Assignment Cover Sheet

Learner Name RAISA ANJUM ARPI

Learner Registration No. 230317001

Study Centre Name AIMS Academy

Qualification Title OTHM Level 3 Diploma in Business Management

Unit Reference No. Y/618/8196

Unit Title Finance in Business

Word Count 3450

Submission Date 30/10/2023

Declaration of authenticity:

1. I declare that the attached submission is my own original work. No significant

part of it has been submitted for any other assignment and I have acknowledged in my

notes and bibliography all written and electronic sources used.

2. I acknowledge that my assignment will be subject to electronic scrutiny for

academic honesty.

3. I understand that failure to meet these guidelines may instigate the centre’s

malpractice procedures and risk failure of the unit and / or qualification.

_________________
_________________
Learner signature
Tutor signature
Date: 30/10/2023
Date: 30/10/2023
 Table of contents
Page No
Introduction 3
Learning Outcomes-1: Know About Business Finance
1.1 Why a business would keep financial records. 4
1.2 The purpose of business accounting. 5
1.3 The accounting requirements of different types of 6
business.
1.4 Different types of business finance at different stages in 7
the growth of a business
1.5 The different types of accounting and financial statements. 8

Learning Outcomes -2: Be able to record financial transactions

2.1 Accurate use of the double entry accounting system 10

2.2 Accurate bank reconciliation. 11
2.3 Develop control accounts for accounts receivable and 12
accounts payable
2.4 How to correct errors in accounting records 12

Learning Outcomes-3: Know about cost and management

accounting
3.1 How absorption and marginal costing is used for decision- 14
making.
3.2 How budgeting is used for financial planning and control. 14
3.3 How to undertake investment appraisal. 15

Learning Outcomes-04: Be able to produce accounting

statements
4.1 Produce accurate absorption and marginal cost statements. 16
4.2 Calculate sub and overall variances. 18
4.3 Prepare accurate and subsidiary budgets. 21
4.4 Apply investment appraisal methods to alternative capital 22
investment options.
Conclusion 25
References 26

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 INTRODUTION
In order to handle our money wisely, must have a firm grasp on how much money is coming in
and how much is going out. Discover what these phrases represent by reading our glossary:
Unlike Plan B, Cash Flow is an actual thing that can be counted on. A good understanding of
finances is essential for making wise purchases and keeping a healthy profit margin.

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Learning Outcomes-1: Know About Business Finance

1.1 A business would keep financial records:

It should go without saying that records must be maintained in business. To ensure that our
business runs smoothly, accurate paperwork is required. Can accomplish much more with
thorough records.

 Check out how far come as a business.

 The financial statements need to be made by actual humans.
 Sort out the source of our financial support.
 Remember that our expenses qualify as a deduction.
 Let's get the groundwork for our house down on paper.
 Help us file our vat refund.
 Please substantiate our claimed deductions on our tax returns.

 Track the development of our company.

Accurate data is essential for tracking the development of our organization. There are records
documenting the expansion, sales, and improvements made to our bank. A company's prospects
of success are enhanced by having solid documentation.

 Our financial statements should be ready.

Accrual analysis is only valid if the data it uses is correct. The stability and edit statistics would
be included. The aforementioned documents might be useful in running our business and dealing
with our creditors.

 Income statements detail the revenue and costs of a business over a certain time frame.
 The assets, liabilities, and ownership of a business are all summarized in a balance sheet
as of a certain date.

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 Determine our income sources.

Money for humans will come from a variety of places. The records show where came from. This
data separates taxable income from nontaxable income and company revenues from other types
of revenues.

 Maintain a record of our deductible costs.

If don't note expenses as they happen, may forget them while filing our taxes.

 Keep a record of our property's basis.

Tax land investments. Selling, swapping, or discarding property, casualty losses, depletion,
attrition, and decay determine the profit or loss.

Get our tax returns ready.

Our report's revenue, expenditures, and credits are only as good as the documentation supporting
them. Our company's books and financial records are almost identical.

 Items of support listed on our tax returns

There should be no time when the IRS does not have access to our financial records. If the IRS
examines our tax returns, Americans may have to provide an explanation. The inquiry may go
forward more quickly if relevant documents are collected.

