Income And Expenses Flashcards
What is personal income?
An individual’s total annual earnings from all sources such as wages, investments, dividends, rentals, profits and interest
What are the three types of personal income?
- Cash flow from work
- Cash flow from capital
- Cash flow from land
What are salaries and wages?
Payment in return for an individual’s labour. The salary or wage amount is agreed upon by the employer and the employee, and is generally specified in the employee’s employment contract
What is the main difference between salaries and wages?
Salaries are usually paid monthly. Wages are usually paid weekly
How do you get cash flow from capital?
Capital is money or assets. For example, suppose you invest a sum of money in an investment account. You earn interest on your investment every month from the bank. This is because the bank is using your investment to give credit to other customers. The bank charges these credit customers interest, and pays you a porportion of that interest. The interest you earn every month from your investments makes up part of your personal income
How do you get cash flow from land?
You can rent out some of your land to other people. The rental they pay you every month is called rental income, and forms part of your personal income
What are personal expenses?
All the costs you incur in your daily life. They are what it costs you to live your life
Give some examples of personal expenses.
- Accommodation expenses, such as home rental or bond payments
- Utility expenses, such as water, electricity, telephone and refuse removal
- Food costs
. Travel costs, such as a car payment and petrol costs
. Clothing costs
. Medical expenses
.home, car and life insurance premiums
. Entertainment expenses
. Interest on debt such as credit cards and accounts
What is net worth?
Your financial value at any given point
Give an example of why people calculate their net worth.
So that they can assess how their wealth is growing from year to year
What is a statement of net worth?
A statement of your financial worth at a specific time
Why do accountants prepare a statement of net worth?
To determine what a business is worth
What do accountants take into account when they prepare a statement of net worth?
Assets, income, capital, borrowed capital and liabilities
What does a personal or household statement of net worth take into account?
Your personal belongings, income, and debt
In business, the statement of net worth is also known as…
The Balance Sheet
Personal or household statements of net worth are important because…
They help individuals and families to check on how they are doing financially. This is especially important when they want to make big financial decisions, such as buying a house or car
What is the calculation for net worth?
Net worth = total assets - total liabilities
Eg. Assets are worth R1,5 million
Liabilities are worth R600 000
R1 500 000 - R600 000
= R900 000
What is surplus?
When income is more than expenses
What is deficit?
When expenses are more than the income
What are the five steps for drawing up a personal statement of net worth?
- Get your records together
- List and add up the total value of your assets, current and non-current
- List and add up the total value of your liabilities, current and long term
- Subtract your liabilities from your assets to calculate your net worth
- Determine whether your net worth is a surplus (positive number) or a deficit (negative number)
Business receive income from sources such as…
. Sales of goods, for example, a clothing shop sells clothes
. Sales of services, for example, a guest house selling accommodation
. Interest, for example, a bank charging interest on money it lends to customers
. Rental, for example, when a business owns property and rents it out to individuals or businesses
. Royalties, which are payments to a business for rights to use the intellectual property, such as writing or music, that it owns
. Dividends, which are the amounts that businesses pay to their shareholders as part of the profits that the business has made
What are shareholders?
Idividuals or businesses that have bought shares in a business
What are shares?
Portions of a business that shareholders buy to provide capital for the business to start up and operate
What are business expenses?
The expenses that businesses incur to keep running
Give some examples of business expenses.
- Capital expenses, which are the costs of starting up the business
- Staff salaries and wages
- Renting or buying premises from which the business operates
- Equipment such as ovens for a bakery, trucks for a removal company, or textiles for a clothing business
- Raw materials for production
- Office equipment such as computers, furniture and stationary
- Tax on the business’s income
- Interest on loans or credit
- Insurance
- Research and development
- Medical aid and pension fund contributions
- Unemployment fund contributions
- Education and training for staff
- Utilities for the business premises, such as water, electricity, phone lines and Internet connections
What is cash flow?
How money moves into and out of a business
Savings and investments in business help to…
Generate more income for businesses because of the interest they earn
Business savings need to…
. Earn as much interest as possible so that your money is working for you
. Be accessible when you need them
Business owners can get advice about the best business savings accounts for their businesses by going to the major banks and asking to see a consultant wjo specialises in business banking. The account types differ according to…
. The size of your business
. How much money you want to keep aside as business savings
. How quickly you want to be able to access your savings
(Some accounts, such as call accounts, allow you to access your savings immediately; other accounts, such as notice deposit accounts, require you to give a notice period of 32 days before you can access your money)
Business savings accounts are a useful way for business owners to keep their ________________ separate from their ________________.
personal savings… business savings
OR
business savings… personal savings
What is an investment?
When you buy a financial product such as a policy or investment plan, or a physical object such as a valuable painting, uou get some kind of financial return on that object or product when you sell it or cash it in. There is always some risk involved involved in investing, because businesses don’t always know what the returns on their investments will be. There is a good chance that an investment will make the investor money
What is unit trust?
A kind of investment in which an investment company or bank takes many people’s or business’s small deposits and combines them to invest them as one large amount in a trust
Give 7 examples of investment companies in South Africa, or companies that sell financial products that businesses can buy as investments.
- Old Mutual
- Investec
- Allan Gray Investments
- Rand Merchant Bank
- Liberty Thebe
- Sanlam
- Bongani Investment Group
- Motseng Investment Holdings
- Alexander Forbes
- Coronation
- Stanlib
- Momentum
How can investment become an effective way of saving money?
When businesses invest money, they take it out of circulation for the duration of the investment. This means that nobody in the business can access the money because it is ‘tied up’ in the investment. So the business cannot spend the money
Why is it best to leave money in an investment for a long period of time?
Investments increase in value over time
Why do investments increase in value over time?
It allows time for the business in which you invest to grow
