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Revision Planner – Junior Cycle Business Studies (H)*Essential unit to understand in order to pass the exam**Key area to revise if aiming for a high grade??Topic GuideRevisedPaper 1??Household budgets**?The consumer*?Money and banking*?Personal borrowing*?Household insurance*?Economic framework: national budgets and trade**?Club accounts**?Information Technology from a personal point of view*?People at work*?Industrial Relations*?Letter and report writing**?????Topic GuideRevisedPaper 11?????Purchases and Sales from enquiry to receipt of goods**?Final accounts and balance sheets (including adjustments) of private limited companies**?Letter & report writing**?Company formation*?Business banking, finance and insurance for business*?Being an employer*?Industrial relations*?The chain of production and delivery systems*?Marketing and advertising*?Assessing a business*?Farm and service accounts*?Information Technology from a business point of view*?P1 Q1Q2Q3 Q4Q5 Q62000Household Budget comparing actual with budgetBanking Completion of lodgment slip.Banking theoryEconomics Currency and inflation.Club Accounts Preparation of accumulated fund statement.Receipts & payments and income & expenditureConsumer Consumer problems. Report writingEmployment and wages, including a job advertisement2001Household Budget comparing actual with budget.Theory.Cheque and stub completionInsurance theory – types and principlesBanking Analysis of statement.Preparation of bank reconciliation statementEconomics and govt finances. Budget preparation and theoryClub Accounts Bar trading and income & expenditure accounts and theoryInformation Communications Technology2002Household Budget comparing Actual with Budget, theory and cheque and stub completionBanking and investment.Payment & services.Calculation of interest.Consumer and IT.Sale of Goods puters, CPU.Consumer problems.Wages & Trade Union.Rewards and deductions.Shop stewards, wage agreements.Industrial relations.Club Accounts?Analysed cash book.Preparation of summary?receipts & payments t. financesNational budget.Privatisation.Economic growth.P2 Q1234562000Books of first entry, ledger and trial balance Write up the general journal which was givenBusiness document Invoice and Receipt, recorded in Sales Book and Analysed Cash Book suppliedFinal Account A. Trading, Profit and Loss and Appropriation Account and Balance SheetB. Calculation of average stockInsurance premium calculation and recording in Insurance Account suppliedBusiness Document and business finance loan application. Recording of same in accounts suppliedMonitoring of expenses and Petty Cash Book2001Books of first entry, ledger and trial balance Write up the general journal which was givenBusiness document Dealing with consumer complaints: Credit Note, recorded in Sales Returns Book and Ledgers suppliedMarketing and report drawn up from given dataFinal accountsA. Trading, Profit and Loss and Appropriation Account and Balance SheetB. Types of insurancesEmployers and wages. Record in wages book and ledger accounts supplied.Preparation of a job advertisementDelivery systems and record-keeping including depreciation for two years?2002Books of first entry, ledger and trial balance Write up the general journal which Final AccountsA. Trading, Profit and Loss Account and Balance SheetB. Reduction of bad debtsForms of business pletion of Memorandum of Association and ledgers.Bank servicesOpening an account.Granting a loan.Calculation of interest.Statement pletion of statement and receipt.Record the sales daybook.Limitations of final accounts.Report on business performance using ratios.Junior Cycle Business Studies - Model Answer (H)QuestionJC Business Studies (H) 2001Paper 1 section B (question 4)General commentsAn examination of the past papers will show that a question on the economics section of the syllabus has come up every year since the syllabus was introduced.This is a typical multi-part question found in Paper 1. The marks per section are clearly laid out so students should quickly look through each question to see how many parts they can answer before deciding on their four questions.Question 4 examined the area of Government Finance and was the least popular question on the paper with only the better candidates scoring well. The chief examiners report indicated that candidates’ layout of the budget was very poor and there was often no heading given to the budget. Many only gave a final figure without indicating whether it was a surplus or a deficit. The terms in the Minister’s speech were poorly explained.?The following figures were produced by a Minister for Finance on Budget Day as projections for the year 2002.Main items of Revenue and Expenditure (Estimated figures in IR?):Health & Social Welfare 275m, PAYE: 338m, Education & Science: 166m, Customs Duty 18m, DIRT 73m, Excise Duty 73m, Defence 49m, VAT? 144m, Debt Servicing 138m, Agriculture 76m, Corporation Tax 57m.(A) From the above information, draft the National Budget for 2002.Is this budget a Surplus or a Deficit Budget? (16 marks)You can prepare the budget vertically or side by side.2 marks for the correct heading, name and date.12 marks for inserting the correct twelve figures.2 marks forthe correct term.NationalThis is a Surplus Budget.(B) Give ONE example of capital expenditure by(i) the Dept. of Health & Children (3 marks)(ii) the Dept. of Education & Science (3 marks)You have to give one example each at 3 marks(i) Medical equipment(ii) New school buildings(C ) The Minister for Finance stated in the Budget speech that all Government Departments would have to keep within their budget limits because of scarce resources. He said that there was an opportunity cost involved in every item of expenditure and in pursuing any particular project.Explain what the Minister meant by EACH of the underlined terms above. (6 marks )Each term correctly answered gets 3 marks.Scarce resources: the government has limited income and can not provide for all the request made by people i.e. they must make choices.Opportunity Cost: when the government spend money on one item they must ignore another item. The item forgone is the opportunity cost i.e. if they spend extra money on health , the opportunity cost of this is less spending on education.?(D) Suggest TWO effects each of the following? would have on the National Budget:(i) an increase in the birth rate (6 marks); (ii) a decrease in the unemployment rate (6 marks) Two effects are required (3 marks each) for both parts.(i) An increase in educational services; an increase in health services.(ii) An increase in Income Tax revenue; Decrease in Social Welfare expenditure.Junior Cycle Business Studies - Exam Guide (H)(a) Exam Structure & StrategyPaperOneTime 2? hours (150 minutes)Marks240StructureSection A (80 marks)Answer 20 short questions (4 marks each) on the sheet provided.Questions range over the entire syllabus.Section B (160 marks)Answer 4 from 6 longer questions (each carries 40 marks).Questions cover topics from a personal / individual point of viewPaperTwoTime2 hours (120 minutes)Marks160StructureAnswer 4 from 6 longer questions (each carries 40 marks)Questions cover topics from a business viewpointExam StrategyTiming: Allow 5 minutes at the start of each examination to read the paper carefully and decide on the questions you wish to answer. Allow another 5 minutes to read over your answers at the end of the exam.Even if you find you have finished the examination before the time is up do not hand up your paper because if a final inspiration comes to you, you can do nothing more once the paper has been handed up.Allow up to 40 minutes for Section A on the first paper - the twenty short questions are the equivalent of two long questions in Section B. This averages out at two minutes per question. Between 1-1? minutes per question should be spent on reading and working out the answer with the remaining time spent on writing-in the answer on the sheet provided. Do not rush this section because to gain high marks in the examination one needs to score near to 60 marks out of 80 in Section A. It is often advisable to attempt one of the questions in Section B first so as to get settled into the examination.In Section B, you are required to answer four out of six questions. Allow up to 25 minutes per question. Each question has a heading, making it easier to select your four questions.In the second paper, you are also required to answer four out of six questions. Allow up to 25 minutes per question. You can allow an extra five minutes each for the two main Accounting questions. Each question has a heading, making it easier to select your four best questions.Approach to answering: It is very important to note that the Business Studies syllabus is an integrated one - topics are linked together e.g. business topics and documents linked to book-keeping. Too often, students fail to complete the book-keeping section of a question thus losing up to half the marks available.Where there are a number of sections to a question, make sure you answer all parts otherwise you will only be marked out of the sections you have attempted.