EMS Flashcards
Explain the meaning of the word - self-sufficient
to provide for ones own needs without help
Examples of people who lived self-sufficient lives were ….
the hunter-gatherers in South Africa,
the ‘Twa’ in Zaire,
the Inuit in Alaska
The Aborigines in Australia.
What do self sufficient people live on, long ago?
What would you call this method of sustaining oneself
meat from the wild animals and the food from plants.
Hunting and gathering
Why did traditional people of long ago’s activities revolved around people producing
all the things that they needed, to survive.
They lacked technology
What do you call an economy which is not based on money, in which buying and selling are absent or rudimentary though barter may occur, …
People are self-sustainable.
SUBSISTENCE ECONOMY
What do modern societies use to pay for goods or services?
coins, notes and debit or credit cards
or electronic payments through the internet (internet banking)
What do we call a modern society that uses technology to produce goods
for trade.
an Industrialised society
Why do people have to rely on other people to produce goods and provide services that they cannot make or provide?
People have specialised skills
What lead from hunter-gatherering to herding?
hunters were gradually able to tame and keep their animals
Describe how herders lived
Herders moved in larger groups from place to place to find food and water, animals and themselves.
They kept cattle and goats and would rather live off the goats’ milk than kill them.
Animals were only killed when there was not enough wild meat to eat.
As groups met each other, they exchanged goods.
A kind of exchange that dates back to 9000-6000 BC, where a system of trade developed, whereby personal possessions of value could be exchanged
for other goods, is called….
bartering
What are the disadvantages of bartering?
- It was not always practical.
- It was difficult to find what you wanted or needed.
- Goods were difficult to carry or to transport.
- There is no common measure of value.
- Certain goods can’t be divided into smaller units.
- No late payments can be allowed.
- Storing goods is difficult.
- It was difficult to work out the real value of the items because people attached different values to different items.
What was the first evidence of a type of money?
cowry shells
They were used in 1200 BC in China
What were the earliest coins used as money?
In about 500 BC, pieces of silver were the earliest coins.
These coins were first used in Lydia (Turkey).
What was used as money in China in 118 BC?
In 118 BC, leather banknotes were used in China.
In the correct order, say how money developed over time
Barter with livestock and crops.
Cowry shells used as money in China.
Most widely and longest used currency in history.
“Money” made from metals, such as copper. They often had holes in the centre, so they
could be strung together, for safe-keeping.
Coins made from precious metals such as silver, bronze and gold. Coins were valued
according to size and weight.
Later, coins were stamped with its value, so there was no need to weigh them.
Paper currency appeared in China.
Credit cards were issued, and used in the USA.
Internet banking, ATMs used.
Promissory notes
This means a written and signed promise to pay a sum of money.
Somebody to whom money is paid or owed to.
Payee or creditor
A promissory note must include:
- The term “Promissory Note”.
- The amount that the note is worth.
- Interest that will be added.
- When the payment has to be made.
- The place where payment is to be made.
- Name of the Payee.
- Payer’s signature.
- Terms of repayment.
- Date until when the promissory note is valid.
What are the advantages of Internet banking and buying?
Available 24 hours a day.
Consumers and producers need not be in the same place.
More choice in products and services.
Saves on travelling and time.
Faster communication and access to information.
What are the disadvantages of internet banking and buying?
More information needed by online store before purchasing a product.
Personal information not always safe.
Credit card fraud.
Cannot check the quality before you buy.
No personalised customer service.
Difficult to return faulty goods.
What are the Security features on a South African Banknote?
- Watermark within the paper
- Security thread running through the paper.
- High quality paper
- Print quality
When people started trading goods for money, they gathered in certain areas to make it
easier for buyers and sellers to meet. This is called …..
Urbanisation.
What is the role of money?
- It is a medium of exchange – use it to buy goods and services.
- Unit of account – standard measure of how much goods and services are worth.
- Store of value – it holds its value over time.
What is a Consumer Economy?
An economy where businesses encourage consumers to spend as much money as
possible on their goods or services
Why does consumer spending put a lot of pressure on the environment?
