Lesson2

BTEC Extended Diploma - Unit 5 - Sharron Holding

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BTEC Extended Diploma in Business

Interpretation of ratiosHow to determine the financial

health of an organisation

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Learning outcomes:• By the end of this lesson you must be

able to:-• Describe how to record transactions,

monitor activity, control management of the business (planning, monitoring, controlling)

• Measurement of financial performance (gross profit, net profit, value owed to and by the business)

• Categorise Capital income: sole traders; partners; shares; loans; mortgages

BTEC Extended Diploma - Unit 5 - Sharron Holding

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Record Transactions

• Work in pairs • Using the cards provided match up

the - activity- purpose - and suggest the person responsible for

the activityTake 10 minutes

BTEC Extended Diploma - Unit 5 - Sharron Holding

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Fill in the missing words

• Work individually – take max. 10 minutes

• Compare your answers with your neighbour

• Check – are you right?

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Measurement of financial performance

• Financial records allow a business to identify if they are making a profit or loss.

• Profit is identified as GROSS PROFIT or NET PROFIT

ACTIVITY

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Money matters – what is the difference between the

following?• Value owed to the business

• Value owed by the business

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What happens if money is going out at a higher pace than the money coming in?

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Reminder – you are expected to:

• Be able to examine a specific type of organisation and identify the likely income and revenue and indicating in each case whether it is of a capital or revenue nature. You must also be able to describe clearly what each category means.

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Capital income

• Capital income is the money invested by the owners or other investors that is used to set up a business or buy additional equipmentResearch

time

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Revenue Income

• Revenue is income that a company receives from its normal business activities, usually from the sale of goods and services to customers

a.k.a turnover

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Revenue Income

• Some companies receive revenue from interest, dividends or royalties paid to them by other companies

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What is Capital expenditure?

• Capital expenditures (CAPEX or capex) are expenditures creating future benefits, capex is incurred when a business spends money either to buy fixed assets or to add to the value of an existing fixed asset with a useful life extending beyond the taxable year. CAPEX is used by a company to acquire or upgrade physical assets such as equipment, property, or industrial buildings

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Capital expenditure

• fixed assets (land and buildings; office equipment; machinery; furniture and fittings; motor vehicles); intangibles, eg goodwill, patents, trademarks

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Freddies Frames

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A - Z

• Working individually begin a dictionary A-Z of accounting words together with a definition (covered so far) – you will improve on your dictionary week by week so consider the presentation and quality of your work.

• Now work in pairs to share your results

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Lesson Outcomes