Topic 5: Accounting Concepts

Question 1

Capital:

Answer 1

The money, goods and property a business can use to make an income through the activities of a business.

Question 2

Fixed capital:

Answer 2

(Physical capital)
Goods used to produce other goods to satisfy needs and wants.

E.g. Machines, tools, factory buildings, office buildings and trucks.

Question 3

Financial capital:

Answer 3

Source of money (funds).

E.g. 😬 ➡️💰👈: Capital goods.

Question 4

Share capital:

Answer 4

💵 invested by business owners 👷🏻👷🏾‍♀️ to fund the Capital goods.

Question 5

Working capital:

Answer 5

(Operating capital).

💵 and 📦 needed to run the business day to day, pay expenses & materials.

(May include debtors, not fixed capital)

Question 6

Start up capital:

Answer 6

💰 needed to start a new business.

Question 7

Assets:

Answer 7

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).

Question 8

Non-current assets:

Answer 8

Won’t be converted to cash within the next accounting period.

E.g. Land and buildings, vehicles, equipment and investments.

Question 9

Currents assets:

Answer 9

Can be converted into cash within next accounting period.

E.g. Inventories, debtors and cash in the bank.

Question 10

Creditor:

Answer 10

A person or company to whom money is owed.

Question 11

Liabilities:

Answer 11

Monies owed by the creditors.

Question 12

Non-current liabilities:

Answer 12

Long term costs, such as mortgage or loan repayments.

Question 13

Current liabilities:

Answer 13

Creditors and bank overdrafts (Short term loan from the bank when you run out of cash).

Question 14

How to calculate expenses.

Answer 14

You need to consider everything on which you spend money on.

Question 15

Fixed expenses:

Answer 15

The costs you have to pay every month, no matter how many products or services you provide.

Question 16

Fixed costs include:

Answer 16

• Rent you pay for your shop.
• Interest you have to pay on your loan.
• Telephone account.
• Water and electricity account.
• Wages to employees.

Question 17

Variable expenses:

Answer 17

The costs that relate to the number of goods or services you provide.

Question 18

Variable costs include payments you have to make for:

Answer 18

• Raw materials.
• Wages.
• Completed products.
• Services such as transport.

Question 19

Income:

Answer 19

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.

Question 20

How to calculate income:

Answer 20

1. Work out average amount of customers in a month. Estimate how much will be sold. Write the price of the products.
2. Multiply these figurines to see the income of one month.

Question 21

Profit:

Answer 21

The difference between the selling and cost prices.

Question 22

The profit must be such that the business:

Answer 22

• Can compete with other businesses.
• Covers all the expenses.
• Gets a fair income.

Question 23

Money business makes:

Answer 23

Profit: income exceeds expenses.

Loss: expenses exceed income.

Question 24

Budget:

Answer 24

Written plan that shows anticipated income and expenses for a specific period.

Question 25

Who do prople use budgets?

Answer 25

Families: To ensure you spend less than what you earn.

Gov: For their tax income (revenue) and expanditure in the national budget.

Businesses: To plan and control their operations and activities.

Question 26

What is saving?

Answer 26

Saving money for future use. Cash savings can be kept in your wallet, a safe or a saving box.

Question 27

How does onvesting work?

Answer 27

Saving in a bank account can be put to work to earn intersest. When 💵 is put to work to earn more 💵, it has been invested.

Question 28

Invest:

Answer 28

People invest savings so that they can earn more money in the form of interest.

Question 29

Interest:

Answer 29

A charge made for a loan/credit facility, payment made by a bank for the use of money deposited in an account.

Question 30

How do savings help the economy?

Answer 30

They invest in the economy. The consumer earns on their savings. These savings lead to more money for banks to invest in new businesses and this equels a stronger economy.

Question 31

Compound interest:

Answer 31

When interest is added to the original amount invested, so that the interest that has been added also earns interest.

Question 32

Banking:

Answer 32

Banks offer financial services like 💰🔒 safe, insurance, 🏡 loans, 📦 trading & 💳 facilities.

Question 33

How do banks work?

Answer 33

Their run as businesses, generate income through service charges interest received on investments. The Gov regulates banks through laws passed in parliament.

Question 34

Transactions:

Answer 34

Take place between a business and a person. The owner is not considered. It has an effect on the net profit, assets and liabilities of the business.

Question 35

What are the two types of transactions:

Answer 35

1. Cash transactions. (Cash receipts/payments)

2. Credit transactions. (Credit purchases/sales).

Question 36

Transactions are recorded in the journals and ledgers. What info is needed?

Answer 36

• Date of the transaction
• Parties involved in the transaction.
• Amount of money involved.
• Reason for the transaction.

Question 37

Why are financial records important?

Answer 37

They’re used to calculate the profit/loss of the business by preparing financial statements.