(b) Walk-through the paper (Question by question)Paper 1 Section AThese twenty short questions range over the entire syllabus. They include approximately eight to ten questions related to book-keeping. The following questions have come up each year since 1997: double entry; explaining ledger accounts; ratio analysis and identifying figures in the balance sheet.Ensure you answer all twenty questions because for each one you fail to attempt you lose 4 marks. In multiple choice questions, make sure that you only tick one answer.Paper 1 (Section B) and Paper 2Choice of questionsTopics common to Paper?1 (Section B) and Paper?2 are: finance; banking; insurance; people at work; industrial relations; letter and report writing; information technology.In Paper 1 (Section B) there are three syllabus topics that have come up each year since the syllabus was first examined in 1992, namely (i) household budgets, (ii) club accounts, (iii) economic framework, national budget and trade.Likewise in Paper 2 there have been three syllabus topics appearing consistently since 1992: (i) writing up books of first entry, posting to ledgers and extracting a trial balance; (ii) final accounts and balance sheets of private limited companies; (iii) business documents and record keeping.By being prepared for these topics, you can then have a good choice when selecting your fourth question on both papers.Answering StyleThe style of answering will vary as the questions include document completion, record keeping and theory. It is important to read the question carefully to see what is required e.g. does it require you to List, Outline or Explain? If asked to list, then one word may be enough to gain full marks whereas explain requires you to name and go into some detail. It is often useful to give an example. See the glossary of examination verbs for more examples of these. While you can use a calculator, you should always show workings in case of making a mistake on the calculator.Use of Diagrams / Charts and GraphsEnsure that when preparing diagrams you give each diagram/ chart/ graph a title and that each axis is labelled. Where appropriate, use diagrams to explain or illustrate you answer.Letter and Report WritingQuestions requiring answers in letter or report format come up regularly so you should practise laying these out properly. Around 40% of the marks can go for the correct layout.Dates and FoliosNote the instructions at the beginning of the papers especially “ Marks will be awarded for layout and presentation including, where appropriate, Folios, and dates showing the day, month and year”. In Paper?2 especially, you are required to use Folios when appropriate. In the books of first entry you should refer to the ledger that the data will be posted on to e.g. General Ledger (GL), Debtors Ledger (DL) and Creditors Ledger (CL).In the ledger you should refer back to the book of first entry that the data came from e.g. Analysed Cash Book ( ACB ) Sales Book (SB) etc.To obtain marks for dates you should always include the year.Document NumbersWhen document numbers are given they should be recorded in the appropriate book of first entry e.g. cheque, petty cash voucher and receipt number in the Analysed Cash Book or Petty Cash Book, the invoice number in the Sales and Purchases Books and the credit note number in the Sales and Purchases Returns BooksJunior Cycle Business - Revision Planner (O)* ESSENTIAL UNIT TO UNDERSTAND IN ORDER TO PASS THE EXAM** KEY AREA TO REVISE IF AIMING FOR A HIGH GRADESection B TOPIC GUIDE REVISED ???Household budgets**?The consumer**?Money and banking**?Personal borrowing*?Household insurance**?Economic framework: national budgets and trade (except balance of payments and balance of trade)**?Club accounts (without adjustments)**?Forms of business??People at work*?Industrial relations*?Letter writing e.g. consumer complaints, insurance queries, borrowing and investment**?Purchases and sales from enquiry to receipt of goods, excluding credit notes. All transactions are on a cash basis only.**?Final accounts and balance sheets of private limited companies and service firms (without any adjustments, except closing stock)**?Being an employer*?Industrial relations*?The chain of production and delivery systems**?Marketing and advertising*?Farm and service accounts: analysed cash books, income and expenditure accounts, and simple balance sheets*?Information Technology from a household and business point of view*?Junior Cycle Business Studies - Model Answer (O)QuestionJC Business Studies (H) 2001 Section B, question 2 General commentsA question on letter writing has appeared on this paper every year since the syllabus was introduced. Students are asked to answer questions in the format of a letter on topics such as insurance, consumer problems, rates of exchange, farm and club accounts.In these type of questions, there are specific marks for the layout of the letter (including the standard of English and use of paragraphs, punctuation, grammar and spelling) and further marks for the content.It is therefore advisable to regularly practise letter-writing on various topics.These questions usually include two or three other parts on related aspects of the same topic.Niamh Sullivan lives at 35 Rock Road, Cashel, Co. Tipperary. She has her home and contents fully insured for IR?150,000 with Thomond Insurance Co.Ltd, 12 Shannon Street, Limerick. Her policy number is 79332. On 21 February 2001, her living room was flooded because a water pipe in the attic was leaking. Although she got a plumber to repair the pipe at a cost of IR?100, damage had been caused to the room. The carpet was ruined, the ceiling would have to be replaced and the room re-painted.The next day, she wrote a letter to her insurance company. She stated her policy number, explained the damage caused and the reason for it. She mentioned how much the plumber cost and asked the company to send her a claim form as soon as possible.(A) What is insurance? (6marks)This part was well explained by candidates.The two key points to be given in the answer were protection and financial loss.Insurance is a means of protection against financial loss resulting from an accident.In return for a fee (premium) an insurance company will agree to compensate a person for accidental loss suffered.(B) If Thomond Insurance Co. Ltd. charges IR?3 per IR?1,000, what premium does Niamh have to pay each year? (10 marks)6 marks for stating the correct answer.It is important to always show your workings to gain marks (up to 4 in this case).Answer: Niamh must pay a premium of IR?450 per year.Workings: Her home and contents were valued at IR?150,000. The cost was IR?3 per IR?1,000. There are 150 IR? 1,000 in IR?150,000. Therefore IR?3 x 150 = IR?450.(D) Will Niamh receive IR? 150,000 from the insurance company for the damage? State one reason for your answer. (6 marks)3 marks for stating correct answer.3 marks for giving the reason and showing an understanding of how compensation works.Answer: NoReason: Only part of the house was damaged.If IR?150,000 was paid then Niamh would benefit from having her house damaged and this would be totally wrong.(C) Write the letter that Niamh Sullivan sent to Thomond Insurance Co. Ltd. on 22 February 2001. (38 marks)Sender’s address(2 marks)Datei.e.day, month, year(2 marks)Recipient’s address(2 marks)Reference(2 marks)Salutation(2 marks)Introduction, content, English, presentation and neatness(24 marks)Close(2 marks)Signature(2 marks)Common errors include omitting the reference, mixing up the addresses, and poor grammar and punctuation.35 Rock RoadCashelCo. Tipperary22 February 2001The ManagerThomond Insurance Co.Ltd.12 Shannon StreetLimerickRe : Flood damageDear SirI have insured my home and contents for IR150,000 with Thomond Insurance Co. Ltd. My policy number is 79332.On 21 February 2001, my living room was damaged due to a leak in a pipe in the attic. The ceiling and carpet has to be replaced and the room repainted. I had to pay a plumber IR?100 to fix the pipe.I now wish to claim for the cost of repairing the damage so please send me a claims application form as soon as possible.Yours faithfullyNiamh Sullivan JC Business Studies - Exam?Guide (O)a) Exam Structure & StrategyLevelOrdinaryTime 2? hours (150 minutes)Marks400StructureSection A (100 marks)Answer 20 short questions (5 marks each) on the sheet provided.Questions range over the entire syllabus.Section B (300 marks)Answer 5 from 8 longer questions (each carries 60 marks).See Revision Planner for topicsExam StrategyTiming: Allow 5 minutes at the start of the exam to read the paper carefully and decide on the questions you wish to answer. Allow another 5 minutes to read over your answers at the end of the exam.Even if you find you have finished before the time is up do not hand up your paper because if a final inspiration comes to you, you can do nothing more once the paper has been handed up.Allow up to 40 minutes for Section A on the first paper - the twenty short questions are the equivalent of two and a half long questions in Section B. This averages out at two minutes per question. Between 1-1? minutes per question should be spent on reading and working out the answer with the remaining time spent on writing-in the answer on the sheet provided. Do not rush this section because to gain high marks in the examination one needs to score near to 70 marks out of 100 in Section A. It is often advisable to attempt one of the questions in Section B first so as to get settled into the examination.In Section B, you are required to answer five out of eight questions. Allow up to 20 minutes per question. Each question has a heading, making it easier to select your best five questions.Approach to the exam: The ordinary level paper Section B requires students to complete many of their answers in the sheets attached to the Section A sheet. For example in 2000 and 2001, questions 1,4,5,7 and 1,4,5,7,8 respectively were to be completed in these sheets. This trend is expected to continue so it is vital that you practise completing the answers in the sheets provided.Where there are a number of parts to a question, make sure you answer all parts otherwise you will only be marked out of the sections you have attempted.