Unit 5: Accounting Principles

Qualification Title Pearson BTEC Level 4 Higher National Diploma in Business

Unit Title Unit 5: Accounting Principles – Part 1

Unit No and details Y/618/5038

Optional Unit
Level 4
15 Credits
Academic Year 2024/2025

Unit Assessor Omorogbe Emovon, Adelino Nadum, Dilini Premachandre

Assignment Title Accounting Principles

Issue Date 15 January 2024

Formative feedback 8th of March 2024

Submission Date 22nd of March 2024

Submission format
The submission is in the form of a portfolio of evidence compiled from the evidence produced for two
assignments that include the following.

A blog that should make use of headings, sub-sections, columns, and appropriate business - related
images and illustrations. This format offers the opportunity to present academic and theoretical
information in a practical, contextualised and creatively written way. The recommended word limit for
the case study is 1,500–2,000 words, although you will not be penalised for going under or exceeding
the total word limit. All work must be supported with research and referenced correctly using the
Harvard referencing system (or alternative referencing system).

You will need to provide a bibliography using the Harvard referencing system (or an alternative
referencing system). Inaccurate use of referencing may lead to issues of plagiarism if not applied
correctly. You will also submit a memorandum with an accompanying Excel spreadsheet (raw data
will be supplied by your tutor). You will insert sections of your spreadsheet into the memorandum.
The recommended word limit for the memorandum is 1,000–1,500 words, although you will not be
penalised for going under or exceeding the total word limit. Referencing for both submissions should
use the Harvard system (or an alternative system).

Unit Learning Outcomes

LO1 Examine the context and purpose of accounting.
LO4 Prepare budgets for planning, control and decision-making using spreadsheets

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Transferable skills and competencies developed

• Reasoning and analytical skills

• Written communication using a range of media
• Manipulation and interpretation of data using spreadsheets
• Effective communication of relevant information across the organisation and to appropriate
stakeholders
• Creation and interpretation of information, showing how that information can be used most
effectively to add value to an organisation.

Vocational scenario
Organisation
Deloitte is a large British multinational accountancy and professional services company based in
London. The company was founded by William Welch Deloitte in London in 1845 and expanded into
the United States and elsewhere. The company provides audit, consulting, financial advisory, risk
advisory, tax, and legal services with approximately 415,000 professionals globally. In 2021, the
business earned revenues of US$50.2 billion in aggregate. With a large portfolio of clients and a change
business environment, the company expects many challenges ahead as the local, national and
international trading moves into recession, downsizing and changes mainly through technological
advances, skill shortages, increasing costs and competition.
Role
You have recently joined the firm as a Graduate Trainee attached to their UK SME (Small and Medium
Enterprises) Unit, offering accountancy and financial services to businesses that typically have a
turnover ranging from £0.5 m to £15 m. As part of your ongoing training, you have been asked to
undertake some activities.

Assignment activity and guidance

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 Your supervisor, one of the firm’s Key Account Managers, has asked you to prepare a blog that will be
used to market and promote its accounting services to new and existing clients. The working title you
have been given for the blog is ‘The role of accounting in an organisation’. The blog must be presented
as an online blog in an engaging and practical way, covering relevant academic theory, making use of,
for example, headings, images and illustrations. Your blog should include the following, but is not
limited to:
• the purpose and scope of accounting in complex operating environments
• a critical evaluation of the accounting function in informing decision making and meeting
stakeholder and societal needs and expectations
• the main branches of accounting and job skillsets and competencies
• accounting systems and the role of technology in modern-day accounting
• issues of ethics, regulation and compliance and the extent to which they are constraints or threats to
the organisation.

Having completed the first activity, you have now been asked to work with a hospitality
and catering start-up business that your firm has just taken on as a client. The business
is particularly in need of support and guidance with budgeting and how it can be used to
inform efficient resource allocation and support effective control and decision making.
The founder of the business is investing £100,000 of their own capital and has also
secured a business loan of £50,000.