1.2 The purpose of business accounting:

Services include accountancy. It includes comprehensive financial data to economic

organizations to help them make choices.
 Results of operations.
Is therefore related toward the company's revenue (for a year, for a quarter, for a month, etc.).
Deducting all expenditures from earnings yields this. Net income is the amount that results.

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 Financial position.
Capabilities do have? Service providers owe how much? What's left for owners once fulfilled our
obligations? The firm's holdings, liabilities, and then cash comprise the initial three queries.
 Solvency and liquidity.
"Capital adequacy" is the company's ability to pay on time. Liquidity is its capacity to meet
urgent commitments.
 Cash flows.
The financial statements also illustrate cash flows for firm operations (operating, investing, and
financing activities).

 Other information.
Information from financial statements includes qualitative, quantitative, and financial data.
Relevance of financial statements. User-influencing data should be included in financial
reporting.

1.3 The accounting requirements of different types of business:

 Sole Proprietorship
Single proprietorships have one owner. Business owners don't need government registration.
Owners may withdraw cash anytime. Sketch. Owners may modify without authorization.

 Partnership

Partnerships are companies with many owners. Companies may distribute earnings and losses
equally or not. Profit-only partnerships are legal. Partners are permanently accountable. They
decide when they quit the firm. They may only withhold the signed agreement money. If they
require more, they may need the other partners' consent.

 HUF

Only India has Hindu Undivided Families (HUF). CEOs are fully accountable. Drawing rules

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 Joint Venture

A strategic partnership occurs if two or more entities join forces to achieve a common objective.
As in a partnership, the joint venture's participants share in the profits and losses but ultimately
go their own ways after the project's goals have been met.

 Corporations

Corporations have replaced small companies. Corporate irresponsibility. Owners gain from
management-ownership separation. Corporations may be roughly classified into two categories:

 Private Limited Corporation:

If the firm is privately held, it may not have to provide some information.

 Public Limited Corporation:

As it seeks financial and other public endorsement, a publicly listed company has a responsibility
to keep investors and the public informed of its progress.

1.4 Different types of business finance at different stages in the growth of a

business:

 Personal savings/ Owner’s fund/ Owner’s equity

Most businesses employ this. Savings and inheritances. May trust that this money will be used
properly and interest-free.
 Family and friends
After savings, this is the most popular funding source. Rich friends and family gifts. This
funding lets i seek aid without worrying about payback.
 Bank credit
Banks provide overdraft and term loans to businesses. Banks overcharge for unsecured loans.
Entrepreneurs need bank finance. Capital loans outnumber operational loans.

 Partnership

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 Partnerships enable two or more people to run a business and share the risks and rewards. A
partner or partners may help a startup business build capital.

 Customers
If our industry reputation is excellent, this investment will come. Businesses may prefer cash
sales over credit. Profit from prepayment discounts.

1.5 The different types of accounting and financial statement:

 Personal Account:
As said, personal accounts belong to a person, corporation, firm, organization, etc.
 Real Account:
Real Accounts involve items, properties, or assets. They might be physical or non-physical. This
needs two authentic accounts:
 Actual, Observable Accounts
 Real Asset Accounts

 Nominal Account:

Nominal accounting relates to any sort of income or loss, gain or spending. Rent, pay, wage
cooling, etc.

Financial statement:

Monetary accounts help firms monitor and report their financial health. These summaries quickly
summaries a company's cash flows, operational performance, and finances.

 Balance Sheet: Balance sheets outline an organization's assets, liabilities, and equity. It
assesses a company's current financial health.
 Income Statement: A net income is a kind of financial statement that summarizes a
business's revenue, expenses, and net income over a certain time period (or loss).

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  Cash Flow Statement: A company's cash inflow and outflow over time are displayed in
cash flow statements. The influx and outflow of cash may be used to evaluate the
financial health of an organization.

Learning outcomes -2: Be able to record financial transactions

2.1 Accurate use of the double entry account system:

For handling financial transactions, the double-entry approach requires recording the
consequences of the transaction on two separate accounts.

 Asset Account

The worth of a company's assets, like its working capital, is reported in asset accounting. All
financial dealings affecting the firm's assets should be reported there.

 Liability Account

The liability ledger is where the corporation keeps track of its obligations owed to other
organizations. With a debit to the liabilities account, the company's current liabilities decrease,
and with a credit, the liabilities increase.

