Name: Amy Woodhouse

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 Unit Specification: Unit 3 – Personal and Business Finance

Method of assessment

Externally marked exam (80 marks – 2 hours)

Unit in brief

Learners study the purpose and importance of personal and business finance. They
will develop the skills and knowledge needed to understand, analyse and prepare
financial information.

Unit introduction

This unit includes aspects of both personal and business finance. Personal finance
involves the understanding of why money is important and how managing your
money can help prevent future financial difficulties. It is vital you understand the
financial decisions you will need to take throughout your life and how risk can affect
you and your choices. This unit will also give you an insight into where you can get
financial advice and support.

The business finance aspects of the unit introduce you to accounting terminology,
the purpose and importance of business accounts and the different sources of
finance available to businesses. Planning tools, such as cash flow forecasts and
break-even, will be prepared and analysed. Measuring the financial performance of a
business will require you to prepare and analyse statements of comprehensive
income and statements of financial position.

This unit will provide a foundation for a number of other finance and business units
and will help you to analyse profitability, liquidity and business efficiency. It will give
you the knowledge and understanding to manage your personal finances and will
give you a background to business finance and accounting as you progress to
employment or further training.

Summary of assessment

This unit is assessed by a written examination set by Pearson. The examination will
be two hours in length. The number of marks for the examination is 80. (Section A
contains questions on the personal finance unit content and approximately one-third
of the marks, and Section B contains questions on the business finance unit content
and approximately two-thirds of the marks).

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Assessment outcomes

AO1 Demonstrate knowledge and understanding of business and personal finance

principles, concepts, key terms, functions and theories. Command words: describe,
explain, give, identify, outline Marks: ranges from 1 to 4 marks.

AO2 Apply knowledge and understanding of financial issues and accounting

processes to real-life business and personal scenarios Command words: analyse,
assess, calculate, describe, discuss, evaluate, explain Marks: ranges from 2 to 12
marks.

AO3 Analyses business and personal financial information and data, demonstrating
the ability to interpret the potential impact and outcome in context Command words:
analyse, assess, discuss, evaluate Marks: ranges from 6 to 12 marks.

AO4 Evaluate how financial information and data can be used, and interrelate, in
order to justify conclusions related to business and personal finance Command
words: analyse, assess, discuss, evaluate Marks: ranges from 6 to 12 marks.

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 Learning Outcome C1 – Purpose of Accounting

Activity 1 – Glossary of Accounting Terms

During learning Outcome C there may be some new terms that you have not come
across before. Revisit this glossary throughout the learning outcome when you come
across a word you are unsure about or need to remember.

Accounting term/word Definition/Explanation

Transaction to move money in and out

making sure that a company’s financial matters are

compliance being handled in accordance with laws and
regulations.
Capital income Capital income is income that comes from
capital invested in the business by investors /
owners of the business. It is not money that
comes from any form of production or work.

Revenue income Revenue income is the money that is flowing into the
business via the day to day operation of the
business.
Capital expenditure Capital expenditure is funds used to acquire or
upgrade physical assets such as property,
buildings or equipment and also intangibles (assets).
Intangibles things that you can't physically touch
Tangibles things you can touch ie shampoo
something you have for 12 months or more such as
Non-current assets furniture, property or vehicles
something you will own that you will have for 12
Current assets months or less such as new stock
patent protection of your design

trademark you cannot steal someones name

protection of design and colour
Brand recognition golden M for mcdonalds

copyright, your idea

intellectual property
money spent by the business on day to day running
revenue expenditure of the business.

inventory amount of stock

rates business rate, charges

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 Activity 2 – What is the Purpose of Accounting
Define the purpose of accounting
Complete the table with the purpose of accounting and the benefits this has for a
business.
Purposes of Explanation of that purpose
accounting
It is important that business
record owners make a habit of recording
Transactions their business transactions every
day.
It will assist in making informed,
efficient and precise decisions
at any time.
understanding the accounts of
management the business allows them to make
of the informed decisions about
business the direction of the company.
It can allow them to plan for
staffing levels, monitor levels of
stock and control costs such as
wages and budgets.
compliance making sure that a company’s
financial matters are being handled
in accordance with laws and
regulations.
To ensure compliance, it’s
necessary to have processes in
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Benefits to a business
It makes it an easier process for
their tax returns
they can monitor profits
they can make future decisions
in relation to profit and costs
Garden centres plan to have
more staff in the spring summer
months due to an increase in
customers buying gardening
equipment and furniture
compared to the winter when
people don't buy many
gardening products .
Being compliant means that
you prevent fraud (the
inappropriate use of company
funds) of as much as physically
possible and also that you are
meeting the laws and
regulations set.
 place for recording, verifying, and
reporting the value of a if you do not follow the rules
company’s assets, liabilities, debts, you could get into serious
and expenses. trouble, breaking the law gives
your company a bad reputation.

you cannot measure a business's measure performance and see

measuring performance without accurate any trends overtime.
performance accounting.

