Module 1 - Financial Literacy

What is accounting?

The process of recording and processing financial transactions into usable information.

Who are the users of accounting information?

Owners, Employees, Investors, Government Tax Agency, Lenders

What is a sole trader?

A business owned by only one person, who usually manages it too.

What type of business is a service business?

A business that generates income by performing services for customers.

What is current income in a service business?

Income received for rendering services to customers.

What are material costs?

The main expense of performing a service, referring to consumable goods.

What are examples of service businesses?

Car wash, Taxi driver, Dressmaker, Tour guide, Plumber, Hairdresser, Teacher, Caterer

What does accounting assist managers with?

It helps in their managerial duties by providing financial information.

What is the purpose of accounting records?

To prepare usable information from financial transactions.

What is a trading business?

A business that generates income by selling goods at a profit to other businesses or consumers.

What is the profit motive in business?

Every business aims to earn a profit, calculated as Profit = Income minus Expenses.

What perspective are accounting transactions recorded from?

Transactions are recorded from the business's perspective.

What are fixed assets?

Assets that a business keeps for longer than 12 months, e.g., land and buildings, vehicles, equipment.

What are current assets?

Assets expected to be turned into cash within 12 months, e.g., bank, cash float, petty cash.

What does owner's equity refer to?

The owner's financial interest in the business, including capital and drawings.

What is capital in a business context?

The owner's initial investment used to start the business.

What are expenses in a business?

Costs incurred by the business, e.g., salaries, rent, utilities, material costs.

What is income in business?

Earnings from services rendered or goods sold, e.g., current income, commission income, rent income.

How does income affect owner's equity?

Income increases owner's equity, while expenses decrease it.

What are liabilities?

Amounts owed by the business, including loans and current liabilities like bank overdraft.

What is an example of material costs?

Detergent used in a laundromat.

What are wages?

Weekly payments made to employees.

What are salaries?

Monthly payments made to employees.

What does advertising refer to?

Amounts paid to promote the business.

What are examples of utilities in a business?

Water and electricity consumed by the business.

What is included in stationery expenses?

Pens, pencils, and paper used in the business.

What is the purpose of insurance?

To cover the cost of insuring an asset for a specific time period.

What is rent in a business context?

Monthly cost for premises rented by the business.

What are long term liabilities?

Liabilities that must be paid back over a period longer than 12 months.

What is a mortgage bond?

A loan to buy business premises, paid off over 10 to 20 years.

What is vehicle finance?

A loan to buy vehicles for the business.

What are short term liabilities?

Liabilities that must be paid within 12 months or less.

What is a bank overdraft?

A situation where the bank allows spending beyond the account balance.

What does SARS stand for?

South African Revenue Service, responsible for tax collection.

What is an asset?

An item of value owned by a business.

How do you calculate Owner’s Equity?

Owner's Equity = Capital Invested + Profits minus Withdrawals.

What is an expense?

An item consumed when used.

Give an example of an asset.

Vehicle

Give an example of an expense.

Fuel