(b) Walk-through the paper (Question by question)Section AThese 20 short questions range over the entire ordinary level syllabus. Ensure you answer all 20 questions because for each one you fail to attempt you lose 5 marks. In multiple choice questions make sure you only tick one answer.Section BChoice of questions In Section B there are four syllabus topics that have come up each year since the syllabus was first examined in 1992, namely (i) household budgets, (ii) final accounts and balance sheets of companies and service firms; (iii) completing business documents; (iv) analysed cash books or petty cash books of business / clubs / farms.In addition, a question requiring an answer by way of a letter has being asked every year. By being prepared for these topics, you can then have greater choice in the selection of a fifth question.Answering Style The style of answering will vary as the questions include document completion, record keeping and theory. It is important to read the question carefully to see what is required e.g. does it require you to List, Outline or Explain. If its list then one word may be enough to gain full marks whereas explain requires you to name and go into some detail. It is often useful to give an example. See the glossary of examination verbs for more examples of these. While you can use a calculator you should always show workings in case of making a mistake on the calculator.Use of Diagrams / Charts and Graphs Ensure that when preparing diagrams you give each diagram/ chart/ graph a title and that each axis is labelled. Where appropriate, use diagrams to explain or illustrate your answer.Letter Writing Questions requiring answers in letter come up each year so you should practise laying these out properly. Around 40% of the marks can go for the correct layout.Dates Note the instructions at the beginning of the papers especially “ Marks will be awarded for layout and presentation. Dates should show the day, month and year”.To obtain marks for dates, you should always include the year.Document Numbers When documents numbers are given they should be recorded in the appropriate Book of first entry e.g. cheque, petty cash voucher and receipt numbers in the Analysed Cash Book or Petty Cash Book.usiness Studies Junior Cycle Study NotesThe Business of LivingHousehold expenditure Analysed cashbooks Protecting the consumer Operating a bank account Household insurance Economic AwarenessNational budgets Forms of ownership Sources of finance Business insurance Being an employer Enterprise 1Double-entry bookkeeping Marketing Delivery systems Enterprise 2Business documents and records 1 Business documents and records 2 Balance sheets Trading, profit and loss account Information TechnologyThe Business of LivingThe management of personal finance is an important lifeskill which must be practised by everyone, young and old. In the Business Studies syllabus, much business knowledge and many of its skills may be?gained through reference to familiar personal and household situations - personal budgeting, organising the household finances, operating a bank account and exercising one's rights as a consumer.Household expenditureFull Text ??Analysed cashbooks for householdsFull Text ??Protecting the consumerFull Text ??Operating a bank accountFull Text ??Household insuranceFull Text ??Household ExpenditureOpportunity costOpportunity cost refers to the alternative given up.The average person spends his or her money on a wide variety of things. By choosing to buy one item, they are deciding not to buy something else. For example, by choosing to spend your pocket money on a CD, you may be foregoing, or doing without, buying a T-shirt. The choice to do without the T-shirt in order to buy the CD is called the opportunity cost of buying the CD. If both items cost €20, the financial cost of the CD is €20, while the opportunity cost is the T-shirt.People do not have a limitless amount of money to spend, so they prioritise. This means that they decide what items they consider the most important and money is spent on these items first. Most families share a lot of the same priorities e.g. mortgage, food, bills and a car.Recording expenditureA household should keep a record of their expenditure, so they can analyse how much is spent on each category every month. Household expenditure can be? classified into three categories:1.?Fixed expenditure is spending that is fixed in amount and paid at fixed times. It includes items like loan repayments, car tax and insurance, life assurance and house insurance.2.?Irregular expenditure is where the amount to be paid varies with each invoice or bill received. Examples include car expenses like petrol and servicing, and grocery bills.3.?Discretionary expenditure is money the family can spend as they wish.Impulse buying occurs when a person spends money when they had not planned to do so. It could mean spending money that should have been used to pay an important bill later in the month.Interpreting billsA household pays for the items they buy in one of two ways. Either they pay the supplier at the time of purchase or they receive an invoice some time after the goods or services have been supplied. This is called deferred payment.Whether you are paying at the time of purchase or at a later time, you should always look very carefully at the invoice you receive.It is important to make sure that:1. There are no mistakes on it.2. You know how much is to be paid.3. You know when to pay it.Bills should also be examined carefully, to see how much is owed and when payment is due. Most bills also include details of how the charges were calculated. For example, telephone bills include line rental and call details. Bills will also include VAT.Preparing expenditure estimatesWhen a household is planning their finances for the coming weeks, months or year, they must try to estimate the amount of money they will spend on certain items. If they spend €100 on food this year they will probably need to spend more than €100 to get the same amount of food next year. This is because of inflation.Inflation means a rise in the general level of prices for goods and services over a period of time OR a fall in the value of money.Inflation is usually described in percentage terms. If inflation is 4%, a bill can be expected to be 4% higher than the previous year. Therefore, if a household pays €300 for fuel this year and they know that inflation is 4%, they can expect to pay 4% more (or €12) next year, making the bill €312.Preparing Analysed Cash Books for HouseholdsWhat is an account?Accounts are used to keep a record of income and expenditure. They detail what money comes into and goes out of the household budget.Examples of income:WagesSalarySocial welfare paymentsDividendsInterest on savings Examples of expenditure:FoodEntertainmentGas, telephone, electricity billsMortgage or rentThe Layout of an AccountAll accounts are laid out in the same way. Debits are placed on the left-hand side and credits are placed on the right-hand side.Debit is money that is received and credit is money that is paid out.The date the money is received or paid out can also be included in the account.A simple account would look like this:Salaries €1,500Rent €700?Food and drink €360?Electricity €30?Phone €40?Entertainment €200?Clothes €120?Total €1,450Accounts also need to balance. This ensures that the total amount on both the debit and credit side are equal.If a household keeps a record of their income and expenditure they want to analyse where the money they are spending is going.An analysed cashbook can be prepared. This lists all the debits and credits to the account but also allows for the credits to be viewed under categories.For a practical illustration of these principles, consult our interactive lesson on Preparing Analysed Cashbooks for Households.Protecting the ConsumerDefinition of a consumerA consumer is a person who buys goods or services. Consumers have certain rights and responsibilities. A good consumer will be informed of any agencies, legislations and organizations that can protect them if they are unhappy with a product. Consumers should avoid impulse buying and plan their weekly budget so that they can avoid overspending. Consumer ComplaintsConsumers are entitled to a full money refund, a replacement or a repair of the goods if their rights under the Sale of Goods and Supply of Services Act have been broken.When a consumer buys goods, they are creating a contract with the seller. If the goods are damaged, then this contract is broken.If there is a fault with the goods after being purchased the consumer has the right to complain.Valid reasons for consumers to complain:Misleading advertising Unsafe or low quality goods Slick sales methods Overcharging or incorrect weights Invalid reasons for consumers to complain:If the consumer has changed their mind about the goods If the consumer has interfered with the goods themselves If the fault with the goods was pointed out to the consumer at the time of purchase e.g. ‘seconds’ or shop-soiled items If the consumer does not return the goods within a reasonable period of time after purchase? Consumer LawsThe Sale of Goods and Supply of Services Act 1980This law protects the consumer by ensuring that all goods are of merchantable quality and they are fit for their purpose. The goods must be ‘as described’ and sold as per the sample.Food labels must clearly mark the name of the food, the actual selling price, show the unit price, the use-by date and the ingredients in descending order of weight.Bar codes are a series of black lines with a number underneath it that identifies products and their prices.Shop signs display the shopkeepers' policies on refunding and replacing goods.The Consumer Information Act 1978This law protects consumers against misleading advertising, which may be to do with goods, price, quality or service. The Director of Consumer Affairs makes sure that this Act is carried out.Procedures for consumer complaintsThere is an 8-step procedure to follow when making a complaint about a faulty good:Identify the problem Go to the seller and tell them what you want Put your complaint in writing and send your receipt Contact relevant trade organization Contact Consumer Agency for general complaints or the relevant Ombudsman if the complaint is against a State agency, an insurance company or a bank Bring seller to Small Claims Court Compensation Satisfied consumer Keep a copy of all the transactions that occur between you and the seller and a copy of any letters that were sentOpening and operating a Bank AccountCurrent AccountsA current account provides the account holder with a chequebook and an ATM card. There may also be an overdraft facility. This allows more money than is in the account to be withdrawn. The bank charges a fee and interest for being overdrawn.Advantages:Access to account 24 hours a day Use of a cheque book / ATM card (no need to carry cash) Overdraft facility Ability to set up direct debits and standing orders. Disadvantages:There is usually no interest paid on the account Fees have to be paid to the bank to operate the account Interest has to be paid on the overdraft Opening a current accountA current account application form is filled in. Personal, residential and employment details and a specimen signature must be provided. The Criminal Justice Act 1994 requires