Without accounting it would be

impossible to know whether the
business is making a profit or a
loss.

it enables the business to Being able to control these two

control have a clear picture of its trade
receivables (money owed to
the business) and its trade
payables (money the business
owes).
things means that the
business will ensure its survival
as it will not owe too much
money and it can also manage
the payments it is owed to
establish good credit control.

Activity 3 – Ranking of Accounting Purposes

Rank the purpose of accounting from the most important to the least important

1. compliance
2. recording transactions
3. management of the business
4. control
5. measuring performance

Justify why you have ranked Compliance as the most important

Compliance is the most important purpose of accounting, due to the fact it is

following the law. This is mandatory if not you're breaking the law which can give the
business a bad reputation.

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Justify why you have ranked measuring performance as the least important

Compared to the other purposes, it has the least consequences. You cannot
measure a business's performance without accurate accounting

Discuss which purpose of accounting would the CEO of the company be most
concerned with? (weigh up a variety of purpose)

The CEO is most interested in profit levels, so measuring performance

Activity 4 - Knowledge Check C1 Understand the Purpose of

Accounting
Name the 5 purposes of accounting

1. compliance
2. measuring performance
3. management of the business
4. recording transaction
5. control

Describe two of the purposes of accounting

1. Control enables the business to have a clear picture of its trade receivables
(money owed to the business) and its trade payables (money the business
owes)

2. compliance is making sure that a company's financial matters are being

handled in accordance with laws and regulations

How do you calculate sales revenue?

Sales revenue (number of sales x selling price)

What is the calculation for net profit and sales revenue

Net profit (Gross profit - expenses)

Explain the benefit of compliance for a business

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Being compliant means that you prevent fraud (the inappropriate use of company
funds) as much as physically possible and also that you are meeting the laws and
regulations set.

if you do not follow the rules you could get into serious trouble, breaking the law
gives your company a bad reputation

Explain how accounting can be used to measure performance

you cannot measure a business's performance without accurate accounting.

Without accounting it would be impossible to know whether the business is making a

profit or a loss.

● Sales revenue (number of sales x selling price)

● Gross profit (Profit left after Cost of goods sold is taken from revenue)
● Net profit (Gross profit minus expenses

Learning Outcome C2 – Types of Income

Activity 5 – Capital Income

As we discuss each type of capital income available, use the space provided and take notes
on the key features of each type of capital income.

Loans

A loan is when money is given to a business usually from a bank and the business repays
the loan amount plus interest

Loan terms are agreed to by each party before any money is paid

A loan may be secured by collateral such as a mortgage or it may be unsecured in the form
of credit cards

Monthly payments must be repaid regardless of whether the business is making a profit or
not

Mortgages

A mortgage is a loan taken out to buy property or land. Most run for 25 years but the term
can be shorter or longer. The loan is 'secured' against the value of your home until it's paid
off. If you can't keep up your repayments the lender can repossess (take back) your home
and sell it so they get their money back. A business may use a mortgage to buy premises for
their business such as a factory.

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Shares

A company can issue shares to raise capital. Shareholders are owners of the business and
usually receive voting rights. A shareholder receives income in the form of dividends if the
business is profitable.

Selling to existing shareholders or a existing investor

Owners Capital

This is when the owner funds the business through their own personal savings. Such as
inheritance or savings

Debentures

Medium to long term sources of finance. Large companies use them to secure income.
These debt instruments pay an interest rate and are redeemable or repayable on a fixed
date.

A company typically makes these scheduled debt interest payments before they pay stock
dividends to shareholders.

Debentures are advantageous for companies since they carry lower interest rates and longer
repayment dates compared to other types of loans and debt instruments.

Activity 6 – Capital Income Infographic

Create an infographic that explains the types of capital income available to a
business.

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Activity 7 – Sources of Revenue Income Table
Complete the table with the sources of revenue income. Use research where
necessary.

Sources of Revenue Explanation

Income
Sales exchange of money for goods or services for example
a coffee or groceries

Rent received Rent received refers to rental income received from

either a commercial or a residential property

Commission people that sell other products and get a certain

commision (percentage of the money)

Interest received the amount paid to an entry for lending its money or
letting another entity use its fund.

