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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 - fixed, indirect, variable, direct costs, total costs

Types of expenditure may include:

  • staffing
  • building eg lighting, heating
  • equipment

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.

For 2.1 learners need to define key business terms.

Examples of financial records that may be kept include:

  • invoices, receipts
  • income and expenditure
  • income tax

Importance of financial records may include:

  • know costs, income and expenditure to make sure you can afford what to do
  • report income and expenditure to appropriate authorities eg Inland Revenue, 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:

  • net change of a business from one period to the next
  • may not have sufficient 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
  • increased costs and overheads
  • timing of payments by the business and to the business

Ways cash flow can lead to business failure may include:

  • poor management of cash flow
  • loss of key accounts
  • limited or no new customers
  • lack of management control
  • inadequate or inappropriate financing

Ways to monitor and manage cash flow may include:

  • analysis of cost, revenue and profit
  • breakeven 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 produce and use financial documents

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

Assessment Criteria

  • 4.1
    Produce a basic spreadsheet showing income and expenditure.
  • 4.2
    Interpret simple accounts over a specified period.

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