Economics and Accounting Assignment - OTHM Level 3

This assignment provides a comprehensive overview of key concepts in economics and accounting. It begins by defining and explaining core terms such as assets, liabilities, revenue, expenses, and net income. It then differentiates between a sole trader, a partnership, and a private limited company, ...Read More

Introduction to
Economics and
Accounting

Table of Contents
INTRODUCTION...........................................................................................................................3
TASK 1............................................................................................................................................3
TASK 2............................................................................................................................................6
CONCLUSION................................................................................................................................9
REFERENCES..............................................................................................................................10

INTRODUCTION
Accounting is method of keeping track of a company’s financial statements. Summarizing,
reviewing, and documenting these activities to external auditors, regulators, as well as tax
collecting authorities are all part of the financial process (Ascui and Lovell, 2012). Economics is
the study that studies how products and services are produced, distributed and consumed. It
investigates how people, corporations, states, and countries create resource allocation decisions.
TASK 1
What is Accounting?
Accounting is among the most important roles of virtually every business. It could be done by a
business manager or auditor in such a small business or through large financial divisions with
hundreds of staff in bigger corporations. Numerous financial accounts, like costing system and
managerial reporting, are crucial in assisting managers in taking strategic decisions.
Explain and give examples for the following term
-“Assets”: A property of commercial benefit which a person, company, or government controls
or manages only with anticipation of future profit is referred to as an asset. Assets are
purchased or produced to maximise a company's wealth or support its activities, so they are
listed on the financial statements. If it's production machinery or a trademark, an asset may be
conceived of as someone who can raise working capital, reduce business, or increase
profitability.
-“Liabilities”: A liability is really a debt that an individual or corporation owes to another
party, normally in the form of property. Liabilities are resolved throughout time by exchanging
economic advantages such as capital, commodities, or services. Liabilities involve deposits,
accounts payable, deposits, deferred income, bonds, guarantees, and unpaid expenses, which
are all reported on the right section of the balance sheet. A financial responsibility is an
undertaking in valuation, but it is much more characterised from prior corporate operations,
activities, purchases, asset or commodity exchanges, or something that will have economic
value at a subsequent time.
-“Revenue”: The profits generated by routine business activities, including promotions and
discounts for returning goods, is referred to as revenue. That is the amount on the top or gross
revenue, where the expenses are deducted to arrive at net profits. The income of a corporation

can be split into units based on how it is produced. A finance branch, for example, may be a
different source of income for a recreation equipment company. Operating profit from such a
company's biggest business - including non-operating income - revenue generated from reliable
information - are two types of revenue. Since these non-operating income streams are frequently
unstable and non-recurring (Boučková, 2015).
-“Expenses”: The value of production which a corporation incurs in order to produce income
is referred to as an expense. “It takes money effectively to produce more money in future that
support to run entire operation of company. Payments to manufacturers, employee salaries,
plant rentals, and machinery depreciation are all common expenditures. Businesses will
subtract tax-deductible payments from their tax forms to reduce their tax revenue and, as a
result, their tax obligation.
“Net income”: Sales exceed cost of products sold, distribution, general expenses costs,
corporate expenses, depreciation, debt, taxation, as well as other expenditure equals net income
(NI), also known as net profits. It is a valuable number for analysts to determine how much
income rises a firm's expenditures. This figure appears on some kind of company's financial
statement and serves as a profitability measure. The profit per share of a company is calculated
using net profits. Although it will be at the end of the accounting period, business analysts also
point to net earnings as its end result.
What is the difference between a “Sole Trader”, a “partnership” and a “Private Limited
Company”?
Sole trader Partnership Private company
A sole trader is defined as a
self-employed entrepreneur
who currently owns his own
company. Since a self-
employed company has no
legal status apart from its
holder, many people believe
that are the main business.
We'll look at how a business
owner is, where to get
A partnership is really a
legally binding agreement
between 2 or more persons
to run and maintain a
company and corporate
value.
Partnerships come in a
variety of shapes and sizes. In
a joint company, for example,
all partners bear equal risk
A private corporation is one
that is owned by its
shareholders. While private
firms will create shareholder
value and also have investors,
the securities do not sell on
public markets and therefore
are not distributed by an IPO
(IPO). As a consequence,
private businesses are exempt

started, as well as the
ongoing obligations in this
post. They have complete
control regarding that
company, its cash, and
earnings after taxes as a sole
trader. Along with this level
of autonomy, this company
provides various relative
flexibility, versatility, as well
as a variety of other benefits.
Multiple types of businesses
could use the lone trading
business strategy, but it is
maybe most common with
service providers.
and benefits, whereas in other
businesses, partnerships
could have limited liability.
There was also the "quiet
buddy," wherein one person
isn't interested in the
company's day-to-day
activities. In a general sense,
a relationship may have any
strategic partnership between
two or more individuals.
Institutions, non-profit
organisations, corporations,
and private entities may be
involved. A partnership's
objectives will also differ
greatly (Li, 2013).
from the Securities and
Exchange Commission's
(SEC) stringent disclosure
conditions. In addition, these
companies' securities are far
less available, and
determining their valuations
is more complicated.
However, having private
corporation will make it
increasingly difficult to raise
funds, that's why many big
private companies ultimately
opt to just go private with an
IPO.
Explain the difference between M0 and M4 in the context of money measurement.
M0 M4
M0 is indeed a medium of exchange (cash
itself). Both cards, medals, as well as banker
certificates that are reversible on request that
involves depositor deposits of banks that
should be held in actual currency by design.
M3, which contains M2 and also big time
investments, retail marketable securities,
short-term buyback deals, and broader
financial reserves, is an indicator of the
monetary policy. Assets which are less
accessible than some other elements of that
same monetary policy are also included in the
M3 calculation and are alluded to as "close,
financial liabilities."