- Businesses use raw materials to produce goods.
- Sometimes these raw materials run out.
- The more we consume, the more waste their will be in our environment
- The chemicals used in manufacturing pollutes our air and water.
How can we ease the pressure that consumer spending is putting on the environment?
- We need to concentrate on sustainable resources that can be “re-generated” again.
Money has four important characteristics that make it a sustainable
medium of exchange:
- It is scarce
- It is durable
- It is portable
- It can be divided into smaller units
What are an individual’s basic needs?
Air to breathe
Water to drink and wash with
Food to eat
Shelter to live and be protected
Fuel for warmth and cooking
Clothes
What are the basic needs of communities and countries?
Health services – clinics, hospitals
Transport services – roads, buses, trains
Communication services – postal services, telephones, internet
Education services – schools, universities
Waste disposal services – sewage systems, garbage removal,
Safety and security – police, army, fire-fighters
Classify people’s needs and wants into four groups.
Survival Needs
Security Needs
Social Needs
Self-Esteem Needs
What are our survival needs?
Survival needs are all the physical needs that we have.
The need for oxygen to breathe.
The need for food to eat.
The need for water to drink.
The need to sleep.
The need to be protected from the weather (the cold and the heat).
What are our security needs?
People also need to feel safe and secure.
The need to feel that others will not hurt us.
The need to feel that our belongings will not be taken or broken.
The need for structure, rules, law and order.
The need to know that we live and work in a safe environment.
What are our social needs?
People like to have friends and be a part of a group.
The need to have friends.
The need to be a part of a team or group.
The need to feel that we belong somewhere.
The need to give and receive love.
What are our self-esteem needs?
Our self-esteem is the way we feel about ourselves.
The need to achieve success.
The need to be good at something.
The need to feel that what we do is important and valuable.
The need to be recognized and feel that others respect us.
What are the basic needs of a community?
- Health services
- Communication services
- Transport services
- Educational services
- Waste disposal systems
- Safety and security services
What is the purpose of resources?
They are things we use to help us do something.
They satisfy our needs and wants.
They are things we use to produce goods and services
What are the 3 groups of resources, name them and give examples of each kind.
Natural resources – gold and diamonds satisfy our need/wants for beautiful jewellery.
Human resources - we need a builder to build our house, a farmer to grow our food, a
plumber to fix our taps.
Human-made resources - clothes, tools machines, motor vehicles and money.
What is a limited resource?
A limited resource is something that there is not a lot of or will eventually run out, such as oil or coal, because
this may not last forever.
We need to use our limited resources carefully, give one example of how we can do this.
e.g. recycling.
We need to use our limited resources carefully, give one example of how we can do this.
e.g. recycling.
What is the most common limited resource?
Money
What are non-renewable resources?
Resources that can not be replaced once they run out.
What are renewable resources?
Resources that will never run out or can always be replaced
What are free goods?
Free goods are those goods that are not scarce because they occur in abundant
quantities - their supply is not limited.
The high supply of free goods usually results in them having a market price of
zero.
Give an example where goods may be considered free goods in some situations, but not in others.
- For example, fresh air is free because it is not scarce and because we do not have to
pay for every breath of air that we consume. - However, at the bottom of a mineshaft, the supply of air is limited and large amounts of money are spent to provide fresh air to miners.
- In this example, fresh air is free on the ground, but isn’t free when its supply is scarce
in a mineshaft.
Goods that are not free goods are called
economic goods.
What is an economic good
an item that is scarce because their supply is limited and consequently they have a market price.
any goods that a consumer pays for are economic goods
the price consumers pay for goods is influenced by
how scarce they are and
not by how useful they are.
Consider fresh air, which is essential for life and so very useful to consumers. Even
though fresh air is so useful, we do not usually have to pay for it because its supply is
unlimited; on the other hand, diamonds, even though they have limited uses, are very
expensive because they are so scarce.
The economic problem which we all face is
that we have unlimited needs and wants, but have limited resources to satisfy them
The economic problem is SCARCITY
What is South Africa’s most limited resources?
