Accounting basics

Types of Businesses

• Entrepreneurial mindset is important for creating successful businesses and side hustles to generate income.

Accounting and Business Value Creation

• The four cycles of value creation include:

  • Financing decisions

  • Investing decisions

  • Operating activities/decisions

  • Distribution (dividends decision)

Key Accounting Concepts

Assets

• Definition: Resources owned that aid in operation and value generation.

• Examples: Machinery, vehicles, buildings, and inventory (stock for sale).

Liabilities

• Definition: Amounts owed to external parties.

• If successful, assets outvalue liabilities.

Equity

• Definition: The remainder of assets after liabilities are settled; represents ownership.

• Ownership determines who receives the assets after liabilities are paid.

The Accounting Equation

• Equation: Assets = Liabilities + Equity

• Accounting maintains balance; assets are funded by liabilities and equity.

• Equity is the residual claim on business assets after settling liabilities.

Importance of Definitions

• Assets: Controlled resources providing benefits. Examples are inventory (specific to businesses like BP, Pick n Pay), patents (intangible assets), and licenses.

• Liabilities: Amounts owed; includes loans, accounts payable (money owed to creditors). Accounts receivable are amounts owed to the business.

Elements of Accounting

Five Elements

1. Assets

2. Liabilities

3. Equity

4. Income

5. Expenses

Current vs Non-Current Assets/Liabilities

• Current: Quickly convertible to cash (e.g., inventory, receivables).

• Non-Current: Longer-term investments (e.g., property, long-term loans).

Income and Expenses

• Income: Revenue generated from business operations.

• Expenses: Costs incurred in generating revenue.

• The difference between income and expenses determines profit or loss.

Statements of Financial Position VS Comprehensive Income Statement

• Statement of Financial Position: Snapshot of assets, liabilities, and equity at a specific time.

• Statement of Comprehensive Income: Reports financial performance over a period, showing revenue and expenses.

Summary of Key Learning Points

• Understanding different elements of accounting helps in making informed business decisions.

• Financial statements should be clear to allow for quick assessment by managers or owners.

• Transactions impact the accounting equation, which always maintains balance; increasing income affects equity positively, while increasing expenses reduces it.

Conclusion

• Mastery of these principles provides foundational knowledge necessary for further studies in accounting or managing a successful business.

Types of Businesses

• Having an entrepreneurial mindset is crucial for starting successful businesses and side gigs to make money.

Accounting and Business Value Creation

• There are four key cycles of creating value:

  1. Financing decisions

  2. Investing decisions

  3. Operating activities/decisions

  4. Distribution (deciding on dividends)

Key Accounting Concepts

• Assets: Things you own that help run your business and generate value.

  • Examples: Machines, vehicles, buildings, and products to sell.

• Liabilities: Money you owe to others.

  • If your business succeeds, your assets should be worth more than your liabilities.

• Equity: What’s left of your assets after paying off your liabilities; it shows ownership.

  • Ownership decides who gets the remaining assets after paying debts.

The Accounting Equation

• Equation: Assets = Liabilities + Equity

  • Accounting keeps everything balanced; your assets are funded by both liabilities and equity.

  • Equity is what you own after settling your debts.

Importance of Definitions

• Assets: Controlled resources that provide benefits, like stock for sale, patents (intangible assets), and licenses.

• Liabilities: Money owed, including loans and accounts payable (money owed to suppliers). Accounts receivable means money owed to your business.

Elements of Accounting

• Five Key Elements:

  1. Assets

  2. Liabilities

  3. Equity

  4. Income

  5. Expenses

• Current vs Non-Current Assets/Liabilities:

  • Current: Quickly turned into cash (like inventory, receivables).

  • Non-Current: Investments meant for the long term (like property and long-term loans).

Income and Expenses

• Income: Money earned from running the business.

• Expenses: Costs needed to earn that money.

  • The difference between income and expenses shows your profit or loss.

Statements of Financial Position VS Comprehensive Income Statement

• Statement of Financial Position: A snapshot of your assets, liabilities, and equity at a specific moment.

• Statement of Comprehensive Income: Shows how your business performed over time, detailing revenue and expenses.

Summary of Key Learning Points

• Knowing the different accounting elements helps in making smart business choices.

• Financial statements should be easy to understand for quick assessments by managers or owners.

• Transactions affect the accounting equation, which always stays balanced; more income increases equity while more expenses decrease it.

Conclusion

• Mastering these concepts gives you essential knowledge for studying accounting or managing a successful business.

Types of Businesses

• Having an entrepreneurial mindset is crucial for starting successful businesses and side gigs to make money.

Accounting and Business Value Creation

• There are four key cycles of creating value:

  1. Financing decisions

  2. Investing decisions

  3. Operating activities/decisions

  4. Distribution (deciding on dividends)

Key Accounting Concepts

• Assets: Things you own that help run your business and generate value.

  • Examples: Machines, vehicles, buildings, and products to sell.

• Liabilities: Money you owe to others.

  • If your business succeeds, your assets should be worth more than your liabilities.

• Equity: What’s left of your assets after paying off your liabilities; it shows ownership.

  • Ownership decides who gets the remaining assets after paying debts.

The Accounting Equation

• Equation: Assets = Liabilities + Equity

  • Accounting keeps everything balanced; your assets are funded by both liabilities and equity.

  • Equity is what you own after settling your debts.

Importance of Definitions

• Assets: Controlled resources that provide benefits, like stock for sale, patents (intangible assets), and licenses.

• Liabilities: Money owed, including loans and accounts payable (money owed to suppliers). Accounts receivable means money owed to your business.

Elements of Accounting

• Five Key Elements:

  1. Assets

  2. Liabilities

  3. Equity

  4. Income

  5. Expenses

• Current vs Non-Current Assets/Liabilities:

  • Current: Quickly turned into cash (like inventory, receivables).

  • Non-Current: Investments meant for the long term (like property and long-term loans).

Income and Expenses

• Income: Money earned from running the business.

• Expenses: Costs needed to earn that money.

  • The difference between income and expenses shows your profit or loss.

Statements of Financial Position VS Comprehensive Income Statement

• Statement of Financial Position: A snapshot of your assets, liabilities, and equity at a specific moment.

• Statement of Comprehensive Income: Shows how your business performed over time, detailing revenue and expenses.

Summary of Key Learning Points

• Knowing the different accounting elements helps in making smart business choices.

• Financial statements should be easy to understand for quick assessments by managers or owners.

• Transactions affect the accounting equation, which always stays balanced; more income increases equity while more expenses decrease it.

Conclusion

• Mastering these concepts gives you essential knowledge for studying accounting or managing a successful business.