(Note: students are to be provided with raw budget data in spreadsheet format, which
they will then manipulate and model.)
 Production of a 6 -month cash budget.
 An evaluation of the role that budgets play in the effective planning and control of
resources in an organisation such as your client’s. This will include both benefits.
and any limitations of using budgets and the extent to which they can help
identify problems and corrective actions.
 An outline of a range of budgetary control solutions, with justification, to support
organisation decision making and ensure efficient and effective deployment of
Resources
NB: students are required to use data provided by the college on page 9-13

Recommended Resources:

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Weblinks
Accounting Coach courses. Available at:
https://www.accountingcoach.com/accounting-basics/explanation
The Association of Chartered Certified Accountants ACCA). Available at: https://www.
accaglobal.com/gb/en.html
Chartered Institute of Management Accountants. Available at: https://www.cimaglobal. com/
Indeed Career Guide to Memo Writing. Available at: https://www.indeed.com/career-advice/career-
development/memo-writing-guide
HubSpot. How to write a memo: Templates & examples. Available at: https://blog.hubspot.
com/marketing/how-write-memo

HN Global
HN Global (2021) Reading Lists. Available at:
https://hnglobal.highernationals.com/learningzone/reading-lists
HN Global (2021) Student Resource Library. Available at: https://hnglobal.highernationals.
com/subjects/resource-libraries
HN Global (2021) Textbooks. Available at: https://hnglobal.highernationals.com/textbooks

Textbooks
Atrill, P. and McLaney, E. (2018) Accounting and Finance for Non-Specialists. 11th Ed.
Harlow: Pearson
Weetman, P. (2019). Financial and Management Accounting: An Introduction.
Harlow: Pearson

Submission format

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 The submission is in the form of a portfolio of evidence compiled using the evidence produced
for two assignments, it will also include the following.
A detailed letter to a named client. The letter must be clear worded, well-structured and should
make use of appropriate business language and terminology. The letter can also include clearly
labelled tables and charts. It will accompany and support the appropriately constructed
financial statements (income statement and statement of financial position) for the business in
question.
The word count is 2,000–2,500 words, although you will not be penalised for going under or
exceeding the total word limit. A bibliography should be provided using the Harvard referencing
system (or an alternative system). Inaccurate use of referencing may lead to issues of plagiarism
if not applied correctly.

Unit Learning Outcomes

LO2 Prepare basic financial statements for unincorporated and small business organisations in
accordance with accounting principles, conventions and standards.
LO3 Interpret financial statements.

Transferable skills and competencies developed

• Managing financial data
• Written communication using a range of media.
• Manipulating and interpreting data using spreadsheets
• Effective communication of relevant information across the organisation and to
appropriate stakeholders
• Creation and interpretation of information and showing how that information can be
used most effectively to add value to the organisation.
• Ability to use quantitative skills to manipulate data, evaluate, estimate and model
business problems.
• Application of accounting knowledge to consistently deliver high-quality, accurate data
and information in a timely fashion.

Vocational scenario
Having successfully completed your six-month probation at Deloitte as a Graduate Trainee, the
accountancy company, you have now been attached to a unit in the firm that deals with the
provision of accountancy and consultancy services to small businesses that are typically set up
as sole traders, not-for-profit or partnerships. The firm is careful about which small and
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emerging businesses it works with as it seeks to spot growth potential and identify and work
with clients that have scalable business models.

Assignment activity and guidance

The company initially introduced you on working with a selection of small businesses that were
trading for three years and which now need annual trading statements to be compiled and
submitted in line with government requirements. Given this, you have now been given:
• an extended trial balance for each business, including accruals, prepayments and figures
for bad debts and depreciation.
• a range of comparative key performance ratios from the previous year.
Note: This data is attached in spreadsheet format. This financial data given is elastic and in
context to meet local needs.
The local businesses do not make use of contemporary software to support its bookkeeping
and accounting function. This is something which concerns you as you feel that it represents
an opportunity for the business to save time and resource.
Your supervisor, one of the firm’s Key Account Managers, has asked you to compile the year-
end financial statements ready for submission and provide, for each client, some detailed
analysis of the figures produced, which will be presented in the form of an accompanying letter.
Specifically, you will undertake the following:
1. From the data provided, you are required to prepare the year-end financial statements,
taking into consideration accounting principles, conventions and standards. You will need
to make and show appropriate adjustments to both the income statement and the balance
sheet.
2. Write an accompanying letter to the client that will be sent with the completed financial
statements. The letter needs to include:
calculation of relevant profitably, liquidity, asset usage and investment ratios.
critical evaluation of the performance to the business year on year (making
reference to data you have calculated and data provided from the previous
year), with reference to relevant benchmarks as well as any limitations of using
financial ratios as performance measures.
 an outline of the benefits of contemporary accounting software packages, with
examples of products on the market.
 justified conclusions and recommendations for your client.
NB: students are required to use data provided by the college page 9- 14

Recommended Resources
Please note that the resources listed are examples for you to use as a starting point in your research – the list
is not definitive.

