Accounting Concepts
Sole Trader (Sole Proprietor)
• A sole trader is a form of business where only one person owns the business and usually runs it
too.
• A sole trader is fully responsible for all the debts of the business and can also take all the profits of
the business.
• A sole trader generally has low start-up costs and is small is size.
• A sole trader has a limited financial capacity.
• There are two types of businesses:
o Service business: Where you offer a service in exchange for payment.
o Trading business: Where you sell goods.
Debit and Credit
• Every transaction that a business does will have a debit and a credit.
o This is called the double-entry principle.
• A debit is entered on the left of a ledger account.
• A credit is entered on the right of a ledger account.
Capital
• Capital is the money you need to start up a business.
• Capital can be obtained in the following ways:
o A loan from the bank
o Money invested by friends and family
o Give a personal asset to the business
o Your own money
Owner’s Equity
• Owner’s Equity is the total capital contribution the owner has made to the business.
• It remains the property of the owner and if the business closes, the owner gets the value of the
owner’s equity back.
• Any profits the business makes are added to the owner’s equity, and any losses are deducted.
• If the owner decides to withdraw money for his or her personal use, these drawings are also
deducted from the value of the owner’s equity.
© E-Loné Scheepers 2024 Grade 8 Accounting
, Income
• A service business offers a service to a client and then receives money in return, which is an income
for the business.
• Income is money (receipts) that increases the owner’s equity in the business.
• Different types of income:
o Current income: Money earned by the business for services rendered.
o Rent income: Money earned by the business when renting out premises.
Expenses
• An expense is a payment made for goods or services you need to run your business on a day-to-
day business.
• Expenses are “payments” that decrease the value of the owner’s equity.
• There are special accounts in which different expenses are recorded:
o Rent Paid (Rent Expense): Payment for using the premises, shop, garage, etc. to do
business.
o Telephone: Used for business only.
o Water and Electricity: Used for business only.
o Salaries and Wages: Paid to people working for the business.
o Trading license: Permission to perm a service or sell goods.
o Stationary: Paper, print cartridges, business cards, writing equipment (pens, pencils, etc.),
etc. for the business.
o Consumable goods: Any items used to perform the service or make the product.
Profit
• The profit is the difference between the income (money received) and expenses (payments made)
when the income is more than the expenses.
𝑃𝑟𝑜𝑓𝑖𝑡 = 𝐼𝑛𝑐𝑜𝑚𝑒 − 𝐸𝑥𝑝𝑒𝑛𝑠𝑒𝑠
• Every business operates with the goal to make a profit.
o This is called the profit motive.
Loss
• The business will make a loss if the income is less than the expenses.
𝐿𝑜𝑠𝑠 = 𝐸𝑥𝑝𝑒𝑛𝑠𝑒𝑠 − 𝐼𝑛𝑐𝑜𝑚𝑒
• This is not good for the business since the owner is losing money he/she originally invested in the
business.
© E-Loné Scheepers 2024 Grade 8 Accounting
Sole Trader (Sole Proprietor)
• A sole trader is a form of business where only one person owns the business and usually runs it
too.
• A sole trader is fully responsible for all the debts of the business and can also take all the profits of
the business.
• A sole trader generally has low start-up costs and is small is size.
• A sole trader has a limited financial capacity.
• There are two types of businesses:
o Service business: Where you offer a service in exchange for payment.
o Trading business: Where you sell goods.
Debit and Credit
• Every transaction that a business does will have a debit and a credit.
o This is called the double-entry principle.
• A debit is entered on the left of a ledger account.
• A credit is entered on the right of a ledger account.
Capital
• Capital is the money you need to start up a business.
• Capital can be obtained in the following ways:
o A loan from the bank
o Money invested by friends and family
o Give a personal asset to the business
o Your own money
Owner’s Equity
• Owner’s Equity is the total capital contribution the owner has made to the business.
• It remains the property of the owner and if the business closes, the owner gets the value of the
owner’s equity back.
• Any profits the business makes are added to the owner’s equity, and any losses are deducted.
• If the owner decides to withdraw money for his or her personal use, these drawings are also
deducted from the value of the owner’s equity.
© E-Loné Scheepers 2024 Grade 8 Accounting
, Income
• A service business offers a service to a client and then receives money in return, which is an income
for the business.
• Income is money (receipts) that increases the owner’s equity in the business.
• Different types of income:
o Current income: Money earned by the business for services rendered.
o Rent income: Money earned by the business when renting out premises.
Expenses
• An expense is a payment made for goods or services you need to run your business on a day-to-
day business.
• Expenses are “payments” that decrease the value of the owner’s equity.
• There are special accounts in which different expenses are recorded:
o Rent Paid (Rent Expense): Payment for using the premises, shop, garage, etc. to do
business.
o Telephone: Used for business only.
o Water and Electricity: Used for business only.
o Salaries and Wages: Paid to people working for the business.
o Trading license: Permission to perm a service or sell goods.
o Stationary: Paper, print cartridges, business cards, writing equipment (pens, pencils, etc.),
etc. for the business.
o Consumable goods: Any items used to perform the service or make the product.
Profit
• The profit is the difference between the income (money received) and expenses (payments made)
when the income is more than the expenses.
𝑃𝑟𝑜𝑓𝑖𝑡 = 𝐼𝑛𝑐𝑜𝑚𝑒 − 𝐸𝑥𝑝𝑒𝑛𝑠𝑒𝑠
• Every business operates with the goal to make a profit.
o This is called the profit motive.
Loss
• The business will make a loss if the income is less than the expenses.
𝐿𝑜𝑠𝑠 = 𝐸𝑥𝑝𝑒𝑛𝑠𝑒𝑠 − 𝐼𝑛𝑐𝑜𝑚𝑒
• This is not good for the business since the owner is losing money he/she originally invested in the
business.
© E-Loné Scheepers 2024 Grade 8 Accounting