Discount received The buyer of goods or services is granted a discount

by the seller

Explain which type of revenue would be most common for a T-shirt selling
business

Sales

Suggest what type of business will rely on revenue income from commission

Cars and estate agent’s

Activity 8 – Capital or Revenue Income

From the list of different ways a business can receive income, identify whether it is a
form of capital income or revenue income.

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Type of Income Capital or Revenue Income?
Loan from a bank C
Sales for hairdressing services R
Commission on sale R
Mortgage on a commercial property C
Discount received for paying early R
Owners investing their money in the business C
Debenture C
Money from the sale of shares C
Interest on cash in the bank R
Rent from a tenant R

Argue whether it is better to have capital income or revenue income.

revenue income because that's where the profit is as you don't have to pay anything
back

Activity 9 – Knowledge Check C2 Types of Income Crossword

Learning Outcome C3 – Types of Expenditure

Activity 10 – Intangibles
Whilst we discuss the most common types of intangibles, complete the spider
diagram in your booklets with key points for each intangible.

Patent

protection of your design

A patent for an invention is granted by the government to the inventor, giving the
inventor the right to stop others, for a limited period, from making, using or selling the
invention without their permission. A patent is an asset as it prevents other
businesses possibly copying their unique selling point.

Trademark

A trademark is a unique symbol or word(s) used to represent a business or its

products. Once registered, that same symbol or series of words cannot be used by
any other organisation, forever, as long as it remains in use and proper paperwork
and fees are paid.

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Intellectual property

copyright, your idea

Intellectual property is something that you create using your mind - for example, a
story, an invention, an artistic work or a symbol.

Brand recognition

A valuable intangible asset. Brand recognition cannot be touched however it can be

a deciding factor of whether an individual does business with you. Brand recognition
instills trust in the customer and is therefore a valuable asset. People are more
willing to shop with brands they trust.

Goodwill

Is a sum of money added to a businesses value based on its customer base,

reputation and overall good name. When a business acquires an existing business
goodwill is factored in and an amount paid based on the above customer base etc.

Activity 11 – Capital Expenditure

Define capital expenditure

Capital expenditure is funds used to acquire or upgrade physical assets such as

property, buildings or equipment and also intangibles (assets)

Explain with examples what a non-current asset is

Property, Land, Vehicles, Equipment

Something you use for over a long period of time

Identify two types of capital expenditure

1. Buildings

2. Equipment

Describe what is meant by an intangible asset

Things that you can’t physically touch

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Give two examples of intangibles

1. haircut
2. the wind

Justify why brand recognition is an asset to a business.

McDonald’s have the ‘golden arches’ this is important as the logo is very memorable
and is a good advertisement for the company as well as the business doing charity
work too.

Activity 12 – Types of Revenue Expenditure

Insurance = A business is legally required to take a number of these policies out to
protect itself from serious losses.

salaries =A fixed regular payment, typically paid on a monthly basis but often expressed
as an annual sum, made by an employer to an employee.

Rent = A regular payment to a landlord for the use of property or land.

Administration = Costs incurred by the business for the paperwork side of the business.

Rates=Payments made to the local council for services provided by them. It is based on
the size and location of the premises.

wages = An hourly rate paid to an employee with a direct correlation between the hours
worked and the wage paid.

Depreciation = A reduction in the value of an asset over time, due in particular to wear
and tear.

Inventory=The array of finished goods or goods used in production held by a company.

marketing =Costs associated with attracting potential customers to the business.

Typically in the form of advertisements or promotional materials.

interest paid =The amount of money charged on top of a loan or mortgage amount.

Water =This payment can be a fixed amount or based on usage.

bank changes = All charges and fees made by a bank to their customers. Often in the
form of transaction fees.

Heating & Lighting = Payments made for gas and electricity usually monthly or quarterly.

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What type of revenue expenditure will most likely be the highest for a factory
making clothes in the UK?

Inventory, salaries and wages

Justify how this may differ to a sole trader who offers a graphic design
service.

They just make designs so it will just be the salaries of your staff

Activity 13 – Capital or Revenue Expenditure

Answer the following questions by identifying capital & revenue expenditure.