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 Weblinks
The balance careers. Business letter format with examples. Available at:
https://www.thebalancecareers.com/how-to-format-a-business-letter-2062540
Xerox. Writing an effective business letter. Available at:
https://www.xerox.com/en-us/small-business/tips/business-letter

HN Global
HN Global (2021) Reading Lists. Available at:
https://hnglobal.highernationals.com/learningzone/reading-lists
HN Global (2021) Student Resource Library. Available at: https://hnglobal.highernationals.
com/subjects/resource-libraries
HN Global (2021) Textbooks. Available at: https://hnglobal.highernationals.com/textbooks

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 LO2

1. Digitax enterprise has the following information as at their year-end of 31st December 2023:

DR CR
Owners Capital 1,000
Stock as at 1st January 2023 766
Purchases 24,513
Sales 72,524
Bank loan to be repaid by 31st December 2027 6,500
Purchase returns 2,199
Sundry expenses 764
Rent & rates 16,800
Sales returns 2,653
Utility expenses 5,433
Profit & loss account balance as at 1st January 2023 (profit) 4,110
Property, plant & equipment at cost 21,650
Accumulated depreciation as at 1st January 2023 7,540
Trade receivables 7,650
Bank (overdraft) 1,415
Interest paid on bank loan 129
Trade payable 2,656
Irrecoverable debt 86
Wages paid 17,500
Total 97944 97944

The following additional information is also available, for which closing adjustments are
required.
 Inventory as at 31st December 2023 was valued at £1,654
 All non-current assets are depreciated at 20% of the net book value.
 Wages of £780 for the month of October 2021 were paid on 4th January 2024.
 Rent of £6,000 for month ending 31st January 2024 was paid on 31st December 2023.
 Corporation tax liability for the year is estimated to be £4,387.

You are required to prepare the following for Digitax Enterprise:

 Income statement
 Balance Sheet

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2. Andy and Judy are in a partnership sharing profits and losses in the ratio 3:5 respectively.

The following is their trial balance as at 31 December, 2023.

DR CR
(£) (£)
160,
Buildings (210,000) 000
8,20
Fixtures at cost 0
Provision for 4,20
depreciation: fixtures 0
61,4
Debtors 00
26,5
Creditors 90
6,13
Cash at Bank 0
Stock at 31 December 62,7
2022 40
363,
Sales 111
210,
Purchases 000
3,41
Carriage outwards 0
Discount allowed 620
3,90
Loan interest: Prince 0
4,76
Office expenses 0
57,8
Salaries and wages 09
1,63
Bad debts 2
Provision for 1,40
doubtful debts 0
65,0
Loan from prince 00

A
n 100,
Capital: dy 000
Ju 75,0
dy 00

A
n 4,10
Current accounts: dy 0
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 Ju 1,20
dy 0

A
n 31,8
Drawings: dy 00
Ju 28,2
dy 00
640, 640,
Total 601 601

Additional Information

 Stock, 31st December, 2023: £74,210

 Accrued expenses: Office Expenses £215, Wages £720

 Depreciation: Fixtures 15% on reducing the balance basis, Buildings £ 5,000

 Reduce provision for doubtful debts to £1,250

 Partnership salary not yet entered: £30,000 to Andy,

 Interest on drawings: Andy £900; French £600

 Interest on capital account Balances at 5%.

Required: Making necessary adjustments

 Prepare an income statement and appropriation account for the year ended 31 December,
2023.
 Prepare a Balance sheet for Andy and Judy for the year ended 31 December, 2023.

3. Below is the receipts and Payments account for Havana football Club.

Receipts £ Payments £
Balance as at 1st January 2023 1,440 Purchase of equipments 380
Collections at matches 4,218 Rent for pitch 1,600
Profit on sale of refreshments 5,520 Printing and stationery 104
Secretary’s expenses 220
Repairs to equipment 210
Groundsman’s wages 6,400
Miscellaneous expenses 96
Balance at 31st
December2023 2,168
11,178 11,178

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 Additional information:
 Equipment was valued at £2,000. As at 1st January 2023
 Depreciate all equipment 25 per cent for the year 2023.
 Rent paid in advance was £400 as at 31st December 2023.
 £25 was owing for printing as at 31st December 2023.
Required: Making Necessary adjustments prepare Income and expenditure account and
the balance sheet for Havana football club.