 Equity Account

Equity accounts determine shareholder profit and loss. Equity accounts hold stocks and options.
Stock price. Equities include stocks and preferred stocks.

 Income/Gains Account

Income statements indicate a company's finances. Income accounts contain profits. Business
funds. Sales generate income.

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  Expenses Account
Daily operational costs are itemized in expense reports. Here, can see how much cash has
escaped the company. Income and costs such as rent, electricity, and insurance all count
as expenses.

2.2 Demonstrate accurate bank reconciliation:

When ABC Company closes its books, the following items require a bank reconciliation:

 On February 31, 2018, the account statement shows an ending balance of $5000 whereas
the company's ledger shows an ending balance of $4,459,00.
 The $440 service fee for maintaining the account may be found on the bank statement.
 The bank balance shows $40 in interest income.
 ABC issued $85,000 in checks that the bank has not yet approved.
 Despite ABC depositing $40,000, the transaction did not show up on the bank statement.
 A $400 check that was sent to the office supplier was entered incorrectly as $300 in the
cash payments log.
 The bank got paid $10,900 on a note receivable.
 A check of $1000 the firm's deposit has been charged back as an NSF.
 The purpose of a bank reconciliation statement is to compare a company's bank account
to its books, and to provide further details about the company's banking and commercial
activities.

Bank reconciliation statement:

ABC Company

Debit and credit Form

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 Month ended February 31, 2018

Cash balance, February 28, 2018$ 5, 00,000

Add: deposit in transit 40,000

Deduct: outstanding checks 85,000

Adjusted cash balance $4, 55,000

Cash balance March 30, 2016 $ 4, 45,900

Add: NR 10,900

Deduct: Interest 40

$4,56,840
Deduction:

Service charge 440

Error on check 400

1,840

$4, 55,000

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2.3 Develop control account for account receivable and account payable:

In order to expand and maintain a competitive edge in the services industry, it is essential that
businesses develop innovative strategies for streamlining internal processes.

 Record each transaction:

Real-time accounting tracking is possible for a company. Popular choices are below. General,
subsidiary, or general-to-subsidiary ledgers record entries. Accounting shows linked activity.
 Track records monthly:
Regular record-keeping audits are also strongly suggested. For this purpose, it is necessary to use
a number of tools, including the ever-present spreadsheet, which helps in planning out the
recording times.
 Negotiate the accounts:
Users might attempt to bargain over both payables and receivables. This might be a good choice
if our firm does not have enough money coming in to start paying down its obligations.

 Search for automation software:

If agree with this, then automating controls over accounts payable and receivable is a fantastic
way to protect data security and permit data retention and strategic, efficient handling.

2.4 To Correct Errors in Accounting Records:

There are seven typical categories of accounting mistakes:

 Subsidiary Entries

Subsidiary entries are a kind of incorrectly reported transaction. Unless do a bank reconciliation,
won't know about this problem.

 Transposition Errors

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One makes a mistake if two numbers are transposed (flipped). When submit a new recording, the
issue will appear as a typo in the data entry.

 Rounding Errors

Rounding up or down may not seem like a significant concern, but it may throw off our accounting
and lead to a domino effect of blunders. Humans and machines both may be fallible in this way.

 Entry Reversal

To reverse financial statements, must either credit them instead of debit them, or debit them instead
of crediting them. Unfortunately, this mistake won't be reflected in our trial balance since it will
always balance out.

 Error of Omission

This occurs whenever a monetary exchange takes place but is not documented for posterity. The
exchange (which might be a payment or the selling of a service) is often disregarded or forgotten.

 Error of Commission

It's a commission error when the appropriate amount and account are used but the erroneous value
is recorded. This may imply that a sum is added rather than subtracted.

 Error of Principle

This deal is not in keeping with GAAP (GAAP). An "input mistake" occurs when a legitimate
number is accidentally associated with the incorrect account.

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Learning Outcomes-3: Know about cost and management
accounting

3.1 How absorption and marginal costing is used for decision-marking:

Absorption costing:

A cost accounting method called absorption costing accounts for all production costs, including
direct and indirect. This technique allows for the breakdown and assignment of production
expenses to specific products.

