Accounting concepts

• Accounting


  The process of communicating, recording and interpreting economic information like financial transactions
• Accounting helps businesses make better decisions by summarizing what the business has done with the money it has earned or borrowed
• Service business

  • Offers a service in exchange for a payment
  • Sells time rather than products
• Trading business

  • Gets its income from buying goods, merchandise or stock and selling it at a higher price
• Trading businesses

  • Wholesalers
  • Retailers
• Sole trader


  A business that is owned by one person who usually manages the business too
• Advantages of being a sole trader

  • You are your own boss and control the full business
• Disadvantages of being a sole trader

  • You carry the heavy load of starting and running the business and face the risks
• General ledger

  1. Contains all the accounts of a business

  2. An account is where all transactions of a similar nature are recorded

  3. Accounts have a debit side and a credit side
• Owner's equity

  The total capital contribution an owner has made into their own business
• Owner's equity is the money the owner puts into the business, not including any loans
• Income


  Money received by the business, such as from selling products or services
• Expenses


  Money going out of the business for goods and services necessary to run the business
• Profit

  Income minus expenses
• Loss


  When expenses are more than income
• Profit = Income - Expenses
• Loss = Expenses - Income
• Transactions

  When money exchanges from business to another party
• Transactions

  • Bakery receives payment for sale
  • Bakery purchases fixed asset like oven
  • Bakery purchases consumable supplies
  • Bakery borrows money
  • Owner invests money in the business
• Liabilities


  Money that the business owes to someone else, money the business has borrowed and needs to repay
• Types of liabilities

  • Long-term (non-current) liabilities
  • Short-term (current) liabilities
• Long-term (non-current) liabilities

  Liabilities that can take over 12 months to repay, e.g. mortgage, bond
• Short-term (current) liabilities

  Liabilities that are repaid within 12 months, e.g. bank overdraft, creditors
• Overdraft


  Spending more money than your account holds, a type of short-term liability
• Assets


  Something a business owns, either cash or can be exchanged into cash
• Types of assets

  • Non-current assets
  • Current assets
• Non-current assets


  Assets kept by the business for a long time, more than a year, tangible assets used to run the business
• Current assets

  Cash or will be converted into cash in the next few months, their value is constantly changing
• Debtors

  A person or business owing money to another person or business
• South African banks

  • Capitec
  • Nedbank
  • ABSA
  • FNB
  • Standard Bank
  • Discovery Bank
  • TymeBank
• Banking services

  • Taking out a loan
  • Making payments
  • Saving for the future
• Source document


  Financial document that a business uses to record the details of its transactions
• Source document


  • Describes all the basic facts of a transaction: the purpose, date, and amount
• Businesses deal with source documents every day, like when a customer buys bread and receives a receipt
• Transaction


  An action between two parties where buyers and sellers exchange goods or services for money
• Internal source document

  Issued by the business itself, original given to client, duplicate kept by business
• External source document

  Issued by other businesses like suppliers, original given to client, duplicate kept by business
• Receipt


  Written or printed document handed to a client when money is received, specifies amount, name, and date
• Information on a receipt

  • Sequence number
  • Date
  • Name of person money received from
  • Total amount in words and figures
  • Reason for money received
  • Signature of person receiving money
• Deposit slip


  Document used when depositing money into a bank account, includes account name, date, signature, account number, and total cash deposited