LO3

1. The financial information below belongs to Abc limited :

Abc limited Profit and Loss account for the year to 31 December 2023

2023(£)

Sales 200,000

Cost of Goods sold (114,000)

Gross Profit 86,000

Operating expenses (34,000)

Debenture interest (5,000)

Net profit before Tax 47,000

Tax (12,000)

Net profit after Tax 35,000

Ordinary share dividends paid (2,000)

Preference share dividends paid (10,000)

Retained profit 23,000

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 Balance sheet as at 31 December, 2023

2023(£)

Fixed Assets (NBV) 320,000

Current assets

Stock 20,000

Trade debtors 50,000

Cash and Bank 1,000

71,000

Current liabilities
Trade creditors (35,000)
Net current liabilities 36,000
356,000

Capital and reserves

Share capital (£1 ordinary shares) 200,000

Preference shares (£1 shares; 8%) 25,000

Retained earnings 81,000

Long term liabilities 50,000

356,000
Additional information
All sales and Purchases are on credit terms.
The opening stock as at 1st January 2023 was £20,000
There were no accruals and prepayments at the end of either 2022 or 2023.
Required
Calculate the following ratios for the year ending 2023.
 Gross profit ratio
 Net profit ratio
 Current asset ratio
 Acid test ratio
 Stock turnover
 Fixed assets turnover

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 2. Compare and critically evaluate the performance of Abc limited over a period of two

years (making reference to the ratios you have calculated, and the ratios provided

from the previous year), with reference to relevant benchmarks and make justified

conclusions.

Previous year financial ratios of Abc limited.

Ratio 2022

Gross profit ratio 40%

Net profit ratio 18.1%

Current assets ratio 2.3

Acid test ratio 1.7

Stock turnover 6.4 times

Fixed assets turnover 0.5 times

LO4

You have now been asked to work with a hospitality and catering start-up business that

your firm has just taken on as a client. The business is particularly in need of support and

guidance with budgeting and how it can be used to inform efficient resource allocation and

support effective control and decision making.

1. You have been asked to prepare a 6-months cash budget using the data below for the

new client.

July August Sept Oct Nov Dec

£ £ £ £ £ £
Cash Sales 11,00 11,000 13,000 13,000 11,00 11,000
0 0
Cash received from debtors 27,00 29,000 28,000 26,000 21,00 13,000
0 0
Payment made to creditors 7,000 12,000 13,000 14,000 11,00 12,000
0
Cash Purchases 7,000 7,000 8,000 7,000 7,000 8,000
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 Payment for rent 22,000 22,000 22,000
Payment for rates 1,300 1,300
Payment for wages 9,000 9,000 9,000 9,000 9,000 9,000
Payment for other expenses 3,750 4,750 3,800 - - -

2.An evaluation of the role that budgets play in the effective planning and control of
resources in an organisation such as your client’s. This will include both benefits and any
limitations of using budgets and the extent to which they can help identify problems and
corrective actions.
3. An outline of a range of budgetary control solutions, with justification, to support
organisation decision making and ensure efficient and effective deployment of resources.

Learning Outcomes and Assessment Criteria

Pass Merit Distinction

LO1 Examine the context and purpose of accounting D1 Critically evaluate the
role of accounting in
P1 Examine the purpose of M1 Evaluate the context and informing decision making
the accounting function purpose of the accounting to meet organisational,
within an organisation. function in meeting stakeholder and societal
P2 Assess the accounting organisational, stakeholder needs within complex
function within the and societal needs and operating environments.
organisation in the context of expectations.
regulatory and ethical
constraints.

LO2 Prepare basic financial statements for unincorporated and LO2 and LO3

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small business organisations in accordance with accounting D2 Critically evaluate
principles, conventions and standards financial statements to
assess organisational
P3 Prepare financial M2 Produce financial performance using a range
statements from a given trial statements from a given trial of measures and
balance for sole traders, balance, making appropriate benchmarks to make
partnerships and not-for-profit adjustments. justified conclusions.
organisations, to meet
accounting principles,
conventions and standards.

LO3 Interpret financial statements

P4 Calculate and present M3 Evaluate the performance

financial ratios from a set of of an organisation over time,
final accounts. using financial ratios with
P5 Compare the performance reference to relevant
of an organisation over time benchmarks.
using financial ratios.

LO4 Prepare budgets for planning, control and decision

making using spreadsheets

P6 Prepare a cash budget M4 Identify corrective actions

from given data for an to problems revealed by
organisation using a budgetary planning and
D3 Justify budgetary control
spreadsheet. control for effective
solutions and their impact on
organisational decision
P7 Discuss the benefits and organisational decision
making.
limitations of budgets and making to ensure efficient and
budgetary planning, and effective deployment of
control for an organisation. resources.

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