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Questions and Answers
Inventory is a type of long-term liability.
False
Liabilities increase the wealth of a business.
False
Rent income is a type of expenditure.
False
Advertising costs are considered an expense.
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Interest earned is a type of expenditure.
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Salaries are a type of current asset.
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Financial literacy is the ability to understand and apply different financial skills effectively.
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Accounting is the process of making predictions about the business's future financial performance.
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Capital is the money invested in a business, or used to get the business up and running.
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Borrowed capital does not require repayment with interest.
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Assets are items that decrease the wealth of a business.
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Fixed assets are items that are purchased with the intention of reselling them.
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Study Notes
Financial Literacy and Accounting
- Financial literacy refers to the ability to understand and apply different financial skills effectively.
- Accounting is the process of record keeping, interpretation, and communication of economic/financial information.
- It provides information about a business's finances and helps track all present and past financial activities.
Capital and Sources of Capital
- Capital is the money invested in a business or used to get the business up and running.
- Sources of capital include:
- Own (equity) capital: money that the entrepreneur/owner already owns.
- Borrowed (foreign) capital: money borrowed from banks, financial institutions, family, or friends.
Assets
- Assets are anything that adds value to a business and increase its wealth.
- Assets can be money or items of value that the business owns, also known as capital goods.
- There are two types of assets:
- Fixed assets: items purchased and used in the normal course of business, with a lifespan of more than 1 year.
- Current assets: expected to be converted into cash within 1 year or whose value fluctuates within the period of 1 year.
Liabilities
- Liabilities are the money the business owes to other people or businesses, also known as debt.
- Liabilities shrink or reduce the wealth of the business.
- There are two types of liabilities:
- Long-term liabilities: loans.
- Short-term liabilities: creditors, overdraft facility.
Income
- Income is the money a business receives or earns on a regular basis.
- Income can come from operating activities, financing, and investment activities.
- Types of income include:
- Sales
- Rent income
- Services rendered
- Interest earned
- Discounts/rebates.
Expenditure
- Expenditure refers to expenses incurred by a business to generate income.
- Examples of expenses include:
- Advertising costs
- Telephone bill
- Water and electricity
- Wages and salaries
- Rent expense
- Stationery
- Repairs
- Packaging materials.
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Description
Test your understanding of financial literacy and accounting principles, including record keeping, financial information, and business operations.
