Topic Area : Flow & Purpose of Financial Documents Purchase Order Delivery Note Name of Document PURCHASE ORDER DELIVERY NOTE GRN INVOICE Purpose of Document Used by the purchaser to order goods from a supplier A document sent by the supplier with the goods so that they can be checked by the purchaser Signed by the purchaser to prove that the goods have been delivered Shows how much is owed for an order Goods CREDIT NOTE Used to reduce the amount owed by the customer Received Note STATEMENT OF ACCOUNT Shows a list of transactions and the amount owed at the end of the month The Customer Invoice Credit Note Statement of The Supplier REMITTANCE ADVICE SLIP CHEQUE RECEIPT Sent with the payment to help match the payment with an invoice or statement of account. Attached to the bottom of the Statement of Account Used to transfer money from one bank account to another Used to confirm payment has been made Account This will be assessed by completing a diagram or answering multiple choice Remittance questions. Advice Slip & Payment Have a look at the past papers to familiarise yourself with these two styles of question. Receipt
Topic Area 2 : Financial Documents - Purchase Order Completed by the customer to request goods. It must be accurate as this forms a contract. Impact of errors: If the customer orders the wrong item, or too much, they will need to pay for something they do not need. Therefore, they will have increased costs. Consequently, the customer will negatively affect their profit margins. If the customer orders too few of something, they may not be able to meet the needs of their customers. Therefore they may harm their reputation, consequently losing future sales and profit. Order numbers increase one at a time, so that each Address it to the business who will supply the goods When completing a 3 mark Explain the impact of question, use connective words such as below to construct your sentences to avoid making a second point. Because, consequently, therefore Items to be ordered with description, code and unit price Multiply Quantity by Unit cost. Take care with any calculations. Double check the case size, so that you do not order the wrong quantity. Total. Add up the total of each item. Remember the supplier s name and address.
Topic Area 2 : Financial Documents - Delivery Notes & GRN Customer s details Order details linked to other documents Items included in the delivery Supplier s details Delivery notes are completed by the supplier and sent with the goods. Goods Received Notes are completed by the customer. Both documents detail all the goods received by the customer, and clearly identify any errors, damages goods or missing items. Impact of errors: If the customer does not let the supplier know of any damaged or missing items, they will need to pay for these goods. Therefore, they will have to pay for something that they can not sell or do not receive. Consequently, this will reduce their profit. If the supplier completes the delivery note incorrectly, or include incorrect items, they will look incompetent to the customer. Therefore they will harm their reputation, leading to a potential loss of future sales, revenue and profits. Items included in the delivery AND any issues with the goods Check carefully the document. Ensure that you include the NUMBER of any goods that are incorrect don t just tick / cross boxes.
Topic Area 2 : Financial Documents - Invoice Supplier s details Completed by the supplier to request payment. It must be accurate because this the amount the customer will pay. NB a customer who receives trade credit will not pay this but wait for their statement. Impact of errors: Customer s details Name and address Items that are being charged for. If the supplier completes the invoice incorrectly, they will need to issue a new one, or a credit note. Consequently, this wastes time and money, and makes the business look incompetent. Therefore this may result in customers not wanting to use them again. If the customer does not notice an error, they may pay more than then need to. Consequently this means their costs will increase, and therefore, they will make less profit. If you have to complete one, double check any calculations, and quantities. Total of all items on the invoice If you have to look for an error, make sure it the FIRST one you identify only. Calculate VAT @ 20% Add VAT to the total for the final total
Topic Area 2 : Financial Documents - Credit Note Issued by the supplier to reduce the amount that is owed by the customer. The credit note will usually state, what is to be refunded and why as well as the total amount. Supplier s details Impact of errors: Customer s details If the supplier completes the credit note incorrectly, they will need to issue a new one. Consequently, this wastes time and money, and makes the business look incompetent. Therefore this may result in customers not wanting to use them again. They may refund the customer too little or too much. If they refund too much, the supplier will lose part of their profit. Items to be credited and their value If the customer does not notice an error, they may receive a smaller refund than they are entitled to. Consequently this means they will have paid too much for the goods they ordered, and therefore, they will make less profit. VAT is calculated and added to get the toptal value to be refunded. If asked for the purpose of a credit note, make sure that you say to refund NAME, for ITEM, the amount of XXX, because of xxxxxx, e.g. to refund Viola Hotels, 25 for damaged plates
Topic Area 2 : Financial Documents - Statement of Account Issued by the supplier to summarise all the transactions for a month. It will list all invoices, and credits, payments as well as provide a final due amount. Supplier s name and address details The name and address of the customer Date of the statement. The transactions will be for the month prior to this. Impact of errors: If the supplier completes the statement incorrectly, the customer will be charged incorrectly. Consequently the supplier will be paid the wrong amount, affecting their revenue and therefore their profits. The supplier may also look incompetent; consequently customers may choose not to use them again, therefore losing them future sales, revenue and profit. If the customer does not notice an error, they could be overcharged. As a consequence, they will pay more than they should, increasing their costs. Therefore they will lose profit. This column is the running balance. Start with the Opening balance. ADD any invoices MINUS any credits or payments It s a long time since statements was in the exam. Make sure you are clear how to calculate the balance, and whether items should appear as a credit or a debit.
