EMS Test

• Accounting is a special communication method where we all need to follow the same accounting rules
• Businesses use accepted accounting practices so that everybody understands the same accounting, making it easier to communicate
• Accounting concepts covered in this unit

  • Capital
  • Assets
  • Liabilities
  • Income
  • Expenses
  • Profit
  • Loss
• Capital


  The money that the owner needs to start and run the business
• Own capital


  Money the owner gives from their own possessions or savings
• Borrowed capital


  Money the business owner borrows, e.g. a bank loan
• Assets


  Everything that belongs to a business, that can be converted into cash
• Types of assets


  • Fixed assets
  • Current assets
• Fixed assets


  • Possessions that will not change for more than one year, e.g. land, buildings, vehicles, equipment
• Current assets


  • Possessions that change during the course of one year, e.g. trading inventory, petty cash, accounts receivable
• Liabilities


  The debts that a business or individual has to pay
• Types of liabilities


  • Long-term liabilities
  • Current liabilities
• Long-term liabilities


  • Debts that will be paid back over more than 12 months, e.g. mortgage bonds, vehicle repayments, long-term bank loans
• Current liabilities


  • Debts that must be paid back within one year, e.g. clothing accounts, bank overdraft
• Income


  Payment received for selling goods, time, providing services, or investing money
• Salary/wage


  Payment for the labour an employee provides an employer
• Service business


  Business that generates income through providing a service
• Retail business


  Business that generates income through selling or trading goods
• Expenses


  Money spent to buy goods or services provided by someone else
• The difference between an asset and an expense is that an asset can be used for years, while an expense is used up and has to be replaced
• Budgeting


  Carefully estimating all costs and expenses so the business knows how much money it needs each month
• Individuals, households, businesses, companies, and government are examples of groups that prepare budgets
• Profit


  When the income is more than the expenses
• Loss


  When the expenses are higher than the income
• Reducing expenses to increase profit


  • Cutting down on cellphone calls, sending emails instead
• Increasing income to increase profit


  • Advertising more to get more customers
• Profit or loss


  Whether a business made a profit or loss
• Samuel Electricians


  • Electrical work in the community
  • Income of R45 700
  • Paid out R28 500 for material costs, R4 600 for telephone and R24 400 for other expenses
• Calculate whether the business made a profit or loss

  Income - Expenses
• Budget


  A plan of how much money a business will have and how it will spend it
• Purpose of a budget


  • Careful estimate of all costs and expenses so the business knows how much money it needs each month
• Groups that prepare budgets

  • Individuals
  • Households
  • Businesses
  • Companies
  • Government
• Household budget


  Decides how to spend the household income by deciding how much to spend on needs and wants
• Savings


  Money left over after paying all expenses, can be put aside to buy something wanted but cannot be bought from monthly income
• Financial experts advise people to try and save 10% of their income to avoid going into debt
• Income


  Total amount of money a person gets from different sources
• Expenses


  Amounts of money a person or family spends every month, decreases wealth
• Do not spend more than you can afford, live according to your income
• Types of personal income

  • Salary
  • Wages
  • Commission
  • Informal business income
  • Rental income
  • Interest on savings/investments
• Salary


  Fixed amount of money a person gets paid every month by the business they work for