Weeks 2-3: Topic 1 Financial Literacy: Accounting concepts - pg. 58 - 63 Flashcards
What is accounting?
Accounting is a system that stores and provides information about a business’s finances.
How does accounting help a business?
Accounting helps a business to keep proper records of all the financial activities in the business and to summarise this financial information.
This means that the owner can make decisions on how to run the business better.
What is capital?
Capital is the money/other possesions that the owner invests in the business.
What is an asset?
Assets are all the possessions of a business.
Examples are land, buildings, equipment, vehicles, and money.
What is a liability?
A liability is money a business owes to other people/businesses. Liabilities shrink/decrease the wealth of a business.
Examples of liabilities are a loan from a bank/ debts made by buying goods on account.
What is income?
Income is all the money that the business earns.
What are expenses?
Expenses are money spent by the business to run the business.
Examples of expenses are telephone accounts, water, electricity, salaries, wages, advertising, repairs, and stationery.
What is profit?
Proft is the difference between income and expenses when income is more than expenses.
What is loss?
Loss is the difference between income and expenses when expenses are more than income.
What is a budget?
A budget is a plan on how to spend future income.
It is a written document showing the planned income and estimated expenses of a person/business for a specific period of time in the future.
What is banking?
A bank is a financial institution that both individuals and businesses can use for the safekeeping of their money.
What is a saving?
Saving is the act of putting aside money for future use.
What is a transaction?
A transaction is a financial action/event that takes place between 2 parties in a business.
What are financial records?
All businesses need to record financial transactions daily in the accounting system of the business. This is called keeping financial records.
Give 4 reasons why a business has to keep financial records.
- To ensure the effective daily running of the business
- To work out if the business has made a profit/loss
- To plan for the future
- To work out how much money is owed to other parties.
