Unit 10: Financial Accounting and Reporting

Unit 10: Financial Accounting and Reporting
Unit code: F/601/0864
QCF level: 4
Credit value: 15 credits

In this unit learners will prepare financial statements for different types of business, complying with relevant legal and regulatory provisions and the basic principles of group accounts. Learners will also develop tools for the interpretation of financial statements.

Unit abstract

It is essential for the success of any business that it has good financial control and record keeping. Lack of effective control, planning and recording can ultimately lead to poor financial results. Owners and managers need to be able to recognise the indications of potential difficulties and take remedial action when required.

The unit considers the current regulations governing financial reporting, the formats of financial statements and the purpose of these statements for different users.

Learners will use records to complete financial statements. They will consider various categories of business income and expenditure and use cash flow forecasts, monitoring and adjusting for the effective management of cash flow. They will measure financial performance using a profit and loss account and balance sheet and analyse the profitability, liquidity and efficiency of a business through the application of ratio analysis.

Learning outcomes

On successful completion of this unit a learner will:

Understand the regulatory framework for financial reporting

2 Be able to prepare financial statements from complete or incomplete records

3 Be able to present financial information in accepted formats for publication

Be able to interpret financial statements.

BH023329 – Edexcel BTEC Levels 4 and 5 Higher Nationals specification in Business – 47
Issue 1 – April 2010 © Edexcel Limited 2010

Unit content

Understand the regulatory framework for financial reporting

User groups: owners; managers; employees; suppliers; customers; lenders; government; potential investors; different needs from financial statements

User needs: profitability; liquidity; gearing; cash flow; job security; Accounting Standards Board (ASBs) statement of principles; International Accounting Standards Board (IASBs) framework for the presentation of financial statements

Legislation: current legislation including Companies Acts 1985, 1989 and 2006; Partnership Act 1890; European directives

Other regulations: International Accounting Standards (IASs); International Financial Reporting Standards and the main differences from UK Statements of Standard Accounting Practice (SSAPs) and Financial Reporting Standards (FRSs); The Accounting Standards Board (ASB)

Be able to prepare financial statements from complete or incomplete records

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Statements: trial balance; assets, liabilities, income, expenses, capital; profit and loss accounts; balance sheet; cash flow statement; notes to the accounts; statement of recognised gains and losses; international equivalents under the International Accounting Standards (IAS)

Types of business: sole trader; partnership; limited company (public and private); manufacturing/service/retail, group of companies

Preparation: from trial balance with adjustments eg stock, prepayments, accruals, bad debts, depreciation; from incomplete records; basic consolidation of accounts; changes to reporting requirements under the International Accounting Standards (IAS) eg statement of comprehensive income, statement of financial position

Be able to present financial information in accepted formats for publication

Types of business: different formats for the businesses described in learning outcome 2 above; annual report

Formats: requirements of law and generally accepted accounting practice; changes to reporting requirements under the International Accounting Standards (IAS)

Be able to interpret financial statements

Ratios: calculate ratios to reflect profitability, liquidity, efficiency, gearing, investment; comparison of these ratios both externally (other companies, industry standards) and internally (previous periods); interpretation of results

Reporting: present findings in a format appropriate to users; weaknesses and limitations of analysis

48 BH023329 – Edexcel BTEC Levels 4 and 5 Higher Nationals specification in Business
– Issue 1 – April 2010 © Edexcel Limited 2010

Learning outcomes and assessment criteria

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Learning outcomes Assessment criteria for pass
On successful completion of The learner can:
this unit a learner will:

LO1 Understand the regulatory 1.1 describe the different users of financial statements and
framework for financial their needs
reporting 1.2 explain the legal and regulatory influences on financial

1.3 assess the implications for users
1.4 explain how different laws/regulations are dealt with by
accounting and reporting standards

LO2 Be able to prepare financial 2.1 prepare financial statements for a variety of businesses
statements from complete or from a trial balance, making appropriate adjustments
incomplete records 2.1 prepare financial statements from incomplete records

Theories and concept of human development and behavior

Applying promotional techniques
2.3 prepare a consolidated balance sheet and profit and
loss account for a simple group of companies

LO3 Be able to present financial 3.1 explain how the information needs of different user
information in accepted groups vary
formats for publication 3.2 prepare financial statements in a form suitable for

publication by a sole trader, partnership and limited

LO4 Be able to interpret financial 4.1 calculate accounting ratios to assess the performance
statements and position of a business
4.2 prepare a report incorporating and interpreting
accounting ratios, including suitable comparisons.
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