institution only.

© Two Teachers 2020. Copying permitted for purchasing institution only.

A company typically makes these scheduled debt interest

Debentures are advantageous for companies since they

© Two Teachers 2020. Copying permitted for purchasing institution only.

Ensure the infographic is visually appealing and it investigates the

This can be created in your activity booklet by hand, on word or

For information on how to use Canva to create infographics click

© Two Teachers 2020. Copying permitted for purchasing institution only.

Whereas capital income is an injection of money into

How can a business receive income?

Then answer the questions regarding revenue

© Two Teachers 2020. Copying permitted for purchasing institution only.

Sales These can either be cash or credit sales and it is money

© Two Teachers 2020. Copying permitted for purchasing institution only.

Interest received Money made from savings or investments. If a

Don’t forget to answer the two questions below the table in

© Two Teachers 2020. Copying permitted for purchasing institution only.

Sales for hairdressing services Revenue

Unit 3 Personal & Business Finance LOC

Unit 3 Personal & Business Finance LOC