Accounting Unit 2: Accounting and Decision Making for a Trading Business

Prerequisites

Students are strongly advised to complete Unit 1 before undertaking Unit 2.

Course Description

In this unit students develop their knowledge of the accounting process for sole proprietors operating a trading business, with a focus on inventory, accounts receivable, accounts payable and non-current assets. Students use manual processes and ICT, including spreadsheets, to prepare historical and budgeted accounting reports.

Students analyse and evaluate the performance of the business relating to inventory, accounts receivable, accounts payable and non-current assets. They use relevant financial and other information to predict, budget and compare the potential effects of alternative strategies on the performance of the business. Using these evaluations, students develop and suggest to the owner strategies to improve business performance.

Areas of Study

Accounting for inventory

The strategic management of inventory is a key factor in the success or failure of a trading business. In this area of study, students investigate use of both the First-In, First-Out (FIFO) and Identified Cost inventory cost assignment methods to record and report the movements of inventory through the business. Using both methods, students discuss the effect of relevant financial and non-financial factors, including ethical considerations, on the outcomes of decisions taken in relation to inventory.

Accounting for and managing accounts receivable and accounts payable

Managing accounts receivable and accounts payable successfully is essential to maintaining an adequate cash flow for a business. In this area of study students record and report transactions relating to accounts receivable and accounts payable. They examine strategies for managing credit transactions and use indicators, such as accounts receivable turnover and accounts payable
turnover, to analyse decisions related to these areas. Students also take account of ethical considerations involved in managing accounts receivable and accounts payable and the effects of these on business performance.

Accounting for and managing non-current assets

Students develop an understanding of the accounting processes for non-current assets and the issues that can arise when determining a valuation for a non-current asset. Students calculate and apply depreciation using the straight-line method and undertake recording and reporting of depreciation.

Assessment

Outcomes	Assessment Tasks
Outcomes	(school-assessed coursework)
Record financial data and report accounting information for a sole trader.	Selected from tests, exercises and case studies (manual and/or ICT based).
Record financial data and report accounting information for a single activity, sole trader using a commercial accounting software package and discuss the use of ICT in the accounting process.	Selected from tests, exercises and case studies (manual and/or ICT based).
Select and use financial and non-financial information to evaluate the performance of a business and discuss strategies that may improve business performance.	Selected from tests, exercises and case studies (manual and/or ICT based).

Overall Final Assessment

End of Semester Examination – 1.5 hours.