Water and Electricity
The study of how people decide about which needs to satisfy and how to
satisfy these needs is called…
Economics
In economics, a country’s natural resources of labour, capital, land and entrepreneurship are called
Factors of Production.
Countries need to think about their resources and decide:
- What to produce?
- How much to produce?
- Who gets to consume the products that are produced?
There are two kinds of efficiency when it comes to resource use:
Name them and explain what they mean
- Technical efficiency – Country must use all resources to the full, in a way that gets
the most production out of them. - Allocative efficiency – Country must produce more of the goods and services that are
in highest demand.
Why is South Africa one of the driest countries on Earth?
t has an average rainfall of about half of the world’s average.
In SA we have very little ground water because of the hard rocks.
What needs and wants are satisfied by water?
Water to drink - Need
Water to wash ourselves and keep clean - Need
Water to water the plants that we eat - Need
Water for habitat for animals - Need
Water to swim in - Want
Water to wash our cars - Want
What is the difference between:
* a shop that sells clothes and a guest house that sells accommodation?
The clothe shop sells clothes we need, but also clothes we want
The guest house offers a service for our wants (to go on holiday) but a businessman might need accommodation while travelling
What is the difference between:
buying groceries and paying for a visit to the doctor?
When we buy groceries we are buying a product
When we go to the doctor, we are paying for his service
Where would you mostly find businesses in the Primary Sector?
mostly in the rural areas.
What is the role of businesses in the Primary Sector?
People use natural resources directly in this sector.
They produce raw materials which will be used either as they are or sent to the secondary sector to produce goods.
Examples of industries in the Primary Sector are:
- farming
- fishing
- forestry
- mining
- hunting and gathering
How important are businesses in the primary sector to an economy?
The most important
Where are businesses in the Secondary Sector usually located?
just outside the towns.
What is the role of businesses in the Secondary Sector?
They use raw materials from the primary sector to process or manufacture things that people can use.
Examples of industries in the Secondary Sector are:
- factories
- ship building yards
- aeroplane construction plants
- a car factory
- anything to do with building, engineering and working with metals.
Where are businesses in the Tertiary Sector usually located?
inside the towns.
What is the role of businesses in the Tertiary Sector?
Businesses offer goods produced in the secondary sector, or services, to the
general public in this sector
Examples of businesses in the Tertiary Sector are:
- schools for education services
- hospitals for healthcare services
- banks for money management services
- law firms and courts for legal services
What is the difference between goods and services?
goods are items that you can see and
touch, while services are what people do to help you and cannot be seen or touched.
What are the three sectors that businesses fall under
Primary Sector
Secondary Sector
Tertiary Sector
In poorer countries, which sector does most money come from?
The Primary Sector
Why does the tertiary sector need products from the primary sector?
because the tertiary sector uses what the secondary sector manufactures
What are durable goods?
Give one example
Goods that will last a long time.
Eg, furniture
What are non-durable goods?
Give one example
Goods that will not last a long time and need to be consumed quickly
Eg. Milk, bread, etc
goods that are used to produce other goods and services such as
machinery and delivery vehicles are called…
Capital Goods
Goods that are used to manufacture other goods are called…
e.g. steel used to produce metal products like coke cans, etc.
Semi-finished goods
What are Personal services:
Services that are aimed at the final consumer and are often carried out by professionals.
Doctors, for instance, provide medical services.
What are Commercial Services?
Activities involved in getting goods and services to the consumer, such as banks that offer banking services. It also involves moving people, goods or information from one place to another.
What is the role of the consumer?
buy goods and
services from
producers
What is the role of the producer?
produce goods and
services for
consumers
One person’s spending becomes another person’s
income
Why does the government depend on businesses and individuals to succeed.
The government depends on businesses and individuals to pay tax.
What does the government use with the tax they receive from businesses and consumers?
The tax is used to build roads, create more jobs and supply education and health
services.
How are the people in a household both producers and consumers?
Households provide labour, land, capital or management skills and they pay
businesses for goods and services.