proof of identity and proof of address.Businesses must complete an application form and provide a copy of the Memorandum of Association and the Articles of Association, a signed agreement of the directors and the names and signatures of those who are authorised to sign cheques.Operating a current accountLodging moneyTo lodge money, a lodgement form and counterfoil must be completed. The teller checks that the actual amount being lodged corresponds with the amount that has been filled in and then stamps the form and counterfoil. The counterfoil is handed back to the customer.Customers can also lodge money using an ATM, a Credit Transfer (CT) or Paypath.Withdrawing moneyTo withdraw money, a withdrawal form and counterfoil are filled in. The teller checks the signature, verifies there are sufficient funds to cover the withdrawal and stamps this form. The customer receives the counterfoil.Withdrawals can also be made by writing a cheque, using an ATM card, by direct debit (DD) or by standing order (SO).?Writing chequesA cheque is a written instruction by an account holder to the bank, to pay a stated sum of money to a named person.The layout of cheques vary from bank to bank, but the date, payee, amount, drawer, drawee, cheque number, bank sort code and account number are included.There are three parties to a cheque:Payee - the person that the cheque is made out to Drawer - the account holder who issues and signs the cheque Drawee - the bank on the cheque A post-dated cheque is one dated for some time in the near future. It cannot be cashed until that date onwards. An antedated cheque is dated for some time in the past but cannot be six months prior to the present date, otherwise it is a stale cheque. A blank cheque is signed by the drawer but is missing some relevant information. An endorsed cheque can be passed on to another person or business if the payee signs his/her name on the back of the cheque. A ‘bounced’ cheque is one that cannot be cashed due to insufficient funds in the drawer's account. Crossed cheques must be lodged to a bank account. Drawing two parallel lines across the cheque indicates a general crossing. To make the crossing as safe as possible the words ‘account payee only’ should be written between the parallel lines.?? Cheque CardAccount holders use it as proof of identity, and as a guarantee the bank will honour the cheque. When a person accepts a cheque, the signature on the cheque should be compared with the one on the card. It should be an up-to-date card and the card number should be written on the back of the cheque.Bank StatementsAn account holder should keep a record of all their transactions in a simple cashbook. If the balance at the beginning or the balance brought down is on the debit (DR) side, the account holder has money in the bank. If it is on the credit (CR) side then it is overdrawn by that amount. The DR side shows all the money lodged and the CR side shows all the money withdrawn from the account.A current account holder should receive a bank statement from their bank on a regular basis. This shows all the transactions from the bank's point of view. It includes a running balance.Household InsuranceWhat is Insurance?Insurance is a service people can purchase that compensates them for a financial loss.In return for payment of a premium an insurance company promises to pay compensation should a financial loss occur.Risks are insurable when:The person taking out insurance gains from the existence and suffers from? the loss of the item insured The loss is accidental The risk is one of many similar risks being insured The possible loss is not so big that it would ruin the insurance company Principles of InsuranceInsurance is governed by three principles:1.?Insurable interestA person who wishes to take out insurance must gain from the existence of what is being insured and suffer from its loss.2. Utmost good faithA person applying for insurance must always answer all questions asked truthfully. Failure to do so can make the insurance cover null and void (worthless).3. IndemnityAn insured person cannot gain from insurance i.e. insurance can at best put an insured person in the same financial position as they were prior to a loss occurring.The principle of indemnity has two sub-principles:Principle of contribution: Should the same risk be insured by two or more insurance companies, the compensation must be shared out between them. Principle of subrogation: It always follows that once an insurance company pays out compensation it becomes the owner of the item insured. Types of InsuranceThe main types of insurance cover taken out by households include:Personal insurance Property insurance Life insurance/assurance Motor insurance When taking out insurance a person completes a proposal form.When making a claim for compensation a person completes a claims form.An actuary calculates the premium to be paid for insurance.When a person makes a claim for compensation an assessor calculates the compensation to be paid.Loadings (factors that increase the risks insured) increase the size of the insurance premium whereas deductions (factors that reduce the risk insured) decrease the size of the insurance premium.Economic AwarenessEvery day we make economic decisions, as do business firms and governments - decisions on the allocation of resources, the spending of money and the services we employ. Without a basic knowledge of the economic environment, it is increasingly difficult to participate as a citizen in the democratic process. In this section of the syllabus, you are introduced to some basic economic concepts at a national level (i.e. government budgets) plus the general background and structure of business and the world of work.National budgetsFull Text ??Forms of ownershipFull Text ??Sources of financeFull Text ??Business insuranceFull Text ??Being an employerFull Text ??National Budgets What is a budget?A budget is a financial plan. It is also known as a Cash Flow Forecast. It is a financial plan for the future. It details whether planned income will be big enough to meet planned expenditure.Budgets are prepared by:Individuals Households Businesses Governments Government income and expenditureThe government has two main types of income:Capital income e.g. sale of a State company. This is money received on a once-off basis.Current income e.g. tax revenue from PAYE or VAT. This is money that the government receives regularly, on a day-to-day basis. Government expenditure is divided into:Capital expenditure e.g. building hospitals. This is spent on once-off or long term projects.Current expenditure e.g. paying doctors and nurses. This is money spent on a day-to-day basis. Every government department requires both capital and current expenditure. For example, if the Department of Defence buys some new weapons, this would be an example of capital expenditure whereas the soldiers' wages are classified as current expenditure.Preparing a National BudgetThe government is composed of many different departments, each of which is headed by a Minister. Some of the major departments are:Department of Health and Children Department of Enterprise, Trade and Employment Department of Finance Department of Education and Science Department of Social and Family Affairs Approximately two months before the national budget is announced by the Minister for Finance, each Minister submits an assessment of the amount of money that his or her department will need in the coming year.This gives the Department of Finance information about how much money the government as a whole will need. Services provided by the State are called public utilities. They are provided by government departments and semi-state companies.Sometimes the government will have to decide on priorities if they do not expect to have money to give each department all they asked for.The Minister announces the Book of Estimates at this stage. It shows the overall amounts each department is allowed to spend in the coming year.In late November or early December, the Minister for Finance announces the national budget on behalf of the government. In it, the Minister gives a breakdown of the amount of money each department will spend in the coming year. The Minister also announces how the income to pay for this expenditure will be raised.Budget Surplus or DeficitWhen preparing a national budget, the Minister for Finance calculates all income that the government will receive and all expenditure that will be made. The difference is calculated and identified as a surplus or deficit.A national budget can be:A surplus budget where expected income is greater than planned expenditure A deficit budget where expected income is less than planned expenditure A balanced budget where expected income equals planned expenditure If the government has a budget deficit they can borrow money or use savings to finance it. To eliminate or reduce the deficit they can increase taxes or lower expenditure.If they have a surplus they can repay some money previously borrowed, reduce taxes or increase spending on areas they consider important, such as the health service.The government must always be aware of the implications of any changes they make in a budget. For example, if they decide to increase taxes, there will be more money in the Exchequer, so they can spend more money the following year. However, they must also remember that workers may now demand higher wages to cover the higher taxes they are paying.In the same way, if the government decides to collect less revenue through cutting taxes or to spend more money on various departments, the amount of available Exchequer funds will be reduced.Forms of Ownership Sole TraderA sole trader runs a business on his/her own. Businesses can be set up straight away if trading under the owner's name. Otherwise, the name has to be registered with the Registrar of Company Names. Some sole traders need a licence.Advantages:Easy to set up Can keep all the profits and make all the decisions May know customers personally Disadvantages:Unlimited liability May have to sell personal?assets to cover debts Has to provide the capital and suffer all losses Responsible for all areas of business No continuity Private companiesOwned by between two and fifty shareholders, who