Financial Literacy: Continuation of your last Booklet
INSTRUCTIONS:PLEASE READ INFORMATION TILL THE END.
The information below is based on the last booklet you were given.
You started this booklet but did not complete it.
We will complete the booklet till page 8.
If you lost your booklet, you will need to copy the information down in your notebook or ask your parents to print it for you if possible.
READ AND COMPLETE YOUR WORKSHEETS
FINANCIAL LITERACY
Sole Trader
A sole trader is a business that only one person owns. It is usually a small operation. It is easy and cheap to start this type of business. The profit belongs to the owner and the owner is responsible for the liabilities of the business. We can group Sole Traders into three main types:
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Manufacturing
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Trading |
Service |
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These are businesses that make products such as clothes, food and furniture among other things, which they then sell to other businesses or consumers
Eg: A small business making and selling jewellery.
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These businesses buy products and then sell them to consumers or other businesses. They usually buy goods at a certain price and sell them at a higher price.
Eg: Spaza shops, clothing shops and supermarkets.
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These busineses provide a service to other businesses and individuals and charge a fee in return for their services.
Eg: Professional firms such as lawyers, accountants, doctors, hairdressers etc. |
This terminology was discussed with you in previous lessons, read through the terms again from pages 2-5 and fill in the information on pages 6, 7 and 8.
ANSWERS FOR PAGES 6-8 WILL BE POSTED ON 12 JUNE 2020
TERMINOLOGY
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1. CAPITAL
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Capital is the money that the owner uses to start the business with. If the owner gives the business a vehicle or something else of value, it can also be seen as capital. The owner can increase his capital contribution by investing more money in the business. |
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2. DRAWINGS
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When the owner takes money or something of value from the business for personal use. |
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3. INCOME
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Is the money generated by the business, for example money earned by renting a place to someone else. |
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4. EXPENSES
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Is money used or lost by the business which cannot be recovered again, for example paying the telephone account or buying stationery which gets used. |
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5. GROSS PROFIT
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For Trading Businesses:
GROSS PROFIT = SALES – COST OF SALES
It the amount made only from buying and selling goods. |
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6. NET PROFIT
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TOTAL INCOME – TOTAL EXPENSES = NETPROFIT
TOTAL INCOME = CURRENT INCOME + OTHER INCOME OR TOTAL INCOME = GROSS PROFIT + OTHER INCOME
Net profit is the total amount of money made by the business after they received all forms of income and paid all expenses. |
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7. OWNER’S EQUITY
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The amount that the owner has invested into the business. Note that since the owner owns the business, he gets the net profit. The business owes this amount to the owner. OWNERS’S EQUITY = CAPITAL + NET PROFIT – DRAWINGS
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8. ASSETS
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Are items of value which belong to the business.
There are two kinds of assets: 1. Fixed Assets: Land and Buildings, Vehicles and Equipment 2. Current Assets: Cash in the bank, Cash Float, Petty Cash, Trading Stock and Debtors |
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9. LIABILITIES
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This is the money owed to an outside party. For example, loans, a bank overdraft and creditors |
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10. TRANSACTION
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An activity which involves money or items of value being exchanged. Buying a vehicle, receiving money for providing a service, or selling goods. |
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11. SOURCE DOCUMENTS
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Each transaction must be recorded on a source document. A source document has all the information available about the transaction that has taken place. It will show the date, amount, who was involved and what was the reason for the transaction. |
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12. JOURNAL
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A book into which transactions are entered. Transactions are classified and there is a journal for each type of transaction. |
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13. CASH RECEIPTS |
Include all monies that the business receives business normally receives several separate cash amounts daily as well as cheques |
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14. CASH PAYMENTS |
Include all monies that the business pays. The business will make various payments to different parties daily, either in cash or by cheque. |
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15. GENERAL LEDGER
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Is a book or file which contains all of the businesses accounts. There is an account for all activities the business is involved in.
