P2: ‘Explain the difference between capital and revenue items of expenditure and income’
Accounting involves any business, company or person recording their financial transactions, such as payments coming in or paying going out. It is very important for a business to record their transactions for a number of reasons: Economic decisions: If a company is going to succeed then it’s needs to be aware of what it can and cannot afford and how the resources available will be effectively used and not put to waste.
Inventory: Knowing how much of a product you have can be save you from buying the same product again and wasting money on something you longer need. Stocking up on a certain product that is no longer making sales could make it more prone to damage or theft, therefore making the product un-sellable. By recording the amount of stock you have left you could save money and make a larger profit, this would then further secure the stakeholders you have investing in your business.
Monitoring activity: during the process of buying or selling goods mistakes can be made and those mistakes can properly be identified and dealt with if it is kept on a record. Keeping an account of your stock would also prevent theft, damage or loss of property. Also if there are any products exported out to different countries then accounting for which countries buy more products would help you provide more stock for that country to maximize profits.
Measuring financial performance: A business needs to know how well they are doing; this can benefit them in a number of ways. If in the first quarter a business is doing well but in the second quarter the profit dips then the problem can easily be assessed and dealt with. However this can only be accomplished if the business keeps a record of the intakes and outtakes.
Inventory: Knowing how much of a product you have can be save you from buying the same product again and wasting money on something you longer need. Stocking up on a certain product that is no longer making sales could make it more prone to damage or theft, therefore making the product un-sellable. By recording the amount of stock you have left you could save money and make a larger profit, this would then further secure the stakeholders you have investing in your business.
Monitoring activity: during the process of buying or selling goods mistakes can be made and those mistakes can properly be identified and dealt with if it is kept on a record. Keeping an account of your stock would also prevent theft, damage or loss of property. Also if there are any products exported out to different countries then accounting for which countries buy more products would help you provide more stock for that country to maximize profits.
Measuring financial performance: A business needs to know how well they are doing; this can benefit them in a number of ways. If in the first quarter a business is doing well but in the second quarter the profit dips then the problem can easily be assessed and dealt with. However this can only be accomplished if the business keeps a record of the intakes and outtakes.