have a vote for every share they own. The private company must have the letters Ltd or Teo after the company name.Advantages:Shared responsibility Shareholders only lose what they have invested Private assets cannot be sold to cover debts Continuity even if a shareholder dies Disadvantages:More costly to set up than a sole trader Profits are shared between the shareholders (in the form of a dividend) Legal requirements with respect to formation are complex Shares cannot be sold on the stock exchange Co-operativesOwned and managed by their members, who each must own at least one share.Advantages:Members have only one vote no matter how many shares they own. Everyone has an equal say Members have limited liability Disadvantages:No incentive to invest more money as a member has only one vote, regardless of the number of shares May lack finance and business expertise May be too small to compete successfully State-owned companiesSet-up and run by the government. A Minister is responsible for each company. When a State-owned company is sold to private individuals, this is known as privatisation.Advantages:Any profits go to the government or are re-invested Provides employment and essential services Disadvantages:May operate at a loss and require government funding May be monopolies which, due to lack of competition, become inefficient Setting up private companiesBefore setting up a private company the following must be completed:A Memorandum of Association and the Articles of Association A declaration of compliance with the Companies Act 1963-1990 Statement of nominal share capital Consent by those who agree to become directors Completed documents are sent to the Registrar of Companies. Once the documents are passed, the company is issued with a Certificate of Incorporation. Legally, the company is now separate from its owners. It can now sue or be sued.Memorandum of AssociationStates the relationship between the company and the general public and contains the following information:Name of the company, including Ltd or Teo Objectives of the company Statement declaring the liability of the shareholders Statement of nominal/authorised share capital Signatures of the shareholders and directors Articles of AssociationStates the internal rules and regulations of the company and contains the following information:Name of the company with Ltd or Teo in it Voting rights of the shareholders Procedures for calling meetings and electing directors Details of share capital (nominal and authorised) Borrowing power of the company Recording the issuing of sharesEvery business transaction involves giving and receiving. In a private company the bank account receives the money and the share capital gives the money. If shareholders invested €50,000 in a company, the amount would be entered on the debit side of the bank account and on the credit side of the share capital account.Sources of FinanceFinancial needs of a businessBusinesses require finance for:Starting up Running the business on a day-to-day basis Expanding and developingIt is most important that a business selects the most suitable source of finance for each of these needs. The financial needs of a business can be divided into:Short term Wages Telephone, gas, electricity bills Purchase of goods for resale Medium termMotor vehicles ComputersLong term Buildings Machinery Sources of financeThe sources of finance for a business can also be classified into short, medium and long term. It is important for business to identify its needs and then to choose a suitable source of finance e.g. a short-term need should be financed by a short-term source of finance.The sources of finance are as follows:Short term0-1 yearMedium term1-5 yearsLong termover 5 years1. Creditors*1. Term loan1. Owners capital*2. Amounts due*2. Hire purchase2. Retained profits*3. Bank overdraft3. Leasing3. Grants*??4. Long term loans??5. Sale and leaseback* Those sources highlighted are free of interest i.e. they do not cost the business money.Applying for loansWhen applying for a loan a business will have to complete a loan application form and supply certain information such as:Business history Details of product or service sold Purpose of loan Amount of loan Proof of ability to repay loan Security available in case the loan cannot be repaid When a business receives a loan from a financial institution it must record it in its bank account (debit side) and in an account of the lender e.g. AIB Ltd, Loan account (credit side).Insurance for Business What is Insurance?Insurance is a service people can purchase that compensates them for a financial loss. It is an essential part of the operating of most businesses and may constitute a large cost to the business.In return for payment of a premium an insurance company promises to pay compensation should a financial loss occur.Risks are insurable when:The person or business taking out insurance gains from the existence and suffers from the loss of the item insured The loss is accidental The risk is one of many similar risks being insured The possible loss is not so big that it would ruin the insurance company Principles of InsuranceInsurance is governed by three principles:Insurable interestA person who wishes to take out insurance must gain from the existence of what is being insured and suffer from its loss. Utmost good faithA person applying for insurance must always answer all questions asked truthfully. Failure to do so can make the insurance cover null and void (worthless). IndemnityAn insured person cannot gain from insurance i.e. insurance can at best put an insured person in the same financial position as they were prior to a loss occurring. The principle of indemnity has two sub-principles:Principle of contribution: Should the same risk be insured by two or more insurance companies, the compensation must be shared out between them.Principle of subrogation: It always follows that once an insurance company pays out compensation it becomes the owner of the item insured. Types of business insuranceThe main types of insurance cover taken out by businesses include:Fire insurance Theft insurance Product liability (protection against faulty products) Employer's liability (protection against claims by employees) Public liability (protection against claims by members of the public) Motor insurance When taking out insurance a business completes a proposal form.When making a claim for compensation a business completes a claims form.An actuary calculates the premium to be paid for insurance.When a business makes a claim for compensation an assessor calculates the compensation to be paid.Loadings (factors that increase the risks insured) increase the size of the insurance premium whereas deductions (factors that reduce the risk insured) decrease the size of the insurance premium.Being an Employer An employer is any person, business or organisation that pays someone to do work for them.An employer has both rights and responsibilities.An employer has the right to:Decide on the aims of the business Hire workers Dismiss dishonest workers An employer is responsible for:Obeying all employment laws Providing safe and healthy working conditions Paying the minimum wage for work done Keeping employment records including tax, PRSI for each employee Procedure for employing workersThere are various stages involved in the process of employing staff and they include the following steps:Prepare a Job Description, which accurately describes the work to be done Prepare a candidate description that sets out details of the ideal candidate Advertise the position(s) both within and outside the business organisation Draw up a shortlist of possible candidates by examining the completed application forms and Curriculum Vitaes (CVs) received Test and interview candidates who were short-listed Select the most suitable candidate after checking their references. Offer them a contract and take them on for a trial period Help the new workers get settled into their new workplace through induction and orientation courses Calculating wagesThe Gross Wages can be calculated using:Time rate i.e. payment per hour Piece rate i.e. payment for items produced Commission rate i.e. payment for items sold The Net Wage is calculated by taking statutory deductions (income tax and PRSI) and non-statutory deductions (VHI, Union Fees, Pension) from Gross Wages.Employers give their workers a wage slip, which shows the amount of money earned, and the amount of deductions made.Employers, to record the payment of wages to workers, use a wages book. It records the gross wage, the various deductions made, the net wage and the employer's share of PRSI.The Total Cost of employing workers (Gross Wage plus employers share of PRSI) is recorded in the accounts as follows:DateDetailsFAmount?DateDetailsFAmount???Bank A/C????????31/5/03WagesCB€30,000???wages A/C???31/5/03WagesCB€30,000?????Enterprise 1In the commercial environment, a business must pay attention to its customers and its accounting procedures if it is to be successful. Having gained an understanding of the structures of business ownership and operation, you are now required to appreciate the process of identifying markets and getting the finished product to customers by the most efficient means. You are also introduced to the operation of formal double-entry accounting.Double-entry bookkeepingFull Text ??MarketingFull Text ??Delivery systemsFull Text ??Double-entry BookkeepingDouble-entry bookkeeping is the recording of the receiving and giving aspects of a business transaction. It shows the effects of business transactions on a business.Double-entry bookkeeping involves keeping records of transactions in accounts, with the use of account books known as ledgers.Ledgers are laid out as follows:The Debit (left-hand) side of the ledger account is used to record the receiving aspect of a transaction.The Credit (right-hand) side of the ledger account is used to record the giving aspect of a transaction.Name of Account: each account has a name and is placed in the middle of the ledger page.Page Number: each account has a page number for referencing purposes e.g. page 1 or p.1. The abbreviation A/C is used for account.Date column: this is used to record the date the transaction took place. It