Marginal Costing:

Marginal costing is a method for allocating production costs to certain goods or services. It helps
us understand how the cost of production is changing in relation to the volume of output, which
is why it is so crucial.

Marginal Cost Analysis.

Marginal Cost = Change in Cost / Change in Quantity

3.2 How budgeting is used for financial planning and control:

Budgeting helps businesses predict and allocate cash flow. A visionary manager may influence
employee decisions with the budget. Income and Expense Planning: A manager planning for an
operational time may consider how much money will be needed for supplies and salaries.

 Prioritizing Spending Goals:

Management may be aided by comparing actual results so far this year to projections in order to
settle on a course of action for dealing with a vexing issue.

 Continuous Improvement Processes:

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Good management involves finding methods to save expenses without sacrificing overall
success. First-tier operational systems analysts are managers, who assess KPIs once a week or
once a month and provide ideas for improvement.

 Continuous Improvement Processes:

Good management involves finding methods to save expenses without sacrificing overall
success. Managers are the first tier of operational systems analysts, and it is their job to compare
actual performance to the budgeted amount on a weekly or monthly basis.

3.3 How to Undertake Investment Appraisal:

 Payback period

Turnaround time is the length of time it takes for an investment to produce a profit.

 Net present value

The term "nova" (NPV) refers to the difference between the present value of anticipated future
cash inflows and outflows over a specific time period.

 Accounting rate of return

A budgeting ratio called the accounting rate of return (ARR) is used to predict future profits
based on current spending.

Learning outcomes -04: Be able to produce accounting statements

4.1 Product Accurate Absorption and Marginal Cost Statement:

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 $

Sales 4, 50,000

Raw Material cost 55 ,000

Direct labor Cost 35,000

Variable Manufacturing Overheads 25,000

Fixed manufacturing Overheads 13 ,000

Variable Distribution and Administrate –on Expenses 56 ,000

Fixed Distribution & Admin. Expenses 13,000

Required,

Users need to generate a earning and loss statement for the fiscal year ending 30 JUN 2016 using
marginal (variable) and absorption costs

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 XYZ Company

Variable cost of income Statement

For the year ended 30 JUN 2016

$ $
Sales 4, 50,000

Variable Cost of Sales:

Raw Material Cost 55, 000

Direct Labor Cost 35, 000

Manufacturing Overhands 13, 000

Distribution and Administrate 56, 000 1, 59,000

2,91,000

Contribution

Fixed cost 13, 000

Distribution and Admin 56, 000 69,000

1 ,59,000

Net profit

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 XYZ Company

Absorption Costing

For the Year Ended 30 July 2016

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 $ $

Sales Revenue 4, 50,000

Marginal Cost of Sales

Direct Materials 55, 000

Direct labor 35, 000

Variable Production Overheads 25, 000

Fixed Production Overheads 13, 000 128, 000

322,000

Gross Profit

Distribuion and Admin Costs:

Variable 56, 000

Fixed 13, 000
69, 000
Net profit `159000

4.2 Calculate Sub and Overall Variances:

Direct Material: 8 Ounces at $0.70 per Ounce -------------------------------------------- 3.2

Direct labor: 1.9 Hours at $12 Per Hour-----------------------------------------------------18.8

Variable Manufacturing Overhead: 1.7 Hours at $6 perhours-------------------------11.2

Total Standard Variable Cost per Unit-------------------------------------------------------34

During March, 4, 000 Unit Were Product the Cost Associated with June’s Operation were as
Follows:

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Material Purchased: 25, 000 Ounces at $0.80 per Ounce--------------------------------

Material Used in Production: 18.000 Ounce

Direct labor: 6, 000 Hours at $8.80 per hours

Variable Manufacturing Overhead Costs Incurred-

Direct Materials Variance:

Know that

Materials Going rate Variances = AQ (AP-SP)

=25, 000($0.80-$0.70)

=25, 000×$0.1

=$25, 00 U

Again

Materials Quantity Variances = SP (AQ-SP)

=$0.70(18, 000-32, 000)

=$0.70×14,000

=9, 800 F

 SQ= 4, 000 Units × 8 Ounces Per Unit

=32, 000 Ounces

Direct Labor Variance:

Know that

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Labor rate Variance =AH (AR-SR)

= 6, 000($8.80-$12.00)

= 6, 000×$3.2

= $19, 200 F

Again

Labor efficiency Variance = SR (AH-SH)

=$12.00(6, 000-7, 600)

=$12.00×16, 00

=$192, 00 F

 SH = 4, 000 Units × 1.9 hours Per Unit

=7, 600

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4.3 Prepare Accurate and Subsidiary Budgets:

The sales director of a manufacturing company reported that he anticipates selling 67, 000 units
of a certain product in the upcoming year.