* Businesses in turn pay salaries or wages, rent, interest or profits and provide goods
and services.
How can the paper or furniture industry create a healthy environmental balance between consumption of natural resources and production?
- A perfect balance is replacing natural resources as they are used, like planting trees to
replace those that are being cut off, in the use for paper or furniture.
What does recycling involve?
Recycling involves collecting materials such as waste paper, plastic, glass and metal
cans.
Clean recyclable materials and sort them into groups so that they can be sold to
manufactures that will then turn them into new or other products.
Many products are and can be made out of old waste. Some entrepreneurs use old
metal bottle caps to create jewellery and handbags.
What are the characteristics of a Developing Country?
- There is very little industrialisation.
- People have a low standard of living.
- The average income per person is low.
- A large percentage (about 70%) of the people work for themselves in small business.
Are most African countries examples of developing or developed countries?
Most African countries are examples of
Developing Countries
Developing Countries are also known as…
Third World Countries
What are the characteristics of a developed country?
- There is advanced industrialisation and technology.
- People have a high standard of living.
- The average income per person is high.
- A large percentage of the people work in big businesses that contribute to the
country’s economy.
What is a Formal Business?
A formal business has followed the necessary procedures and policies that apply to their
businesses.
A formal business can take on various forms of ownership.
Formal businesses have been registered legally and are also registered with the South African Revenue Services (SARS) for tax purposes and will be licenced in terms of local municipal laws.
What is an Informal Business?
An informal business is one that usually does not have a fixed or officially recognised
business site or premises.
It is not officially registered and usually does not keep official records.
An informal business is easy to start up as it is not registered or recorded for tax
purposes. This includes all economic activity that is not known to the government and local authorities.
There are three main reasons why people trade in the informal sector:
- They cannot find employment in the formal sector.
- They take part in illegal activities that they should not be involved in.
- They do not want to pay tax.
Businesses can be divided into three types:
trading, manufacturing and service businesses
Trading Businesses are also called:
Retailers
What do trading businesses do?
- They sell products that are made by other businesses or people, directly to the
consumer. - Retailers or trading businesses buy goods at a certain price from their suppliers and
sell these goods at a higher price to their customers for a profit.
What do manufacturing businesses do?
Manufacturing businesses make products that people or other businesses need or
want.
* They turn raw materials or semi-finished products into finished products e.g. food,
clothes, tools, cars machinery and furniture.
* They tend to sell in large quantities to retail or trading businesses who in turn sell to
customers.
What do service businesses do?
- Service businesses sell their skills and time to other businesses or people.
- They provide a service and charge a fee for their services.
What are the advantages of an informal business?
- Owner pays little or no tax
- Business provides jobs
- Businesses alleviates poverty
- Easy to set up because they are small
- Cheap to run
- Contribute to the economy
- Owner learns business skills
What are the disadvantages of an informal business?
- Owner does not contribute to the cost of
running the country by paying tax - Businesses are unregulated, which makes
them potentially dangerous and illegal
What are the advantages of a formal business?
- Access to big markets
- Access to credit
- Access to legal support
- Create jobs
- Contribute to the economy
- Taxes help to run the country
- Regulations mean that your customers
trust your products and services
What are the disadvantages of a formal business?
- Expensive to set up
- Expensive to run
- Have to pay tax
- Complying with government regulations
- Is expensive and a lot of work
- Owners need to skilled and trained
Even though people in informal businesses do not pay tax to the government, how do they still contribute to the economy?
because they are self-employed and they are able to support themselves.
They lesson poverty and unemployment
What is the estimated percentage that informal businesses contribute of the Gross Domestic Product?
approximately 12%
What are spaza shops?
Spaza shops, also called tuck shops, are
small, informal retail outlets, often operating
from shipping containers and homes. They
sell mainly soft drinks, cigarettes, paraffin,
candles, maize meal, bread, tin food and
alcohol.
What kind of business sector do spaza shops fall into?
Tertiary Sector
What are natural disasters?
Give examples of a few
Natural disasters are natural events, as opposed to the man-made events, that damage
the environment or buildings and kill people and animals.
