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Level 2
Unit No:
Guided learning hours:
24 hours

Assessment Guidance

Portfolio of evidence


The aim of this unit is to help learners understand the importance of cash flow and the impact of efficient management of money in a business.

Unit Learning Outcomes


Know key costs and expenditure for businesses.

Key costs of running a business may include:

  • start-up costs
  • operating costs (variable and fixed costs)
  • variable costs change in proportion to the amount of output produced or amount sold (e.g. raw materials. employee wages, energy, commission to sales staff);
  • fixed costs do not change in relation how much output a business produces (e.g.
  • Premises/rent, management salaries, insurance, marketing)

Types of expenditure may include:

  • staffing
  • premises e.g. rent, lighting, heating
  • equipment
  • suppliers
  • raw materials

Assessment Criteria

  • 1.1

    Identify the key costs associated with running a business.

  • 1.2

    Identify different types of expenditure associated with running a business.


Know about key records needed to manage finance in a business context.

Examples of financial records that may be kept include:

  • invoices, receipts
  • income and expenditure
  • corporation tax
  • VAT

Importance of financial records may include:

  • know costs, income and expenditure to ensure solvency
  • report income and expenditure to appropriate authorities e.g. HMRC, shareholders, managers, owner
  • helps with forecasting future plans
  • required for auditing purposes

Assessment Criteria

  • 2.1

    Define key business terms, for example, income, expenditure, turnover, cash flow, gross and net profit.

  • 2.2

    Describe the financial records that a business needs to keep.

  • 2.3

    Explain why financial records are important, including legal requirements.


Know why managing cash flow is important to businesses.

The role and importance of cash flow may include:

  • to pay for immediate expenses
  • indicates net change of a business from one period to the next
  • lack of cash may mean insufficient money to pay for next period
  • key indicator of the financial health of a business

Factors that affect cash flow may include:

  • poor or good sales
  • loans
  • change in costs and overheads
  • timing of payments by the business and to the business

How cash flow problems can lead to business failure:

  • poor management of cash flow may mean lack of accessible funds to finance day to day expenses
  • unable to buy supplies
  • unable to pay staff
  • lack of management control
  • inadequate or inappropriate financing

Ways to monitor and manage cash flow may include:

  • analysis of cost, revenue and profit
  • break-even analysis
  • cash flow analysis

Assessment Criteria

  • 3.1

    Explain the role and importance of cash to the operation of a business.

  • 3.2

    Describe factors that affect cash flow in a business.

  • 3.3

    Explain how cash flow problems can lead to business failure.

  • 3.4

    Describe how to monitor and manage cash flow.


Be able to interpret financial documents.

Learners must provide sufficient and valid evidence to achieve this outcome.

Assessment Criteria

  • 4.1

    Interpret a basic spreadsheet showing income and expenditure.

  • 4.2

    Interpret simple accounts over a specified period.