Questions 1(a), 1(b), 2(a), 3(a) and 4(a) are all contained in the worksheet below.
2(b) Explain the purpose of a cash account (also called cash flow statement in B120 Book 3) and what an analysis of the cash account can reveal about a business.
The purpose of a cash account (which is also called cash flow statement in B120 Book 3) is to give an accurate account of what the finances of a business are, at a given point in time. The cash account can be produced hourly, daily, weekly or monthly. When it is produced is usually dependant on the size of the business, or how precarious the business finances are. A cash account will show how much money has been paid in to the business ...view middle of the document...
How it does this is by showing what transactions have been made, during the set accounting period. The transactions that are recorded are what income has been earned and what money has been paid out for materials and services during the accounting period. When these two sets of figures have been entered onto the Profit and Loss Statement, it can then be determined if the business has made a profit or a loss over the accounting period that the statement covers.
Some of the important things that the business would be able to see, if an analysis of the Profit and Loss Statement was carried out, would be.
• How much money they are making or losing, from the products and services that the business provides to its customers.
• Where the problem areas are in the business. If one of the areas is causing a loss of profit. The analysis of the profit and loss statement could enable the business to change their pricing structure for products or services that are showing the loss.
• It can be used to compare how the business is performing compared to other months or years. This enables the business to be able to predict trends, which are occurring within the operating year.
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4(b) Explain the purpose of a balance sheet statement and what an analysis of the balance sheet can reveal about a business.
The purpose of a balance sheet statement is to show, the true financial position of the business at a given point in time. The reason I say it is the true financial position, is because the balance sheet takes into account the expenses and income like the Profit and Loss Statement and the cash account. But it also takes into account three other important areas that the business needs to know, in order to see exactly what there true financial position of the business is. These other three important areas are the assets, liabilities and the equity the business has.
Some of the important things that the business would be able to reveal, if an analysis of the balance sheet Statement was carried out would be.
• The expenses that the company has. These are...