Examples of natural disasters
are storms, floods, hurricanes, tsunamis, volcanoes, earthquakes, fires, landslides and
droughts.
What is a health epidemic
A health epidemic is when a disease such as swine flu or HIV/Aids affects a population
and is widespread.
How does a man made or natural disaster or health epidemic effect the formal and informal business sectors and the economy?
- If a person working in the informal or formal business comes into contact with a sick
customer or fellow worker, he or she may also become infected. - Businesses may have to spend more on training programmes to train replacement
staff. - The supply of goods and services may slow down when workers get ill and do not
report for work. - Natural disasters may destroy infrastructure such as roads, hospitals, schools and
factories. - The economic cost of a natural disaster can run into billions of rands.
- The economy will slow down because there will be less spending.
- Insurance companies lose billions of rands with all the insurance claims that they have
to pay out. - If people who support their families and households financially lose their lives in a
natural disaster or from disease, the remaining relatives could be left poorer off.
What are assets?
what
the business owns and liabilities are what it owes.
For any business to be successful it
must have access to
capital
What is capital?
all the money, goods and property a business can use to
make an income through the activities of the business
________________is the goods used to produce other goods that
satisfy our needs and wants. Fixed capital includes machines, tools, factory buildings,
office buildings and trucks/vans
Fixed Capital / Physical Capital
________________ s the source of money (funds) Example: Someone who starts a
factory usually borrows money to rent premises and to buy machines, tools and raw
materials (capital goods).
Financial Capital
__________ s the money invested by the owners in the business. It provides the
funds to buy fixed capital goods
Share capital
_________ is needed to run the business from day to day. It
does not include fixed capital.
Working Capital / Operating Capital
_________ is the money needed to start a new business.
Starting Capital
Physical Capital is the same as
Fixed Capital
Working Capital is the same as…
Operating Capital
What is stock?
physical assets like raw materials,
machinery and inventory
There are two types of assets:
Non-current assets (fixed assets)
Current assets
What are non-current assets?
Fixed Assets:
will not be converted into cash within the next year (accounting
period). Examples include land and buildings, vehicles, equipment and investments.
What are current assets?
can be converted into cash within the next year (accounting period).
Examples include inventories, debtors and cash in the bank.
David is a Grade 7 learner. He would like to draw up a list to see how wealthy he
is. He has looked around his bedroom to decide what belongs to him.
His parents told him that certain assets are his, such as his bed, table and chair.
He also owns other things, or assets, which were either birthday presents or
items bought with his pocket money. These are the items he now has in his
possession:
Furniture in his room: R 2 300
Radio with CD player: R550
Cash in his wallet: R50
Clothes: R3 000
Books: R200
Savings account at the bank: R625
Two neighbours in his street owe him R60 each for sweeping their yards.
Use the list created to classify each item as a fixed or a current asset
Fixed Assets:
Furniture in his room
Radio with CD Player
Clothes
Books
Current Assets:
Savings account at the bank R 625
Two neighbours owe him money R 60 x 2 = R120
What are Liabilities?
Liabilities are monies owed, by the business, to other people or other businesses
Liabilities include the amounts of capital that were either borrowed from the
bank or equity. This is the money that the business owners provided, as well as any
reserves the business has.
What are the two types of Liabilities?
Explain them
Non-Current Liabilities
are long-term costs such as mortgage/bond or loan repayments
Current Liabilities
include creditors and the bank overdraft, which is a short term loan from the bank when you run out of cash.
Make a list and calculate David’s total liabilities.
a. He borrowed R20 from his sister to buy airtime. He owes his father R35, which he
has to pay back by the end of the month.
b. He borrowed R2 400 from his uncle to buy his bicycle. David pays his uncle back
R100 per month over two years.
Classify them into the two types of liabilities
Non Current Liabilities:
R 2400 owed to his uncle (R100 / month x 24 months)
Current Liabilities:
R 20 owed to his sister
R35 owed to his father
Classify the following into assets and liabilities:
A building, a telephone account, a telephone, rental for a storeroom, money in a
savings account.