must include the day, month and year.Details column: this is used to show who the transaction was with.F (Folio) column: is used to refer to where the information for the transaction came from.Amount (€) column: shows the amount in euro that has been received or given out. ?????????????????????????????Left Hand Side (Debit)????????????????????? Right Hand Side (Credit)DateDetailsFAmount €? DateDetailsF Amount €????????????Name of account (p.1)????????????Three steps to entering data in Ledger Accounts:?Step 1: Decide on which ledger accounts to open - use an account for each business transaction.Step 2: Decide on which accounts are debited and credited - debit the receiving account and credit the giving account.Step 3: Enter the data in the ledger account and complete each column ledger as set out above.?Balancing Ledger Accounts?Ledger accounts are balanced regularly to find out exactly what is left in the account.Left Hand Side (Debit)??????????????????????????????? Right Hand Side (Credit)?Date??? ?Details?? ? ?F? ?Amount €???? ?? ??Date?????? ?Details????? ?F ? Amount €??????? ??????Bank A/C (p.1)????1/5/03???Capital?CB???50,000????20/5/03??Van?CB?20,000???????????20/5/03??Balance?C/D??30,000????50,000?????50,000?21/5/03??Balance?B/D?30,000??????????There are four steps in balancing ledger accounts:Step 1: Add up the entries on the debit side and then add up the entries on the credit side on a piece of paper.Step 2: Find the difference between the two sides by subtracting the small side from the big side. This difference is called the balance or balancing amount.Step 3: Put the balance on the smaller side to make both sides equal and the letters C/D are put in the F column to indicate that this amount is carried down to the other side. A double line is placed under each total.Step 4: Bring down the balance to the biggest side below the double line. This shows on one line which side is the biggest. The letters B/D are put in the F column to indicate that this amount has been brought down from the other side.Trial BalanceThe accuracy of the double-entry bookkeeping can be checked by preparing a trial balance, which compares the total debit balance with the total credit balance. If these totals are the same, the double-entry bookkeeping is accurate, if they are not, mistakes have been made. Ledger Accounts DataThe data recorded in the ledger accounts is obtained from the books of first entry namely the analysed cash book, the purchases and sales books, the purchases and sales returns books.For a practical illustration of these principles, consult our interactive lesson on Double-entry BookkeepingMarketingThe MarketA market is a place where goods and services are bought and sold.There are many different types of market.Some markets do not require the buyer and seller to meet.Target marketsA market can be divided or segmented into target markets.Most products are aimed at target markets.Identifying the correct target market for a product is essential for a product's success.The marketing mix (4 P’s)Marketing is the process of identifying and anticipating consumer needs.The theory of marketing is based on the 4 P’s:Product Price Promotion Place Identifying the correct mix of the 4 P’s for a market is important to the success of a product.Market researchMarket research is the gathering and analysing of information about a market.This information can then be used to ensure a product will meet consumer needs and be successful.The two main methods of market research are:Field studies, for example using questionnaires and talking directly to consumers. Desk studies, for example researching government publications or using the Internet to find information. In researching any market, it is important that questions are well designed so to ensure that all answers are accurate.Product developmentNew products and services are constantly being developed, and existing products and services are constantly being updated. This is called product development.AdvertisingAdvertising is the giving of information about a product or service to consumers.There are many different types of advertising (informative, competitive, persuasive, reminder and generic) and many different media (TV, radio, print) on which to advertise.??A successful advertisement will lead to a consumer purchasing the advertised product or service.Selling techniquesBusinesses use selling techniques to improve their sales and profits.Incentives or bonuses offered directly to the consumer, such as money-off coupons or a 2 for 1 offer, are called sales promotion methods.Products sold at a reduced rate are known as ‘loss leaders’.Loss leaders are offered in the hope that consumers will purchase the discounted item as well as other products.Branding is the process whereby businesses attach a name, logo or image to their product or service in order to make it identifiable.Public relationsMost firms have a public relations officer (PRO) who is responsible for protecting a firm's image.A PRO will make contact with the public.A PRO may try and arrange sponsorship deals to improve a firm's profile and image.Export markets and import substitutionIrish goods sold to other countries are called exports.Goods brought from other countries to Ireland and sold here are called panies can produce goods to replace imports. This is called import substitution.Delivery SystemsA delivery system is any means by which either goods or people are transported. Road, rail, sea, air and pipeline are five types of delivery systems. The means by which goods get from the manufacturer to their final destination is called the chain of distribution: Producer of raw materials?? Manufacturer ? Wholesaler ? Retailer ? Consumer Different delivery systemsRoad transport is suitable for quick deliveries of non-bulky goods and is fast over short journeys, but is not suitable for large bulky goods.Rail transport is suitable for the delivery of bulky goods such as coal and chemicals and is fast over long distances, but has fixed timetables.Air transport is the fastest form of transport for moving people and urgent, non-perishable goods and small non-bulk goods, but it is expensive.Sea transport is suitable for large cargoes of bulky goods and containers, but it is slow.Pipeline transport is suitable for transporting liquid products but it is slow.Factors affecting choice of delivery system:Speed Reliability Distance Convenience Cost Modern delivery systemsContainers are large metal boxes particularly suitable for perishable goods. They facilitate the easy transfer from one form of transport to another.Courier firms collect and deliver small parcels nationally and internationally for a fee.Motorways take congestion away from towns and cities by being placed on the outskirts of a town.Toll bridges are constructed by private companies who then charge a fee to drivers for the use of these roads.Calculating the cost of deliveryIt is very important for a business to calculate its cost of delivery because it is another expense.When calculating the cost of delivery, the following must be calculated:Insurance Motor tax Repairs and servicing Wages Distance travelled to calculate diesel or petrol costs It is important that a business knows the distance to be travelled so it can be divided by the average speed of the vehicle in order to calculate the delivery time.Enterprise 2Accounting involves the assembly, recording, processing, analysing and interpretation of numerical data. It is an important aspect of business education and forms an integral part of the Business Studies syllabus. However, it should not be viewed as an end in itself but rather as a form of communication, as a record-keeping process and as a major contribution to management decision-making.In this section, we are introduced to various business documents (quotations, order forms, delivery dockets, invoices, credit notes, statements etc) and practical aspects of accountability and control. We also see how balance sheets, trading accounts and profit and loss accounts are prepared.Business documents and records 1Full Text ??Business documents and records 2Full Text ??Balance sheetsFull Text ??Trading, profit and loss accountFull Text ??Business Documents and Records - Part 1Step 1: Letter of EnquiryStep 2: QuotationStep 3: Order FormStep 4: Delivery DocketWriting letters of enquiryIn business deals, there are two parties:1. The buyer:If you want to buy something, you can go into a shop.If a business wants to buy new equipment or stock for their shop, they may find that the supplier is far away.Businesses will often write a letter of enquiry to possible suppliers asking for details of the items available.The buyer should keep a copy of the letter for his or her own records.2. The seller:The seller should file the letter so a copy is retained and then he or she should reply to the letter.Receiving quotationsThe seller or supplier sends a quotation in response to a letter of enquiry.A quotation details:What items are available The price The VAT (value added tax paid to the government) Any discounts The credit period The terms of sale The seller collects the VAT from the sale and sends it to the Revenue Commissioners.Sellers may give discounts to buyers to encourage the buyer to continue to purchase from them.When buying goods privately people pay for the items they buy at the time of purchasing the product or service. In business, most transactions are not paid for at the time the goods are bought. A business customer is given this extra time because they may need to sell the goods first. This period is used to get the money from their own customers in order to pay the suppliers. The usual length of credit is one month or 30 days.The discount and the credit period are known as the terms of sale.It is important to remember that the supplier sends a quotation to the customer. Both the supplier and the customer should keep a copy of the quotations for their records.Dealing with order formsOnce the buyer knows the prices and terms of sale that the seller is prepared to offer, he or she can decide what to buy.The buyer then places an order.An order made in writing is better than one made over the phone because both buyer and seller will have an exact written record of the items