Unit 1, AOS 1 Flashcards
What is a small business
= any bus which the owner and manager are the same person employing fewer than 20 ppl
Characteristics of a small business
1) independently owned and operated
2) closely controlled by owner/manager who contributes most of the operating capital
3) the principal decision making is made by the owner/manager
Reasons for going into bus
1) profit motive
2) desire 4 greater freedom + independence
3) market opportunities (social + market needs)
Alternatives for going into business
- Cash
- Property
- Shares
-> from least to most risky
What are examples of external sources for businesses
- lawyers
- accountants
- human resource companies
- consultants
- bank managers
- assistance programs e.g gov.t programs
What are personal resources of business
- expertise
- entrepreneurship
- determination / resilience
- passion
- confidence
- cordiality + patience
- humility
Reasons for success or failure of businesses
- competition from other bus
- poor location
- insufficient start up capital
- poor marketing
- poor management skills + lack of willingness to seek advice = lack of humility
- poor customer relations
- poor info -> bad decisions
What is a sole trader business structure
an unincorporated bus owned and operated by a single owner which can employ up to 20 staff
What is a partnership business structure
an unincorporated bus owned and operated by 2-20 partners
What is a private limited company business structure
an incorporated bus owned by at least 1-50 selected shareholders, managed by a board of directors
What is a public limited company business structure
an incorporated bus that sells shares in an open market 2 an unlimited number of shareholders
What are accounting elements
= classification such as current assets, noncurrent assets, current liabilities, noncurrent liabilities, owners equity, revenue and expenses
What are accounting items
= specific examples of elements
What is an asset
= a present economic resource controlled by an entity as a result of past events
What is a current asset
= a present economic resource controlled by the entity that is expected to be converted to cash, sold or consumed within the next 12 months after the end of the reporting period
What is a noncurrent asset
= a present economic resource controlled by the entity that is not held for resale and is reasonably expected to be used for more than the next 12 months after the end of the reporting period
What is a liability
= a present obligation of an entity to transfer an economic resource as a result of past events
What is a current liability
= a present obligation of an entity expected to be settled with a transfer of an economic resource within the next 12 months after the end of the reporting period
What is a noncurrent liability
= a present obligation of an entity that aren’t expected to be settled with a transfer of an economic resource within the next 12 months after the end of the reporting period
What is owners equity
= residual value in assets of entity after deducting all its liabilities
What is revenue
= increase in assets or decrease in liabilities that -> increase in owners equity via net profit, other than those relating 2 contributions from the owner
What are expenses
= decrease in assets or increase in liabilities -> decrease in owners equity not considered drawings
What is the accounting equation
A = L + OE
Items of current assets
Bank
Accounts receivable
Inventory of supplies
Items of noncurrent assets
Equipment
Premises
Items of current liabilities
Accounts payable
Examples of noncurrent liabilities
Mortgage
Loan (over 12 months)
Items of revenue
Sales ( increase in assets)
Items of expense
Advertising
What are internal sources of finance: (Owners equity)
- Capital contribution = cash / other assets contributed 2 bus from owners personal assets
- Retained profits = net profit from past period x taken as drawings by owner
What are external sources of finance: Trade credit
= offered by some suppliers which allows c’er 2 purchase g/s + pay @ later date
What are external sources of finance: Bank overdraft
= provided by bank that allows account holder 2 withdraw more money than current balance or have -ve balance in account
What are external sources of finance: Term loan
Provided by banks + other lenders 4 specific purpose + repaid over time
What are external sources of finance: Mortgage
= loan secured against property
What are external sources of finance: Lease
= written agreement which grants 2 the leasee the right 2 use a particular asset 4 a specific period of time in return 4 periodic payments 2 the leasor
What is simple interest
= interest calculated as a % of original amount borrowed
PIT
Where P = principal (original amount borrowed), I = interest rate, T = time
What is a quote
a method of determining a selling price by estimating the costs involved with a particular job, and then adding on certain amount 2 provide for profit