After consulting the shopkeeper, the production manager casts his calculations as follows:

The production of the product requires the use of two different types of raw materials, X and Y.
8 units of X and 10 units of Y are needed for every unit of the product. The anticipated opening
balances at the start of the next year are

Finished product----14, 000 units, X-----16, 000 units, Y-----19, 000

The desirable closing balances at the end of the next year are:

Finished product------17, 000 units, X-----17, 000 units, Y-----18, 000.

Create a quantitative graph outlining the annual budget for purchasing supplies.

Spending plan for materials for the year

Details Material – X Units Material – Y Units

Materials Required:
X (70, 000 × 8) 5, 60,000 7, 00,000
Y (70, 000 × 10) 18, 000
Add: Closing Stock 17, 000 7, 18,000
5, 77,000
Less: Opening Stock (16, 000) (19, 000)
Budgeted Purchases 5, 61,000 6, 99,000

Workings:

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Budgeted production for the year:

Sales 67, 000

Add: closing stock 17, 000

84, 000

Less: Opening stock (14, 000)

Budgeted Production 70000

4.4 Apply Investment Appraisal Methods to Alternative Capital Investment

Potion:

70.000 Take will be invested by ABC Firm in a new venture. The project will last for 8 years,
and the salvage value is 12,000 Tk. The business depreciates assets using the straight-line
technique. 40% is the corporation tax rate. The following list includes the project's anticipated
financial inflows:

Years Cash Inflow (TK) Years Cash inflow (TK)

1 20, 000 5 10, 000
2 30, 000 6 10, 000
3 35, 000 7 9, 000
4 15, 000 8 7, 000

We prepare Pay Back Period and Average Rate of Return

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Solution

Years Gross Cash Depreciatio Net Profit TAX (40%) Net Profit Net Cash
Inflows n Before Tax After Tax Inflows
1 20, 000 7, 250 12, 750 5, 100 7, 650 14, 900
2 30, 000 7, 250 22, 750 9, 100 13, 650 20, 900
3 35, 000 7, 250 27, 750 11, 100 16, 650 23, 900
4 15, 000 7, 250 7, 750 3, 100 4, 650 11, 900
5 10, 000 7, 250 2, 750 1, 100 1, 650 8, 900
6 10, 000 7, 250 2, 750 1, 100 1, 650 8, 900
7 9, 000 7, 250 1, 750 7, 00 1, 050 8, 300
8 7, 000 7, 250 (250) 1, 00 (100) 7, 350
45, 565

 Depreciation =Total Cost – Salvage value

Duration

=70, 000 – 12, 000

= 7, 250

I. Pay Back Period (PBP)

Years Net Cash Inflow (TK) Cumulative Net Cash Inflow

1 14, 900 14, 900

2 20, 900 35, 800
3(A) 23, 900 (59, 700) C
4 (11, 900) D 71, 600
5 8, 900 80, 500

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 6 8, 900 89, 400
7 8, 300 97, 700
8 7, 350 1, 05,050

 PBP = A+ NCO – C

D A=3

= 3 + 70, 000 – 59, 700 NCO = 70, 000

11, 900 C = 59, 700

= 3 + 10, 300 D = 11, 900

11, 900

= 3 + 0.86

= 3.86 Years

II. Average Rate of Return (ARR)

 ARR = Average Net Profit

Average Investment

= 45, 565 ÷ 8

(70, 000 + 12, 000) ÷2

= 5, 695.625

76, 000

= 0.0749

= 7.49%

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CONCLUSION

The availability of liquid assets is essential to the prosperity of any business endeavor, whether it
a company or an investment. The infusion of financial capital, sometimes known as money, into
a business is not free of associated expenses. The cost of capital for an investment project is the
required minimum rate of return that the project must provide to investors.

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