ordered. So, in the case of an incorrect delivery, both supplier and customer will have a copy of what was ordered and can check for errors on the order form.Using delivery docketsWhen goods are being delivered, the seller usually sends a delivery docket with them.The buyer compares this with the order form to make sure that the goods being delivered are those that were ordered in the first place.Businesses need to keep the delivery docket until they receive the invoice, or bill, and then can compare them. This is to insure that they only pay for what they received.Delivery dockets are also used to confirm that the buyer received the goods.In addition, they can be used to see if the customer was satisfied with the condition of the goods.For a practical illustration of these principles, consult our interactive lesson on Business Documents and Records - Part1.Business Documents and Records - Part 2Step 5: InvoiceStep 6: Credit Note (if any)Step 7: Statement of AccountStep 8: PaymentUnderstanding InvoicesAn invoice is one of the most important documents in a business.It details how much a business owes suppliers for goods received.When a business receives an invoice from a supplier they should:Compare it with the order form to make sure that they ordered the items for which they are being invoiced Compare it with the delivery docket to make sure that everything they have to pay for was delivered to them Record it in the Purchases Book File the invoice to be paid before the credit period is finished When calculating invoices it is important to remember:Trade discount is subtracted from the total, excluding VAT VAT is added to the figure after any trade discount has been deducted Suppliers complete invoices based on what has been deliveredPurchases BookA business making a purchase on credit needs to know:To whom they owe money How much is owed. To do this, they keep a Purchases Book — it is completed based on information provided by the invoice Purchases BookDateDetailsInvoice NoFolioNetVATTotal2/2/2002Maguire Ltd56CL210,0002,10012,100Sales BookA seller also needs to keep accurate records showing:To whom they sold goods on credit How much money each customer owes. To do this, they keep a similar book called the Sales Book — it is completed based on information provided by the invoice Sales BookDateDetailsInvoice NoFolioNetVATTotal2/2/2002Hope Ltd213DL520,0004,20024,200Using Credit NotesA credit note is sent by a supplier if a business receives damaged goods or an incorrect delivery. It is sent after the invoice.Businesses who buy or sell on credit keep accurate records of all returns made to them or made by them.Purchasers record all credit notes they receive in the Purchases Returns Book.Purchases Returns BookDateDetailsCredit NoteFolioNetVATTotal7/2/2002Maguire Ltd34CL21,0002101,210Sellers record all the credit notes they send in the Sales Returns Book.Sales Returns BookDateDetailsCredit NoteFolioNetVATTotal8/2/2002Hope Ltd78DL52,0004202,420The books are completed using the credit note in the same manner as the Purchases and Sales Books are completed.Keeping StatementsBusinesses are very careful to keep a record of precisely how much they owe. To do this, they send a statement of account at regular intervals.The statement shows how much money the supplier is owed by the buyer.It also shows every entry in their Sales Book, i.e. every invoice and credit note they sent to the customer, every payment that has been received, and the current amount of money owed or the pleting PaymentWhen the credit period has expired, the buyer must pay for the goods they have received. Businesses usually do this by writing a cheque to clear their account with the suppliers.The cheque is sent to the suppliers and they retain the stub from the cheque for their records.When the seller receives a cheque as payment, it is recorded on the debit side of the Analysed Cash Book. This side shows money coming into the business.Meanwhile, the buyers also keep a record of payments they make.The buyer can use the information on the stub of the cheque to complete the Cash Book.They show this on the credit side of their Analysed Cash Book because they are recording a payment or money going out.Issuing ReceiptsA receipt is given to prove payment was received for goods.The supplier sends the receipt onto the buyer once payment has been received.The receipt also lets the business know that payment has been received.For a practical illustration of these principles, consult our interactive lesson on Business Documents and Records 2.Balance Sheets for a Private Limited CompanyA balance sheet is a statement of the assets, liabilities and share capital of a business on a particular date.The balance sheet is divided into two parts:The first part shows what the company owns, its total net assets The other part shows how the company has been financed (the ‘Financed by’ section) The working capital is calculated by subtracting the current liabilities from current assets.Total net assetsAssets are items that a business owns, that make it better off.Fixed assets are kept by a business for a number of years, for example buildings, land, machinery and motor vehicles.Current assets are assets that will change their form in the space of one year, for example cash, debtors, bank and closing stock.Current liabilities are the amounts of money owed by a company, which fall due for payment within one year, for example creditors, bank overdrafts and dividends due.Working capital is the difference between current assets and current liabilities. It is the money available for the day-to-day running of a business.Total net assets are made up of total fixed assets plus working capital. Remember that when working capital is a negative number it will be subtracted from total fixed assets.Financed by...This section shows where a business obtains its finance.It is made up of the ordinary share capital, reserves and long-term liabilities.A completed balance sheetA balance sheet is a statement of the assets and liabilities and share capital of a business on a particular date.It is made up of two parts — Total Net Assets and ‘Financed by’.The Total Net Assets is the amount a business owns after allowing for current liabilities. It is calculated by adding Current Assets minus Current Liabilities (Working Capital) to Fixed Assets.The Financed By section of the balance sheet shows where a business obtains its finance.This can include share capital, reserves and long-term loans.Glossary of termsAll the terms used in relation to balance sheets are set out below.Assets: These are items which a person, organisation or business owns that makes them better off.Authorised Share Capital: This is the amount of money a company is allowed to raise through the issuing of shares to shareholders.Balance Sheet: A statement of the assets and liabilities and share capital of a business on a particular date. It shows what a business owns and where it obtains its finance.Bank Overdraft: the amount of money current account holders in a bank can write cheques for, over and above the amount they have in the account.Capital Employed: The amount of money the business has working for it — this amount can include share capital, reserves, and long-term loans.Closing Stock: The amount of goods that have not yet been sold on the day a balance sheet is prepared.Creditors: People who sell goods on credit to a business and agree to be paid at a later date i.e. the business owes them money.Current Liabilities: The amount of money owed by a business that must be paid back within one year, e.g. creditors, bank overdraft, dividends due.Current Assets: Items that a business owns but that can change within one year e.g. closing stock, cash, debtors, bank.Debtors: People who purchase goods on credit from a business and who agreed to repay the business at a later date, i.e. they owe money to the business.Depreciation: An estimate of the amount of money a fixed asset reduces by, due to wear and tear.Dividends due: The share of profit a company owes to its shareholders.Financed By: A section of the balance sheet which shows where a business obtains its finance from. It can include share capital, reserves and long-term loans.Fixed Assets: Items owned by a person, organisation or business which do not change within one year, e.g. buildings, land, machinery, motor vehicles.Issued Share Capital: The amount of capital a company has obtained to date from its shareholders.Long Term Liabilities: The amount of money that a business owes and falls due for repayment after at least one year, e.g. 20 year loan taken out in 1990 and due for repayment in Book Value (NBV): The present value of fixed assets after deducting depreciation from the cost of a fixed asset.Ordinary Share Capital: The name for the capital of a company.Reserves: also known as retained profit, this is the amount of a business’ profit that is not given out to shareholders in dividends. Part of a company’s profit is retained for future expansion.Shareholders: People who own and invest in companies.Total Net Assets: The amount a business owns after allowing for current liabilities. It is calculated by adding Current Assets minus Current Liabilities (Working Capital) to Fixed Assets.Working Capital: The difference between Current assets and Current Liabilities. It is the money available for the day to day running of a business.For a practical illustration of these principles, consult our interactive lesson on Balance SheetsTrading, profit and loss account The trading account calculates the amount of profit earned from buying and selling goods in a particular time period (usually one year).The Trading account for Big Books Ltd appears below.Trading account for Big Books Ltd for year ended 31/12/01?