Topic Area 2 : Financial Documents - Remittance advice Slip, Cheque & Receipts The Remittance Advice Slip appears at the bottom of a Statement of Account. It is a tear off slip returned with the payment. The customer s name and address Customer completes the amount they are paying, the statement Number, Cheque Number and date. This is so the payment can be tracked. A cheque is a paper method of payment. A receipt can be handwritten, emailed or printed. It is proof of payment. Write the supplier s name on this line Write the date here any format as long as the year is included Impact of errors on the Remittance Advice Slip: The supplier will not know which invoice / statement is being paid, therefore the account will not be credited and consequently the supplier may refuse to accept future orders or charge them a late fee. Write the amount in WORDS here. Take care not to make spelling mistakes Errors on cheques: A cheque will be rejected ( bounced ) if the words do not match the numbers, the payee s name is wrong, the signature is missing, or the date is missing. If there is an error, the cheque will be returned by the bank to the supplier, who must return it to the customer. Consequently the customer will need to write a new one out, therefore wasting time and delaying payment to the supplier. Signature of the person writing the cheque goes here Amount in numbers in this box. Don t forget the pence!
Topic Area 3 : Computerised accounts & the Use of ICT Computerised accounts refers to the process of transactions using computer software, e.g. a database of suppliers. Using ICT refers to bar codes, self checkouts, stock control and possibly using a spreadsheet to do final accounts. Disadvantages: Cost of buying the equipment - impacts on costs / cash flow, and profit for the year Training staff - costs in time and money, therefore impacting profit Data has to be entered - this takes time, therefore staff are not working on something else Human error - data could be entered incorrectly, causing further problems Faults - the software / hardware could fail or not work, therefore the business can not serve anyone, losing revenue and profits Advantages: Speed in serving customers - barcodes are quicker to scan than entering in a price, therefore improving the amount of customers that can be served and their satisfaction Consistency - prices are entered into the database, so there is less chance of error Stock control - the system will count all the stock sold and reorder it when necessary, therefore the business is less likely to run out of stock, consequently customers will be more trusting of the business Speed in creating documents - templates are saved and so lots of data can be pre-entered This could be the 10 mark question at the end of the paper. Make sure you can give a balanced view, i.e. 2 points for and 2 against, and weigh it up for the specific business in the scenario. When completing a 3 mark Explain the advantages / disadvantages of question, use connective words such as below to construct your sentences to avoid making a second point. Because, consequently, therefore
Topic Area 4 : Payment Methods This topic is about how customers pay for goods / services. You need to be able to explain how payments are made, and the advantages and disadvantages of each method to the customer and supplier. Cash: Hand it over to the supplier, who puts it into their till, then transfers to a safe, and eventually the bank. Customer: Advantages - can restrict spending to a set amount; no interest added Disadvantages - security risk carrying it around; need to go to the bank first Supplier: Advantages - can use it for change or to make a payment immediately Disadvantages - security risk; need a safe and till; have to transfer to the bank Credit card: Put card in the chip & pin machine, enter PIN, payment authorised from credit card company and transferred Customer: Advantages - can spread payments; can delay payments to end of the month; can spend more than you have in your bank Disadvantages - interest added if the repayment is not made in full by a set date Supplier: Advantages - automatic transfer to bank account; payment is guaranteed; customers may make impulse purchases Disadvantages - need a chip & pin machine; have to pay bank a % of the payment in fees; slight delay in payment of 2-3 days Debit card: Put card in the chip & pin machine, enter PIN, payment authorised from customers bank and transferred Customer: Advantages - no need to carry cash; no interest added to the payment Disadvantages - can only spend what is in your bank account Supplier: Advantages - automatic transfer to bank account; payment is guaranteed Disadvantages - need a chip & pin machine; have to pay bank a % of the payment in fees; slight delay in payment of 2-3 days Cheque: Customer writes it out and hands over to the business. Supplier hands into their bank account Customer: Advantages - no need to carry cash; no interest added to the payment; can delay payment by a few days; can send through the post Disadvantages - most suppliers do not accept this method Supplier: Advantages - automatic transfer to bank account Disadvantages - payment not guaranteed if the customer does not have enough money in their account; if there are errors the cheque will not be accepted; payment takes 5-7 days Online payments: Customer logs into bank account and makes the transfer Customer: Advantages - payment can be made anytime; no need to travel Disadvantages - takes time to set up the first time Supplier: Advantages - automatic transfer to bank account Disadvantages - customer might forget to make the payment READ the question carefully to see whether it is about the customer or the supplier. When completing a 3 mark Explain the advantages / disadvantages of question, use connective words such as below to construct your sentences to avoid making a second point. Because, consequently, therefore
Topic Area 5 : Revenue & Costs Be able to identify sources of revenue for a specific business, e.g. a garage may receive sales revenue from services, repairs and sales of parts. For costs you need to distinguish between start-up and running costs. Revenue Something that the business must pay before it begins to trade. Usually a one -off payment. For example: Something that the business must pay throughout the time the business is trading. Regular payments for day-to-day items. For example: The money a business receives from selling its goods or services. Also called Turnover, Income and Sales. Initial advertising Monthly advertising Purchasing a building Wages / salaries Designing a website Rent Read the scenario carefully and make your suggestions based on this business.