Why does the Bank of England increase or decrease interest rate?
The 0.25 percent interest rate hike revealed this day is not really a typical rate hike. However,
this is due to the fact that they are in an unusual economic era.
Whenever the economy starts to "heat up," such that, when market and company demand
accelerates, the Bank of England typically raises interest rates. Currently, though, no one can
ever say that the economy is overloading.
Well, they has high job rates, but they mask a significant amount of joblessness: citizens who
would prefer to work longer than they really do. In almost any other way, though, the country
is in bad shape. After the economic meltdown, performance has been stagnant and is well
below that of primary players.
Describe two effects of inflation on a business.
1. The most noticeable effect on corporations is that really. Consumers would "hang away in
massive numbers" if rates rise too quickly. Businesses should compensate for inflation in
order to minimize the risk of sales loss.
In a period of stagnation, feelings of insecurity lead to excessive spending as well as money
stockpiling by consumers. Consumers can hold off on making purchases until the economy
improves. Businesses, sadly, could bear the brunt of customers' reluctance to spend, resulting in
a possible drop in revenue. Inflation's impact on company revenue and sustainability could be
negative (Macinati and Anessi-Pessina, 2014).
TASK 2
A. Journal entries
Date Particulars DR CR
Cash a/c DR 2500
To Capital a/c 2500
Purchase a/c DR 1000
To computer supply a/c 1000
Purchase a/c DR 750
To Cash a/c 750

Cash a/c DR 2000
To sales a/c 2000
Wages a/c DR 500
To cash a/c 500
Purchase a/c DR 800
To Cash a/c 800
Cash a/c DR 100
To company supply a/c 100
B. Trail balance
Trial Balance as on 31st March 20x2
Particulars
Debi
t
Credi
t
Capital
1,5
00,
Purchases
1,
570,
Sales
2,2
47,0
Furniture & Fixtures 200,
Plant & Machinery
250,
0
ABC Ltd (Creditor)
4
75,0
XYZ Traders (Debtor)
832,
0
Bank Loan 1

50,0
Salary 90,0
Office Rent
100,
0
Commission Received
1
30,0
Interest Received 5,0
Cash in hand
150,
0
Bank of America
1,
315,
Total
C. Income statement
Income statement
sales (2000+1600) 3600
Less: Expenses
Cost of goods sold 2550
Gross profit 1050
Less: Wages 500
Less: Payment on account 100
Net profit 450
D. Balance sheet
E. More profitable
In the above tabular calculation, it is determined that phone will be more profitable option for the
company which support in making higher profit throughout the year. Market participants will
benefit from either buying or selling options (Modell, 2012). Features allows for benefit

opportunities throughout both turbulent periods and quieter or less turbulent periods throughout
the marketplace. If the company's asset remains just below market price, a company stock author
will benefit. If the price remains above the market price since publishing a futures contract, the
investor gains. The benefit potential of a choice writer is constrained by the reward they earn for
creating the opportunity. This is probable because the values of assets such as securities,
currencies, and products are constantly fluctuating, and a journey to reach will profit from this
regardless of market circumstances. As this have been recommended that the simplest choice
approach is this. It's a reduced tactic because the overall cost is limited to the call fee charged,
whereas the maximum pay-out is theoretically unlimited. But, as previously discussed, the
chances of the exchange becoming extremely lucrative are usually very slim. "Low chance"
implies that perhaps the option's overall cost is a limited proportion of the merchant's total cash.
Risking all of the assets on a number offer is a really dangerous trade and the money will be lost
unless the bonds mature worthless. This is yet another tactic with a minimal risk however a high
return opportunity if the transaction works properly. Buying putting is a practical solution to
shorting the appreciating value, which is a wiser choice. Puts may also be purchased to protect a
portfolio's upside potential. However, since equity indexes tend to rise over period, meaning that
shares rise more frequently than they fall, the threat performance of a puts investor is marginally
less attractive than a costing. The worst drawback in put drafting would be that the user would
overpay for just an inventory if it goes down in value. Put writing has a higher risk/reward ratio
that put or call writing. Although the highest money matches the prices rate, however the
potential cost is far greater, the risk/reward pattern of putting reading is more negative than those
of putting or call purchasing. However, as previously stated, the likelihood of making a return is
greater (Mouritsen and Kreiner, 2016).
CONCLUSION
In the end of report, it is concluded that Accounting financial reports are really a succinct
description of financial activities over a span of time that summarises a company's expenses,
financial status, as well as cash flows. That being said, the Internal Revenue Service has
stringent guidelines on which company costs should be deducted. In the U.K, economists refer
to NI as gains attributed to owners. Sole traders are popular among construction workers,
interior designers, brick layers, hair stylists, as well as other people with acute of specialty care.

REFERENCES
Books and Journals
Ascui, F. and Lovell, H., 2012. Carbon accounting and the construction of competence. Journal
of Cleaner Production. 36. pp.48-59.
Boučková, M., 2015. Management accounting and agency theory. Procedia Economics and
Finance. 25. pp.5-13.
Li, J., 2013. Accounting conservatism and debt contracts: Efficient liquidation and covenant
renegotiation. Contemporary Accounting Research. 30(3). pp.1082-1098.
Macinati, M. S. and Anessi-Pessina, E., 2014. Management accounting use and financial
performance in public health-care organisations: Evidence from the Italian National
Health Service. Health Policy. 117(1). pp.98-111.
Modell, S., 2012. Strategy, political regulation and management control in the public sector:
institutional and critical perspectives. Management Accounting Research. 23(4). pp.278-
295.
Mouritsen, J. and Kreiner, K., 2016. Accounting, decisions and promises. Accounting,
Organizations and Society. 49. pp.21-31