Assets:
A building
A telephone
Money in a savings account
Liabilities:
A telephone account
rental for a storeroom
In a business, money that comes in is…
income
In a business, money that goes out is…
expenses
To make a profit, your
_____ needs to be greater than your ______
Your INCOME needs to be greater than your EXPENSES
If your expenses are greater than your
income, your business is
operating at a loss
Explain what an expense is…
An expense is payment for services and consumable goods that the business buys in order to keep the business running.
Expenses decrease the owner’s equity in the business.
Expenses are items which have no lasting value.
They are not assets.
What are Fixed Expenses?
are the costs that you have to pay every month no matter how many products or services you provide.
Fixed Expenses are also known as….
Overhead Expenses
Some Examples of Fixed Expenses are:
rent you need to pay for the premises, telephone
accounts, water and electricity, salaries and monthly
wages.
What are Variable (non-fixed) expenses
the costs that relate to the amount of products and
services the business provides.
Variable expenses increase if more products and services
are provided and decrease if fewer products and services are provided.
Give examples of Variable (non-fixed) expenses
raw materials, wages (if workers are employed only when production takes place and they are paid an hourly rate), completed products, advertising, stationery and repairs.
A trading and manufacturing business’s main form of
income will be from _______________,
while a service business will earn its main income ____________
sales
charging customers a fee for services offered.
Other types of income include :
interest income
discounts
rent income
What is profit?
is the money a business makes after taking all the income and deducting all the
expenses.
How is profit calculate?
Income – Expenses = Profit
In a business, what is the net loss?
when the expenses are more than the income earned in a certain period.
When we talk about how much money a business has made
during a specific period, we could say that the business:
- shows a profit (made money)
- ran at a loss (lost money)
- breaks even (has not made or lost any money. In other words, the business has
earned exactly what it cost them to produce the goods or provide the service.)
What is a budget?
a written plan on how to spend future income. It is a written document showing
the planned income and the estimated expenses of a persons or a business for a specific
period of time in the future
In a household, what are examples of essential expenses?
rent, food and
electricity
What is a business forecast?
estimates of money coming in and money going out
the act of putting money aside for future use.
saving
You can save money by doing the following:
- Never spend more than the amount you earn
- Think about buying what you need first. Pay off all your debt and stay out of debt
- Always have cash to buy the basic things you need
- Keep some emergency funds for doctors, vets, vehicles, house costs and other bills
- Learn from that past and plan for the future
- Make long term goals
What is a transaction
a financial action or event that takes place in a business. A transaction has
at least two interested parties, i.e. the buyer and a seller.
When two parties take part in a
transaction, they do business by exchanging money or something of value
Two types of transactions can take place:
Cash Transactions
Credit Transactions
Where are transactions recorded
in the journals and ledgers of a business
The following
information is necessary from the source document when recording a transaction in the
books of a business:
- The date of the transaction
- The parties involved in the transaction
- The amount of money involved
- The reason for the transaction
All businesses need to record financial transactions in
the accounting systems of business. This is called
keeping
Financial Records
Every financial transaction must be recorded in an orderly and systematic way. This is
called
book-keeping.
Amounts, dates and sources of every transaction must be correctly
recorded into an accounting system and summarised for the following reasons:
- To ensure the effective daily running of the business.
- To work out if the business has made a profit or a loss.
- To plan for a future.
- To work out how much money is owed to other parties.
Why are financial statements prepared?
to communicate the financial results of the business to
interested parties
There are a number of people or institutions that may be interested in
the financial statements of the business. Examples:
- Owners of the business
- Potential buyers of the business
- SARS
- Managers and senior personnel
- Employees and trade unions
- Creditors or suppliers who grant credit to the business
- Banks and other financial services
There are different types of personal income that people can earn:
Salaries or wages
Interest on bank accounts
Rental from property
Profits from a business
why they are interested in the financial statements :
Partners of the business
To see if the business has a positive profit
trend and that it continues to justify more
investment.