1. Which of these are forms of capital expenditure?

A. Rent B. Land

C. Interest

2. Salaries are a form of revenue expenditure

TRUE FALSE

3. Which of these are forms of capital expenditure?

A. Vehicle B. Electricity bill

C. Wages

4. Advertising is a form of revenue expenditure

TRUE FALSE

5. Which of these are forms of capital expenditure?

A. Equipment B. Rates

C. Food

6. Administration is a form of revenue expenditure

TRUE FALSE

7. Which of these are forms of capital expenditure?

A. Furnishings B. Insurance

C. Gas bill

8. Depreciation is a form of revenue expenditure

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TRUE FALSE

9. Which of these are forms of capital expenditure?

A. Water rates B. Buildings

C. Fixtures

10. Fixtures are a form of revenue expenditure

TRUE FALSE

Activity 14 - Knowledge Check C3 Types of Expenditure

Create a piece of work that covers the following for a business of your choice:

• Explain the capital expenditure they have (provide examples)

• Explain revenue expenditure they have (provide examples)

• Discuss at least two intangibles for the business and why they are important
to them

• Assess the impact depreciation will have on the business financially

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 Activity 15 – Learning Outcome C Kahoot Quiz
Attempt the Kahoot quiz to test your knowledge of Learning Outcome C of Unit 3:
Personal and Business Finance. Once you have completed the quiz, answer the
questions below to assess your strengths and areas for development.

What did you score on the Kahoot quiz?

15/15

What areas of Learning Outcome C can you identify as your strengths after
playing the quiz?

I think have a good understanding of current and noncurrent

What areas of Learning Outcome C can you identify as your development

areas after playing the quiz?

I need to improve on my memory and understanding for the calculations to do this

will go over my notes to improve my understanding

Activity 19 - Personal & Business Finance Outcome C Checklist

Unit 3: Personal and Business Finance Checklist

Learning Outcome C: Understand the Purpose of Accounting

Topic Your explanation of the terminology Exam
ready?
C1 – Purpose of Accounting
• Recording transactions. recording transactions is when you note down A
how much income and expenditure have been
made, to keep things organised

• Management of business This is when the business sorts through their

(planning, monitoring and finances and controls what they are spending
controlling). and planning for the future to improve the
business.

To follow the rules and regulations

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• Compliance (preventing
fraud, compliance with law
and regulations). measure performance of the business and see
any trends overtime.
• Measuring performance.
control of the company helps to prevent fraud
• Control – assisting with
the prevention of fraud,
trade receivables and trade
payables.
C2 – Types of Income
Capital income: Capital income is income that comes from A
capital invested in the business by investors /
owners of the business. It is not money that
comes from any form of production or work.

● loan a thing that is borrowed, such as a sum of

money that is expected to be paid back with
interest
● mortgages
a legal agreement which a bank lends money
at interest in exchange for taking title of the
property,

● shares parts into which a company's capital is

divided, entitling the holder to a proportion of
the profits.

it represents the portion of the total assets

● owner’s capital which have been funded by the owners/
shareholders money.

● debentures.
a fixed rate of interest, issued by a company
and secured against assets

Revenue income: the amount of cash sales the A

● cash sales business/company makes

● credit sales Purchases made by customers who do not

render payment in full, in cash, at the time of
purchase.

● rent received rental income received from either a

commercial or a residential property

● commission
received

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 ● interest received An amount received for the use of money that
is to be repaid in full at a specified time or
on-demand.
● discount received.
The buyer of goods or services is granted a
discount by the seller.

C3 – Types of Expenditure
Capital expenditure: Capital expenditure is funds used to acquire or A
upgrade physical assets such as property,
buildings or equipment and also intangibles
(assets).

● non-current assets – something you have for 12 months or more

tangible (land, such as furniture, property or vehicles
buildings and
premises,
machinery and
equipment, vehicles,
fixtures and fittings)

● intangible (goodwill,
patents, trademarks,
things that you can't physically touch
brand names).

Revenue expenditure: G

● inventory Amount of stock

● rent To pay someone for the use of something

such as a property or car
● rates A fixed price paid or charged for something

● heating and lighting Bills you would pay for heating and lighting

● water Water bills

Protection to people and buildings

● insurance
The process of running a business
● administration
Contact numbers
● telephone
To send letters and parcels
● postage

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 Writing and office materials
● stationery

A fixed regular payment

● salaries
A fixed rate of earnings
● wages
The action of promoting a business
● marketing
Charges and fees by the bank
● bank charges
a payment of interest on a loan or mortgage
● interest paid reduction in the value of an asset over time,
due in particular to wear and tear
● depreciation
A deduction from the amount due given to
● discount allowed. customers who pay their accounts within the
time allowed.

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