Economics: Cash Flow, Financial Statements, Innovation & Entrepreneurs

Cash Flow

The movement of money in and out of your business. Positive cash flow (more coming in than going out) is VITAL for survival.

Cash Receipt

ANY money coming IN (cash, bank transfer, cheque). You get a receipt number.

Cash Payment

ANY money going OUT (paying bills, buying supplies). You get an EFT number.

Cash Receipts Journal

Records all money COMING IN.

Cash Payments Journal

Records all money GOING OUT.

Bank column

Shows the change in your bank balance.

Sundries column

For one-off, unusual transactions.

Statement of Receipts & Payments

A simple report you make at the end of the month using the totals from your journals.

Total Cash Receipts

$2,025 (from Receipts Journal).

Total Cash Payments

$690 (from Payments Journal).

Cash Surplus

$1,335 (if positive) / Deficit (if negative).

Cash at Start of Month

$3,250.

Cash at End of Month

$4,585.

Innovation

A new idea or process that makes something better. It's not just invention; it's making it successful.

Product Innovation

Improving the product itself (new iPhone model, new McDonald's burger).

Process Innovation

Improving how you make or deliver it (using robots in a factory, a new app for payments).

Competitive Advantage

How a business beats its competitors.

Lower Prices

Achieved by cutting costs (e.g., Economies of Scale = cheaper costs per unit by buying/making in bulk, Outsourcing = getting someone else to do a job for cheaper).

Better Quality

People pay more due to Perceived Quality (the brand name makes you think it's better, even if it's not!).

4 Ps of Advertising & Marketing

Framework consisting of Product, Price, Place, Promotion.

Income Statement

Answers: 'Did we make a profit this period (e.g., this month)?'.

Revenue

Money earned from providing services (e.g., haircuts, consulting). NOT loans or owner's investments!

Expenses

Costs of running the business to earn that revenue (wages, rent, advertising).

Net Profit

Revenue - Expenses

Profit

Revenue > Expenses

Loss

Expenses > Revenue

Formula

Revenue ($1000) - Expenses ($800) = Net Profit ($200)

Balance Sheet

What is the business worth at this exact moment?

Assets

What the business OWNS (Cash, Equipment, Vehicles).

Liabilities

What the business OWES to others (Bank Loans, Bills to pay).

Owner's Equity

The owner's share. What the business owes to the owner. It's the leftover value.

The Golden Rule of Accounting

Assets = Liabilities + Owner's Equity. This equation MUST always balance.

Study Tip for Income Statement

Practice distinguishing between what is a Revenue/Expense and what is not (like a loan or buying equipment).

Study Tip for Balance Sheet

Practice classifying items as Assets, Liabilities, or Owner's Equity.

Source Documents

The original records of a transaction (e.g., receipt duplicate, invoice). Used to create journals.

Recording Rule

Every transaction is recorded in TWO columns: the 'Bank' column and a specific column (e.g., 'Fees,' 'Supplies') or the 'Sundries' column for irregular items.

Economies of Scale

Cost advantages reaped by companies when production becomes efficient.

Case Studies

Quickly skim the Coles/Woolworths and Elon Musk case studies to understand the concepts they illustrate.

Action Plan for the Test

Master the Journals and practice the statements for the test.

Cash Surplus/Deficit

The result of subtracting Total Payments from Total Receipts.

Closing Cash Balance

The total of Cash Surplus/Deficit added to the Opening Cash Balance.

Income Statement (Profit & Loss Statement)

A financial statement that calculates Profit or Loss over a period of time.

Net Profit/Loss

The difference between Total Revenue and Total Expenses.

Accounting Equation

The formula stating that Assets equal Liabilities plus Owner's Equity.

Current Asset

An asset expected to be used or converted to cash within 12 months.

Non-Current Asset

A long-term resource expected to last more than 12 months.

Current Liability

A debt that is due to be paid within 12 months.

Non-Current Liability

A long-term debt that is due in more than 12 months.

Market Segmentation

Dividing a broad market into smaller groups with similar needs or characteristics.

Small Business

Typically employs fewer than 20 people and is owner-managed.

Entrepreneur

A person who starts a business, taking on financial risks in the hope of profit.

Reasons for Business Failure

Factors such as poor management, inadequate cash flow, and lack of planning.