EMS
CHAPTER 1 : ECONOMIC SYSTEMS
WHAT IS AN ECONOMIC SYSTEM?
, BASIC PRINCIPLES
9(
ACCOUNTING CONCEPTS:
→form of business where only ONE PERSON owns (and operates) the
Sole owner business & is FULLY responsible for debts of the business and "creates"
all the profits
2 TYPES OF BUSINESSES:
u Service business> not selling goods, not producing anything, providing
a service
u Trading business> buy goods to sell again at a higher price
Debit= left side of G/L ACCOUNT [Statement of Income & Expenditure→
Debit & Credit expense]
Credit= right side of G/L ACCOUNT [Statement of Income &
Expenditure→ income]
DOUBLE ENTRY PRINCIPLE = every transaction of a business has a debit
AND a credit
→Money or other assets that the owner contributes to the business to
Capital
START the business
u Loan from the bank
u Investments by friends / family
u Own money (owner)
→Represents the owner's interest in the business [consisting of capital
Owner's
contribution, withdrawals and profit]
interest →TOTAL capital contribution made by the owner to the business
(equity) CAPITAL - LOSS - WITHDRAWALS = OWNER'S INTEREST
CAPITAL + PROFIT = OWNER'S INTEREST
CAPITAL + PROFIT – WITHDRAWALS = OWNER'S INTEREST
→The money that business receives through the provision of services
Income or the sale of goods [equity of business is increased]
OPERATING INCOME
→money earned by business for SERVICES PROVIDED
RENT INCOME
→money the business earns when premises are rented
→The money that business spends on goods and services [decrease
Expenses
equity of the business]
BUYING ASSET = NOT AN EXPENSE!
u Pay rent> payment for use of premises
u Telephone> for BUSINESS USE
u Water and electricity> for BUSINESS USE
u Salaries and loans> pay to people who work for the business
2© Noted Summaries Grade 8 EMS Part 2 : Accounting www.notedsummaries.co.za
, u Trade license> consent for delivery of services / sale of products
u Stationery> paper, printer ink, business cards etc.
u Consumables> items used for DELIVERY of service / making of
products
→favorable surplus of total income minus the total expenses of the
Profit business [measured within a financial year]
PROFIT MOTIVE > business is conducted with the AIM of making a profit
PROFIT (LOSS) = REVENUE - EXPENSE
→when EXPENDITURE is more than INCOME
Losses
→occurs when money changes hands between businesses and other
Transactions parties
→record of every income and expense that occurred within the
business
SOURCE DOCUMENT = book transaction > used to obtain necessary
information so that the books of the business can be drawn up
[bookkeeper]
→burden or debt that a business enters into with a person or institution
Liabilities 2 TYPES OF BURDENS:
LONG TERM LIABILITY (Repaid in more than a year)
ALSO CALLED > non-current liabilities
u Mortgage loan
u Vehicle financing
u Loans for business expansions
OPERATING LIABILITIES OR CURRENT LIABILITIES (will be paid back in
less than a year > few months)
u Overdraft bank account
u Creditors
u Income tax [VAT]
→articles bought by business > country period use & help business to
Assets make profit
2 TYPES OF ASSETS:
FIXED ASSETS (lifetime more than one year > used to operate and
maintain business)
u Grounds and infrastructure
u Vehicles
u Equipment
CURRENT ASSETS (converted into cash within one year > used within
business and value changed)
u Debtors
u Cash
→payments for services (useful) provided by banks for example:
Banking u Loans for help with cash flow through an overdraft bank account
[pays interest]
3© Noted Summaries Grade 8 EMS Part 2 : Accounting www.notedsummaries.co.za
CHAPTER 1 : ECONOMIC SYSTEMS
WHAT IS AN ECONOMIC SYSTEM?
, BASIC PRINCIPLES
9(
ACCOUNTING CONCEPTS:
→form of business where only ONE PERSON owns (and operates) the
Sole owner business & is FULLY responsible for debts of the business and "creates"
all the profits
2 TYPES OF BUSINESSES:
u Service business> not selling goods, not producing anything, providing
a service
u Trading business> buy goods to sell again at a higher price
Debit= left side of G/L ACCOUNT [Statement of Income & Expenditure→
Debit & Credit expense]
Credit= right side of G/L ACCOUNT [Statement of Income &
Expenditure→ income]
DOUBLE ENTRY PRINCIPLE = every transaction of a business has a debit
AND a credit
→Money or other assets that the owner contributes to the business to
Capital
START the business
u Loan from the bank
u Investments by friends / family
u Own money (owner)
→Represents the owner's interest in the business [consisting of capital
Owner's
contribution, withdrawals and profit]
interest →TOTAL capital contribution made by the owner to the business
(equity) CAPITAL - LOSS - WITHDRAWALS = OWNER'S INTEREST
CAPITAL + PROFIT = OWNER'S INTEREST
CAPITAL + PROFIT – WITHDRAWALS = OWNER'S INTEREST
→The money that business receives through the provision of services
Income or the sale of goods [equity of business is increased]
OPERATING INCOME
→money earned by business for SERVICES PROVIDED
RENT INCOME
→money the business earns when premises are rented
→The money that business spends on goods and services [decrease
Expenses
equity of the business]
BUYING ASSET = NOT AN EXPENSE!
u Pay rent> payment for use of premises
u Telephone> for BUSINESS USE
u Water and electricity> for BUSINESS USE
u Salaries and loans> pay to people who work for the business
2© Noted Summaries Grade 8 EMS Part 2 : Accounting www.notedsummaries.co.za
, u Trade license> consent for delivery of services / sale of products
u Stationery> paper, printer ink, business cards etc.
u Consumables> items used for DELIVERY of service / making of
products
→favorable surplus of total income minus the total expenses of the
Profit business [measured within a financial year]
PROFIT MOTIVE > business is conducted with the AIM of making a profit
PROFIT (LOSS) = REVENUE - EXPENSE
→when EXPENDITURE is more than INCOME
Losses
→occurs when money changes hands between businesses and other
Transactions parties
→record of every income and expense that occurred within the
business
SOURCE DOCUMENT = book transaction > used to obtain necessary
information so that the books of the business can be drawn up
[bookkeeper]
→burden or debt that a business enters into with a person or institution
Liabilities 2 TYPES OF BURDENS:
LONG TERM LIABILITY (Repaid in more than a year)
ALSO CALLED > non-current liabilities
u Mortgage loan
u Vehicle financing
u Loans for business expansions
OPERATING LIABILITIES OR CURRENT LIABILITIES (will be paid back in
less than a year > few months)
u Overdraft bank account
u Creditors
u Income tax [VAT]
→articles bought by business > country period use & help business to
Assets make profit
2 TYPES OF ASSETS:
FIXED ASSETS (lifetime more than one year > used to operate and
maintain business)
u Grounds and infrastructure
u Vehicles
u Equipment
CURRENT ASSETS (converted into cash within one year > used within
business and value changed)
u Debtors
u Cash
→payments for services (useful) provided by banks for example:
Banking u Loans for help with cash flow through an overdraft bank account
[pays interest]
3© Noted Summaries Grade 8 EMS Part 2 : Accounting www.notedsummaries.co.za