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16. DEBTOR
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People and businesses which owe our business money. |
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17. DEBTORS LEDGER
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A book or file which contains the details and information of all the people and businesses which owe our business money. All the transactions with the debtor will be entered into the account of the debtor concerned. |
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18. CREDITOR |
People and businesses to which we owe money to. |
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19. CREDITORS LEDGER
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A book or file which contains the details and information of all the people and businesses which we owe money. All the transactions with creditors will be entered into the account of the creditor concerned.
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We call the left hand side of an account in the ledger the debit side.
We call the right hand side of an account in the ledger the credit side
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21. NOMINAL ACCOUNT
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These are all the Income and Expense accounts. |
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22. BALANCE SHEET ACCOUNT
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These are Accounts for Capital, Drawings, Assets and Liabilities. |
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23. DOUBLE ENTRY RULE
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This is the most basic Accounting Rule: For each transaction there are TWO entries made in the General Ledger. One on the Debit Side of an account and One on the Credit side of another account that is affected by the transaction. |
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24. PETTY CASH
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An amount of cash kept on the premises for small amounts that may need to be paid. |
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25. CASH FLOAT |
The money kept in the cash register/till from which customers are given change. |
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26. TRADING STOCK
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Consists of items which were bought with the aim to sell it and make a profit. Also called merchandise or goods. It is an asset. NOTE: items like stationery would normally be an expense, but it becomes trading stock for a stationery shop. |
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27. COST PRICE |
Is the price at which the item was bought from the supplier or manufac |
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A trading business sells trading stock at a higher price than the cost price in order to make a profit. The price at which the goods are sold is the selling price.
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29. MARK-UP
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Moat businesses determine their selling prince by adding a fixed percentage to the cost price. This percentage is called the mark-up.
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30. COST OF SALES
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Is the cost price of goods which has been sold. |
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31. NETWORTH |
PERSONAL WEALTH Wealth measures the value of all the assets owned by a person. Wealth is determined by taking the total value of all physical assets owned, then subtracting all the money that is owed to other people (liabilities) |
ACCOUNTING EQUATION
The accounting equation is:
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ASSETS = OWNERS EQUITY +LIABILITIES |
ASSETS are:
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NON – CURRENT ASSETS |
CURRENT ASSETS |
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TANGIBLE/FIXED ASSETS
These are possessions with a long life which are not purchased for the purpose of resale. It is usually used by the business for a long period of time.
E.g.:
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FINANCIAL ASSETS
This is money of the business which is invested for specific periods.
E.g.:
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These are possessions consisting of cash or something that can be converted into cash within a year.
E.g.:
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All ASSET accounts INCREASE on the DEBIT SIDE and DECREASE on the CREDIT SIDE of the account.
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ASSET |
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DEBIT |
CREDIT |
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Increase (+) |
Decrease (-) |
OWNER’S EQUITY is:
_______________________________________________________________________________________
Capital
_______________________________________________________________________________________
Drawings
_______________________________________________________________________________________
Income
_______________________________________________________________________________________
Expenses
_______________________________________________________________________________________
All OWNER’S EQUITY accounts DECREASE on the DEBIT SIDE and INCREASE on the CREDIT SIDE of the account.
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OWNER’S EQUITY |
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DEBIT |
CREDIT |
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Decrease (-) |
Increase (+) |
LIABILITIES are
_______________________________________________________________________________________
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NON-CURRENT LIABILITIES |
CURRENT LIABILITIES |
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LONG TERM LIABILITIES Are debts that are paid over a long period of time, over a year.
E.g.:
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SHORT TERM LIABILITIES Are debts that have to be repaid within a period of 1 year.
E.g.:
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All LIABILITIES accounts DECREASE on the DEBIT SIDE and INCREASE on the CREDIT SIDE of the account.
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LIABILITIES |
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DEBIT |
CREDIT |
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Decrease (-) |
Increase (+) |
Draw up a table to show all the accounts which belong to:
(You may add to thetable as you work through the accounting sections of EMS)
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ASSETS |
OWNERS EQUITY |
LIABILITIES |
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