Topic Area 6 : Profit & Loss Accounts The Profit & Loss Account or Income Statement is a declaration of how much profit or loss a business has made over a period of time. It allows a business and its stakeholders to assess how successful and profitable it is. Sales Revenue from selling the goods and/or services Sales Revenue MINUS Cost of Sales Cost of Sales - the direct costs of producing the goods/services Expenses - each expense is listed. Gross Profit MINUS all the expenses Total Expenses - add up all the expenses
Topic Area 7 : Balance Sheets Assets - what the business owns Fixed assets - something that is owned and will be kept by the business for a long period of time, e.g. vehicles, machinery Current assets - something owned that will be kept for a limited period of time, e.g. stock Stock - unsold items the business has bought to sell on Debtors - people or businesses that owe money. This is counted as a current asset Bank - money in the business s bank account Cash - money on the premises of the business Working capital - the money used to run everyday activities. Also called Net Current Assets Liability - what the business owes Current liabilities - something owed that will be repaid within the year, e.g. trade credit, overdraft Creditors - people or business that the business owes money to Overdraft - when the business has a minus bank balance Long term liabilities - something that is owed by the business that will take more than a year to repay, e.g. a mortgage, loan Mortgage - money borrowed for property Loan - borrowed money, e.g. from a bank Capital - money invested into the business by the owners NET ASSETS - the value of the business Also called a Statement of Financial Position, this is a statement of the net worth of a business at a specific moment in time. It lists everything the business owns, what it owes and how this worth was funded. The Balance Sheet allows a business to assess success and how well it is using the money invested by the owners. The Balance Sheet is used to help assess whether a business wuld be able to borrow money and repay it. Current Current NET CURRENT assets liabilities ASSETS Do not talk about profit when discussing a Balance Sheet. It shows liquidity and the value of the business, not profit.
Topic Area 8 : Stakeholder's Interests You need to be able to list relevant stakeholders for the business in the scenario, and explain why they are interested in the accounts. The Customer buys goods or uses the services of the business Interested in the accounts to see whether the business will continue to trade, so they do not have to find an alternative business to use. The Employee works for the business Interested in the accounts to see whether the business will continue to trade, so they know that their job is secure and do not have to look for a new one. The Owner who started the business Interested in the accounts to see whether the business has made a profit as this is their income and the return on their investment. The Supplier who sells their goods to the business Interested in the accounts to see whether the business will continue to trade, and therefore keep buying goods from them, so that they can continue to be successful. READ the scenario carefully to make sure you identify relevant stakeholders. Don t give a general interest; it must be interest in the financial accounts.
Topic Area 9 : Ratio Analysis 1 Profitability A measure of the success of a business in terms of its ability to create profit from revenue Gross Profit Margin ROCE (Return on Capital Employed) Identifies what percentage of the sales revenue is kept as Gross Profit. Actual figure will depend on the type of business. They would worry it is significantly lower that other businesses or drops year on year. Identifies how return that the owners are receiving from the money they invested into the business. They want this to be higher than for another business, or they may be tempted to move their investment. Net Profit Margin Identifies what percentage of the sales revenue is kept as Net Profit. This is more important than Net Profit Margin, because this is the actual profit figure the business keeps. Like GPM, the business doesn t want the Net Profit Margin to be significantly lower than its competition or previous years. This is likely to be the 10 mark question at the end of the exam. Make sure you can calculate these ratios and understand what they tell the business.
Topic Area 9 : Ratio Analysis 2 Liquidity A measure of the ability to repay debts Current Ratio Benefits of using ratios:: This tells the business whether they have enough available cash to repay debts. It is shown as a ratio, e.g. 1: 1.85 This means for every 1 of debt the business got 1.85 in current assets If the number is too low, i.e. less than 1.5, the business would not be able to consider further borrowing. Easier to compare than numbers across years and with other businesses Easier for a non accountant to understand Allows a business to measure success in terms of profitability and liquidity Allows a business to make decisions about future investment and borrowing Current Ratio Limitations of using ratios:: This tells the business whether they have enough available cash to repay debts even if they did not sell all of their stock. It is shown as a ratio, e.g. 1: 1.2 This means for every 1 of debt the business got 1.2 If the number is too low, i.e. less than 1, the business would not be able to pay its debts. Suppliers may be reluctant to sell to them. If the data is incorrect the analysis will be no good Ratios are only useful if you can compare them to previous years and comparable businesses Based on past data - external factors could change this for the future Ratios only tell us about finance this is not the whole picture about the success of an organisation. They would need to also look at other factors such as absence rates and customer satisfaction