2 main types of accounting formally records, summarises and reports the transactions of the business.  Financial accounting: formally records, summarises and reports the transactions of the business. presents and analyses financial data to help management take decisions and monitor performance.  Management accounting: presents and analyses financial data to help management take decisions and monitor performance.  We’ll be focusing on the latter – it’s much more fun!

Task 1: List 10 things you can think of that you or your parents own (their assets).

Assets can be classified into… life span of > a year  Non-current assets: life span of > a year held for < one year  Current assets: held for < one year Task 2: Classify each item in your list above into non-current and current assets:

Capital and Liabilities  Task 3: List where the money has come from/comes from to purchase these items.

Capital and Liabilities (cont.) These funds can be classified into capital, non-current and current liabilities. funds invested or re-invested by you or your parents as opposed to borrowed.  Capital: funds invested or re-invested by you or your parents as opposed to borrowed. monies owed which do not have to be settled < one year.  Non-current (long-term) liabilities : monies owed which do not have to be settled < one year. monies owed that must be paid < year.  Current liabilities : monies owed that must be paid < year. Task 4: Classify each item in your list into capital, current and non-current liabilities:

Household Balance Sheet Activity Task 5: Put the figures below into the correct first column of the Household Balance Sheet on the following page. Do not attempt to total anything at this stage.  Credit card debt is R460.  Interest free medium term loan used to purchase some new furniture is R2,400  The mortgage remaining on the house is R120,000.  Savings used to put down the deposit on the house was R25,000.  Net earnings spent on the house and household items over the years is R216,050.  House is valued at R300,000.  Contents are valued at R40,000.  Cars are valued at R18,000.  Supplies of food, beauty products, cleaning agents, petrol, etc is valued at R430.  Cash and money in savings account is R5,680.  Bank overdraft is R200.

The Structure and Contents of Balance Sheets

Current assets Expected to be turned into cash during the next twelve months. The main elements of current assets are…  Inventories (trading stock): includes raw materials, components, finished products and “work in progress”  Trade and other receivables (debtors) pays at a later date  Trade debtor: a customer who is allowed to buys goods or services on credit (customer gets the goods/services, but pays at a later date).  Cash and cash equivalents

Working capital: the day-to-day finance used in a business. Working capital = current assets - current liabilities Working capital provides a strong indication of a business’ ability to pay its debts.  Current liabilities: amounts to be paid in the next twelve months.  Current assets: cash and other assets available to pay current liabilities.

Introduction to Income Statements Task 1: Imagine Table A is your personal Income Statement for the last month. What would your surplus (net income) be?

Revenue: total value of sales made to customers (cash or credit). Cost of sales: direct/variable costs of generating the revenue. E.g. raw materials and labour costs of production. Gross profit: Revenue - cost of sales. Expenses: not directly related to producing the goods or services (fixed costs). E.g. marketing, transport admin expenses One-off items: items that have a one-off ; not a normal part of trading. E.g. the sale of a part of the business, expenses involved in a takeover. Operating profit: records how much profit has been made in total from the trading activities of the business. Finance income and costs : interest paid on borrowings - interest income received. Tax: corporation tax payable on the recorded profit. Profit for the year: Profit before tax - tax Dividends to shareholders : portion of profit shared out to the owners of the company (shareholders). Retained profits : profits kept by the company and added to the company's balance sheet under reserves & retained earnings.