NOTES:

DEFINITION:
1. Assets: are items owned by the business which have value and could be
converted into cash and has lasting value. What the business OWNS. A= O+L
Two types of assets:
Current – expected to convert into cash in a year. Example: Stock, Bank
Bought with the intention to normally not convert into cash within a year. (Takes
longer to sell than current assets).
Non-Current/ Long term assets- generate income for long time longer than a
year. Example: A vehicle [business car, Land and Buildings, Equipment].
2. Owner’s Equity: Total investment the owner has in the business. Money has to
be paid back to the owner.All income and expenses are classified as Owners’ Equity
which affects the PROFIT as the profit increases the worth of the owner. O = A – L
A (Business Owns) – L (Business Owes) = O (Owner’s worth. )
3. Drawings: Money taken out of the business for personal use.
4. Capital: The owner’s investment in the business. Can be cash or equipment or
land.
5.Liabilities: debts amount owing to other people or businesses. Not always bad
as you
Business can borrow money by mean of a Loan to buy a delivery vehicle which
generates income for your business or buy more modern machinery or buy stock on
credit but sell stock for cash.
Two types of Liabilities: Current- must be paid back within a year.
Example: Truworths account, bank overdraft, trading creditor.
Suppliers known as your Creditors. “you buy on credit”
Non-current-payable after a period longer than a year
Example: Bond for a house/home loan, study loan
6. Income: money earned by a business by providing a service or selling stock.
7. Expenses: costs of running a business.
8. Profit: the money left over after expenses are paid. income>expenses
9. Loss: Is the shortfall which occurs when the expenses of a business are greater
than the
income. expenses>income Discrepancy: A difference or inconsistency between two
facts or amounts.
10. Transactions: actions of monetary nature, recorded in the business’s books,
each which
has an effect on A and/or O and/or L. (increasing or decreasing it)
11. Income: Money received immediately or over a period of time from Services
Rendered
or Sales or Rent.
12. Expenses: Money paid out immediately or over a period of time for items that do
not
have a lasting value and/or not owned by the business.
Examples: Electricity. Fuel, Rent Expense, Stationery, Insurance.
13. Receipts: record of money received by the business either in cash or in the bank
account.
14. Payments: all money paid out from the business’ bank account
15. Savings Account: funds kept aside/invested to earn interest
16. Current Account: Account from which the daily Bank transactions are done
17. Cash Flow: available funds for a business to meet its obligations. Inflow >
Outflow.
18. Accounting Equation: assets= owners’ equity + Liabilities

A= OE +L