€€Sales?250,000LESS COST OF SALES??Opening stock20,000?Purchases150,000?Goods available170,000?Less closing stock30,000?Cost of sales?140,000Gross profit ?110,000An explanation of each of the terms in the Trading Account follows.Trading account for Big Books Ltd for year ended 31/12/01:this is the title of the account. It informs the user of the name of the business and the time period which has been used to measure gross profit.Sales: The amount of money earned by the business selling books in the past year. Money earned by the business is known as Income or Revenue. Sales returns/returns in may have to be subtracted.LESS COST OF SALES: this is a heading, which indicates that a calculation is going to be completed. This calculation will work out the cost of all the books that were sold in the year. It is calculated as followsCost of sales = opening stock + purchases - closing stock.Opening stock: This is the value of stock left over from the previous year. This stock will be the first to be sold in the new year.Purchases: This is the cost of all the new games bought during the year. (Two additional costs may be added to purchases, carriage in and import duty). Purchase returns/returns out may have to be subtracted.Goods available: This represents the total cost of all the books that were available to be sold during the year. It is calculated by adding the opening stock and purchases.Closing stock: This is the value of all the books left in the shop and the storeroom at the end of the year. It is subtracted from opening stock and purchases, as it does not form part of the goods sold during the year.Cost of sales: This is the answer to the calculation of the cost of sales.Gross profit: This measures the profit the business makes by buying and selling books. It is calculated as follows:Gross profit = Sales – Cost of SalesThe Profit and Loss AccountThe profit and loss account calculates the profit the business has earned after allowing for all the expenses incurred in running the business.The profit and loss account for Big Books Ltd appears below.Profit and loss account for Big Books Ltd for year ended 31/12/01?€€Gross Profit?110,000LESS EXPENSES??Administration expenses40,000?Distribution expenses20,000?Financial expenses10,00070,000Net Profit ?40,000Profit and loss account for Big Books Ltd for year ended 31/12/01: This is the title of the account. It informs the user of the name of the business and the time period that has been used to measure net profit.Gross Profit: the profit the business made buying and selling books. If the business earned additional income by means other than trading it could be added to gross profit. For example, if the business was able to rent space in the building the rent received could be added to gross profit. Interest received and commission received are common entries.LESS EXPENSES: This is a heading, indicating the total of all business expenses are to be calculated.Administration expenses: These are the costs associated with running the business such as wages, insurance, light and heat and depreciation.Distribution expenses: These are the costs associated with selling the goods and delivering them. They include advertising, delivery van repairs and petrol.Financial expenses: These are the costs associated with borrowing money such as interest on the overdraft and the profit: This is the profit that is owed to the owner(s). In the case of a company the shareholders may be paid a dividend from available profits. The profit that remains is reinvested in the business and is added to the capital in the balance sheet.Club AccountsA club is an organisation set up to further the interests of its members.Unlike a business, clubs do not intend to make a profit. Therefore to measure their financial performance each year they prepare an INCOME and EXPENDITURE Account. In this account the clubs expenditure on the day-to-day running costs (do not include the cost of assets) is subtracted from its income (subscriptions, raffle income, collections, canteen profit). It may be necessary to prepare a canteen trading account to calculate the canteen profit.If INCOME exceeds EXPENDITURE it is called surplus income and if EXPENDITURE exceeds INCOME it is called excess expenditure.The club will produce a balance sheet in the same way as a private limited company with one exception. In the ‘Financed By’ section there is no Ordinary Share Capital — instead there is an Accumulated Fund, which represents the finance supplied by the members over the years.Glossary of termsAll the terms used in relation to trading accounts are set out below:Balance sheet: a statement of a business’s wealth on a particular date.Assets: the resources owned by the business.Liabilities: the amount of money owed by the business to the suppliers of finance.Capital: the money invested in the business by the owner. It is a liability, as money is owed by the business to a supplier of finance.Fixed assets: resources owned by the business. They are used to help run the business and are not intended for resale. Usually they are kept for a number of years and depreciation is recorded in the books to reflect their decline in valueCurrent assets: resources owned by the business, which will change their form within one year.Current liabilities: amounts of money owed by the business, which must be repaid within one year.Working capital: the name given to the difference between the current assets and the current liabilities. A positive working capital means the business has enough current assets to pay off its current liabilities.Long-term liabilities: amounts of money owed by the business, which will be repaid over a long period of time.Capital: the money owed to the owners as a result of their original investment.Reserves: profits which have been retained in the business in order to provide finance.Capital employed: the total of long-term liabilities plus capital and reserves. This represents the total amount the business owes to the suppliers of long-term capital.The trading account: calculates the amount of profit earned from buying and selling goods in a particular time period.Gross profit: measures the profit the business makes by buying and selling goods. It is calculated as follows: Gross profit = Sales – Cost of Sales.Profit and loss account: calculates the profit the business has earned after allowing for all the expenses incurred in running the profit: the profit that the business has earned after allowing for all the expenses incurred in running the rmation Technology Information technology focuses on the use of computers in recording, storing processing and transmitting information.HardwareThis refers to the machinery used by the computing system and is usually categorised under three headings:1. Input devices allow information to be entered into the computer, these include: keyboard, bar code reader, scanner, floppy disc and e-mail.2. Central processing unit is responsible for the speed at which the computer carries out its operations. It consists of an arithmetic, control and memory unit.3. Output devices allow information to be communicated from the computer to the user. These include monitor, printer, TV and speakers.SoftwareThis refers to the programs (sets of instructions written in a computer language), which tell the computer what to do.Typical examples of software include the following:Business softwareAn accounts package to record financial information.A payroll package to record and calculate the staff wages.Word-processing to create documents.Database to act as an electronic filing cabinet.Spreadsheets for business calculations Personal softwareWord-processing for personal correspondence.Games for entertainment.DVD software to allow the viewing of films etc.Spreadsheets to allow the preparation of family budgets.Educational software to teach yourself new skills. The InternetThis is the global network of computers connected through modems and telephone lines.To get connected you must have a web browser (e.g. Microsoft Explorer) on your computer and you must join an Internet Service Provider (ISP).Once this is accomplished the computer can be used to 'surf the net' i.e. search for websites on the World Wide Web (WWW).As the WWW is so large most people use search engines or directories such as Google and Yahoo to help find relevant information.The other main use of the Internet is to send mail (and attachments) to other people or organisations. This is known as e-mail and simply requires that the receiver's e-mail address be known.The Internet and BusinessThe Internet can be used by business to undertake the following:Desk research i.e. an enormous quantity of information exists on the Net, which can be accessed as part of a market research exercise.Advertising where a business can buy space on a frequently used website to inform potential customers of their products.Direct sales (e-business). A business such as Ryanair can create a website to sell its product or service directly to the consumer thus cutting out the middleman.Video conferencing allows a virtual meeting take place linking distant locations with sound, pictures and data transmission facilities. Factors to be considered when purchasing a computer1. Cost: shop around for the best deal and remember to include the cost of necessary peripherals (printers, scanners etc).2. Memory: the computer must have sufficient memory (RAM) for the programs you need to run.3. Training: do you have the necessary skills to operate the system?4. Upgrades: is it possible to upgrade the computer or will it become obsolete quickly?5. Software: is the appropriate software available or will it have to be created?6. After sales service: is this provided by the manufacturer/retailer and included in the price?Understanding common terms:ITInformation TechnologyCPUCentral Processing UnitCADComputer Aided DesignVDUVisual Display UnitROMRead Only MemoryRAMRandom Access MemorywwwWorld Wide WebCAMComputer Aided ManufactureISDNIntegrated Digital Services NetworkEFTPOSElectronic funds transfer at the point of saleEDIElectronic Data InterchangeModemA device that connects the computer to the telephone line.MonitorAnother name for the visual display unitMegabytesA unit of measurement indicating the size of memoryMouseA device which allows the user to move the cursor on the screen and select menu itemsHard DiscA device capable of storing an enormous amount of data, it is located in the computer.Hard CopyA print out of information stored on the workingThis involves the linking together of a number of computers so that they can communicate with each other.Floppy DiscA small portable device used to store large quantities of data and programs ................
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