Topic 5: Accounting Concepts Flashcards
(37 cards)
Capital:
The money, goods and property a business can use to make an income through the activities of a business.
Fixed capital:
(Physical capital)
Goods used to produce other goods to satisfy needs and wants.
E.g. Machines, tools, factory buildings, office buildings and trucks.
Financial capital:
Source of money (funds).
E.g. 😬 ➡️💰👈: Capital goods.
Share capital:
💵 invested by business owners 👷🏻👷🏾♀️ to fund the Capital goods.
Working capital:
(Operating capital).
💵 and 📦 needed to run the business day to day, pay expenses & materials.
(May include debtors, not fixed capital)
Start up capital:
💰 needed to start a new business.
Assets:
Items owned by the business that have monetary value. May include debtors or money in the business bank account.
( Also include raw materials, machinary and inventories).
Non-current assets:
Won’t be converted to cash within the next accounting period.
E.g. Land and buildings, vehicles, equipment and investments.
Currents assets:
Can be converted into cash within next accounting period.
E.g. Inventories, debtors and cash in the bank.
Creditor:
A person or company to whom money is owed.
Liabilities:
Monies owed by the creditors.
Non-current liabilities:
Long term costs, such as mortgage or loan repayments.
Current liabilities:
Creditors and bank overdrafts (Short term loan from the bank when you run out of cash).
How to calculate expenses.
You need to consider everything on which you spend money on.
Fixed expenses:
The costs you have to pay every month, no matter how many products or services you provide.
Fixed costs include:
- Rent you pay for your shop.
- Interest you have to pay on your loan.
- Telephone account.
- Water and electricity account.
- Wages to employees.
Variable expenses:
The costs that relate to the number of goods or services you provide.
Variable costs include payments you have to make for:
- Raw materials.
- Wages.
- Completed products.
- Services such as transport.
Income:
Items that have a postive effect on a business’s net worth, increase owner’s profit and equity in the business and increase asset/ decrease liability.
How to calculate income:
- Work out average amount of customers in a month. Estimate how much will be sold. Write the price of the products.
- Multiply these figurines to see the income of one month.
Profit:
The difference between the selling and cost prices.
The profit must be such that the business:
- Can compete with other businesses.
- Covers all the expenses.
- Gets a fair income.
Money business makes:
Profit: income exceeds expenses.
Loss: expenses exceed income.
Budget:
Written plan that shows anticipated income and expenses for a specific period.