why they are interested in the financial statements :
South African Revenue Services
(SARS)
To make sure that the business is paying
Value Added Tax) VAT on a regular basis
and that the partners are paying income
tax on their earnings.
why they are interested in the financial statements :
Employees and trade unions
They can use it as a tool to negotiate
salary or wage increases and better
working conditions.
why they are interested in the financial statements :
Banks and other financial services
To see which institutions lend money to the
business and to make sure the business
has the ability to repay its loans, bank
overdrafts and have enough security to
guarantee it.
why they are interested in the financial statements :
A potential buyer of the business
To determine if their investment in the
business is profitable.
why they are interested in the financial statements :
Managers and senior
The information reflects day to day
information that can be used for problem
solving
why they are interested in the financial statements :
Creditors and suppliers
To make sure the business can pay its
debts and that the business is credit
worthy.
What does SARS stand for
South African Revenue Services
What is the difference between Fixed income and Variable Income?
Fixed Income – includes amounts that are received regularly, such as a salary or a wage.
Variable Income – is uncertain windfalls, such as wining a competition or receiving money as a gift.
What is the formula to calculate interest?
Loan amount x interest rate = interest
EG. R6000 x 10% per annum = R 600 interest per year
What is the difference between
people who earn Wages and
people who earn salaries
People who earn Wages:
Can work full time or part time
usually semi-skilled or unskilled
Are paid daily or weekly
The amount paid depends on how many hours they have worked.
Examples: labourers, casual workers
People who earn salaries:
Work full time
Are usually skilled workers
Are paid at the end of each month.
Receive the same amount of money every month.
Examples: teachers, office clerks, business managers.
Mr James Oliver has placed R50 000 in a fixed deposit account with an interest rate of
15% p.a. Calculate the interest that Mr Oliver will receive each year?
Calculate
HOUSE FOR RENT IN FARRAMERE
Price: R5000 per month
3 bed, 2 baths to let.
Very large kitchen, separate dining area
and lounge. Close to local primary schools and shopping areas.
Immediate occupation
- How much rent does the owner want?
- Who do you think would rent this house? Why?
- Why would people choose to rent rather than buy a house?
- Give 2 reasons why you think people rent out houses rather than to live in them?
R 5 000.00 per month
A family with children. It has enough bedrooms and bathrooms to accommodate a family and it is close to schools.
It may be more affordable than buying a house.
The landlord would be responsible for maintaining and repairs.
The possibility of the area losing its value.
Interest rate on a home loan may increase making the repayments unaffordable.
The rental cost remains fixed for a set period.
Easier to move to another house when necessary.
Once the house is fully paid for there is passive rental income.
Property normally appreciates overtime and will be worth more.
What are personal expenses?
Personal expenses are everything that people have to pay for in order to survive
(comfortably). Personal expenses are also referred to as living expenses.
eg. Rent or accommodation costs Water & electricity
Cell phone or telephone costs Petrol or transport costs
Food Clothing
School fees Medical expenses
When we think of the worth of the people around us, we normally think of how kind, honest
or responsible they may or may not be. This is known as…
Their personal worth
What is a statement of net worth?
is a list of all your assets (what you own) and your liabilities
(your debts).
Net worth is calculated using the following formula:
TOTAL ASSETS – TOTAL LIABILITIES = NET WORTH
A business can earn an income by:
o Renting out extra office space.
o Earning interest on money invested in a bank account or other forms of investment.
o Selling goods or products.
o Providing a service, like cutting hair or fixing motor cars.
o Earning commission for selling something like a house or products to other people
In ‘accounting’, the different income transactions listed above have specific names:
Renting out extra office space is called:
Earning interest on money is called :
Selling goods / products is called
Providing a service is called
Earning commission is called….
Rental Income
Interest income
Sales income
Current Income
Commission income
The accounting names of the different expense transactions are are known as….
They fall under:
The cost of promoting …..
The cost of employing people …..
The cost of administration….
The cost of material …..
The cost of delivering ….
The cost of borrowing money …..
The cost of telephone calls ….
The cost of having a place ….
