Unit 3: Personal and

Business Finance
Level: 3
Unit type: External
Guided learning hours: 120
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 100. (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).
• The assessment availability is twice a year in January and May/June.
The first assessment is available in June 2017.
• Sample assessment materials will be available to help centres prepare
learners for assessment.
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, and explain
• Marks: ranges from 2 to 12 marks
• AO3 Analyse 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
A - Understand the importance of
managing personal finance
A1 Functions and role of money
• The ability to handle money received, and to control money paid, is a
fundamental requirement for personal and business success. This
success relies on understanding what ‘money’ is.
• Functions of money:
• Unit of account.
• Means of exchange.
• Store of value.
• Legal tender.
A - Understand the importance of
managing personal finance cont.…
• Role of money is affected and influenced by a number of factors:
• Personal attitudes towards risk and reward, borrowing, spending and saving.
• Life stages (childhood, adolescence, young adult, middle age, old age), key
features of each stage, financial needs and implications at each stage.
• Culture, including religious and ethical beliefs.
• Life events can vary the personal life cycle from individual to individual.
• External influences/trends and the financial-related effects.
• Interest rates, cost of borrowing versus reward of saving.
A - Understand the importance of
managing personal finance cont.…
• Planning expenditure, common principles to be considered in planning
personal finances:
• to avoid getting into debt
• to control costs
• avoid legal action and/or repossession
• remain solvent o maintain a good credit rating
• avoid bankruptcy
• to manage money to fund purchases
• generate income and savings
• set financial targets and goals
• provide insurance against loss or illness
• counter the effects of inflation
http://www.royalmint.com/aboutus/policies-and-guidelines/legal-tender-guidelines
 Role of money is affected and influenced by a
number of factors:
• Personal attitudes towards risk and reward, borrowing, spending and
saving.
• Life stages (childhood, adolescence, young adult, middle age, old age),
key features of each stage, financial needs and implications at each
stage.
• Culture, including religious and ethical beliefs.
• Life events can vary the personal life cycle from individual to individual.
• External influences/trends and the financial-related effects.
• Interest rates, cost of borrowing versus reward of saving.
 Planning expenditure, common principles to
be considered in planning personal finances;
• to avoid getting into debt
• to control costs
• avoid legal action and/or repossession
• remain solvent o maintain a good credit rating
• avoid bankruptcy
• to manage money to fund purchases
• generate income and savings
• set financial targets and goals
• provide insurance against loss or illness
• counter the effects of inflation
Other means of temporary finance are possible you may have
heard of pawning items or log book loans. Are these a good
idea?
Key Term Definition

Interest Rate The cost of borrowing or the reward for saving money.

Solvent The ability to meet day-to-day expenditure and repay debts.

Bankrupt When an individual or organisation legally states its inability to repay debts.

Credit rating A score given to individual on how likely they are to repay debts based upon their
previous actions.

Debt Money owed.

Current account An account with a bank or building society designed for frequent use, e.g. regular
deposits and withdrawals

Expenditure The amount of money you need to cover all your expenses/outgoings, e.g. your
mortgage and bills.

Shareholder Someone who has invested in a company in return for equity, i.e. a share of the
business.
B Explore the personal finance sector
B1 Features of financial institutions
Types of organizations and their advantages and disadvantages:
• Bank of England
• banks
• building societies
• credit unions
• National Savings and investments
• insurance companies
• pension companies
• Pawnbrokers
• Payday loans.
B2 Communicating with customers
Methods of interacting with customers, advantages and
disadvantages:
• branch
• online banking
• telephone banking
• mobile banking
• postal banking
B3 Consumer protection in relation to personal finance
Function, role and responsibilities of:
• Financial Conduct Authority (FCA)
• Financial Ombudsmen Service (FOS)
• Financial Services Compensation Scheme (FSCS)
• Office of Fair Trading (OFT) • legislation – consumer credit.
B4 Information guidance and advice
Function, role and responsibilities, advantages and disadvantages of:
• Citizens Advice
• independent financial advisor (IFA)
• price comparison websites
• money advice service
• debt counsellors
• Individual Voluntary Arrangements (IVAs)
• bankruptcy
Task - research which of the financial institutions currently have a presence in Hanley city centre.

Bank

Building Society

Credit Union

insurance companies

pension companies

Pawnbrokers

Payday loans
Create a 2 sided leaflet that out lines financial protection and
advice services that are available to the general public.
C Understand the purpose of accounting
C1 Purpose of accounting
 Recording transactions.
 Management of business (planning, monitoring and controlling).
 Compliance (preventing fraud, compliance with law and regulations).
 Measuring performance.
 Control – assisting with the prevention of fraud, trade receivables and trade payables.

C2 Types of income
Capital income:
• Loan
• mortgages
• shares
• owner’s capital
• debentures
Revenue income:
• cash sales
• credit sales
• rent received
• commission received
• interest received
• discount received
C3 Types of expenditure
Revenue expenditure:  salaries
Capital expenditure:
 inventory  wages
 non-current assets –  rent  marketing
tangible (land, buildings  rates  bank charges
 heating and lighting  interest paid
and premises,
 water  straight-line
machinery and depreciation
 insurance
equipment, vehicles,  administration  reducing balance
depreciation
fixtures and fittings)  telephone
 discount allowed
 postage
 intangible (goodwill,
 stationery
patents, trademarks,
brand names)
C1 Purpose of accounting

 Recording transactions.
 Management of business (planning, monitoring and controlling).
 Compliance (preventing fraud, compliance with law and regulations).
 Measuring performance.
 Control – assisting with the prevention of fraud, trade receivables and trade
payables
https://www.youtube.com/watch?v=EQsZf2G4Sdc
E Break-even and cash flow forecasts
Formulas used in this topic will not be given in external assessment.
E1 Cash flow forecasts
Inflows/receipts:

• cash sales
• credit sales
• loans
• capital introduced
• sale of assets
• Bank interest received.
 Selling Price Variable Costs Contribution
£ 10.00 £ 4.00 £ 6.00
£ 12.00 £ 6.00 £ 6.00
£ 17.00 £ 18.00 -£ 1.00
£ 1.99 £ 2.01 -£ 0.02
£ 2.25 £ 1.00 £ 1.25
Year Cost Accumulated depreciation Net book Value
1 £ 25,000.00 £ 2,500.00 £ 22,500.00
2 £ 25,000.00 £ 5,000.00 £ 20,000.00
3 £ 25,000.00 £ 7,500.00 £ 17,500.00
4 £ 25,000.00 £ 10,000.00 £ 15,000.00
5 £ 25,000.00 £ 12,500.00 £ 12,500.00