The Cost of Sales
The cost of promoting ….. Advertising
The cost of employing people ….. Salaries and wages
The cost of administration…. Stationary and printing
The cost of material ….. Service material
The cost of delivering …. Delivery expenses
The cost of borrowing money ….. Interest on a loan or overdraft
The cost of telephone calls …. Telephone
The cost of having a place …. Rental expenses
How often is profit normally calculated in business?
On an annual basis
(yearly)
Gross Profit:
The word ‘gross’ refers to….
the total amount of profit made after deducting only the cost of sales from income.
The gross profit of a business does not take any other expenses into account.
Net Profit:
The word ‘net’ refers to ….
the profit that the business has made after all the expenses have been deducted from the gross income
Why is saving important?
Businesses that save put money aside for things that they need to buy in the future, such as staff training, a deposit on new premises and replacing capital goods, e.g. machinery or vehicles. They will also have money saved for emergencies and times when business is slow.
The more organisations and people that save, the more money, banks have available to
lend to other businesses and people. This means that new businesses can start up and
established business can expand. Saving is the method that provides money for future
use.
Where do banks get the money that they lend to people and businesses from?
from the savings invested with them by
businesses, governments and individuals in the form of fixed deposits and saving deposits
that the bank keeps for a period of three, six, twelve or eighteen months.
How can businesses use the money that they have saved?
One way is to by a fixed asset, such as a machine
that will generate more income. This is investing the
capital by buying fixed assets.
A business can also invest
income in a savings account at a bank, where it will earn
interest income.
Businesses can save their spare money in different kinds of bank accounts, e.g.
- Savings account
- 32-day notice account
- Fixed deposit
Liquidity refers to…
how quickly an asset can be converted into cash.
For example, a factory building is not very liquid as it can take too long to sell and for the
money to be paid
Liquidity also refers to the ability of the business to regularly pay their debt on time.
Money in a bank account is very liquid because
it is readily available
and can be withdrawn immediately.
What is liquid capital?
the capital that is available as cash.
What is an investment?
when a business buys a financial product such as a policy or an
investment plan or a physical object such as machinery. The business will get some kind
of financial return on that object or product when it sells it or cashes in the policy
What is a unit trust?
an investment in which an investment company or banks take different
people or businesses small deposits and combines them to invest them as one large
amount in a trust.
There are different ways in which to invest money to make it grow:
- Buy shares – you own part of a company
- Invest in an endowment policy – put money away and receive it all back with interest
later on. - Buy property – land or offices or homes
- Buy a business – that already exists
- Start a business – become an entrepreneur
Why are investments riskier than savings?
there is a chance that something
could go wrong and that you could lose the money the money that you have invested. If
the investment is successful, then it can make your money grow faster than it would have
if you had simply put it in a savings account.
Why are budgets important?
- A budget is an easy way to keep control of your finances: you know exactly how much
you have spent and still need to spend. - The aim of a budget is to help you stay out of debt and to spend your money wisely.
- A budget is also used to help you save money.
- A budget helps you to identify areas where you spend too much money.
- A budget helps you decide which items are more important to buy and when you
should buy them: for example, you should make sure that you have enough money for
food before you spend money on clothing and luxury items. - A budget changes as income changes, and as needs, wants and priorities change.
The study of money and its history is known as
numismatics
The strength of something is called
intensity
things that are used together (they go well together)
complimentary
Goods that are made to last a long are called…
durable goods
Using up a resource is called
consumption
to look after something and protect it from being destroyed
to conserve
2 types of services are:
personal or commercial
Why do people trade in the informal sector?
They cannot find employment in the formal sector or at all.
They may take part in illegal activities that they should not be involved in and do not want government to know.
They do not want to pay tax
What are the types of businesses?
Trading Business
Manufacturing Business
Service Business
Trading businesses are also called
Retailers
What is a legal entity?
a business that the law treats as a persons that it can enter into contracts and so that it can sue and be sued.
What is GDP?
Gross Domestic Product
Goods & Services that are produced within a country.
What is accounting?
It is a system that stores and provides information about a business’ finances.
