This document contains summaries made from " Consumo business studies textbook" which summarizes financial concepts in a business environment; feasibility studies; the importance of money management etc.
Chapter 10
Finance function
Financial concepts in a business environment:
- Income statement: statement of comprehensive income.
- Balance sheet: Statement of financial position.
- The business receives income when services are rendered or when goods are sold.
- The income earned will be shown in the statement of comprehensive income.
- The business incurs expenses when it has to pay for a service rendered to the business.
- The expenses are shown in the statement of comprehensive income.
Selling other assets or
Income from sales. owner giving capital or
borrowing money.
The cash portion of the various
transactions = cash flow.
Owner’s equity: refers to the value of owner’s money in the business.
➢ The owners will give capital to start a business.
➢ Any profits generated by the business will belong to the owner and will increase the
owners’ equity.
➢ If the owner takes money or assets out of the business, it is known as drawings. This
decreases the owners’ equity.
➢ Owners’ equity is shown in the statement of financial position.
Assets: refers to the possessions of a business.
➢ Assets are used by the business to “make money”.
➢ There are two types of assets:
1. Non-current {long-term assets}
2. Current {short term assets}
➢ The non - current assets include: Land; buildings; vehicles; long –
term investments in the bank.
➢ The current assets include: trading inventory; debtors and cash.
➢ Assets are shown in the statement of financial position.
, Liabilities: refer to the debt of the business.
➢ There are two types of liabilities: Assets = Owner’s equity + liabilities.
1. Current. {short term}
2. Non-current. {long term}
➢ Non – current liabilities include a mortage bond.
➢ Current liabilities are creditors and a bank overdraft
➢ Liabilities are shown in the statement of financial position.
Costs:
- Fixed costs:
¬ Remain the same, irrespective of the output.
¬ Salaries of workers are usually fixed if they are not directly involved in
the production process.
- Variable costs:
¬ vary according to the output.
¬ Variable costs will increase when production increases.
Total cost: The sum of fixed cost Cost per unit: calculated by dividing
and the variable cost. the total cost by the number of units
produced.
Break – Even analysis:
- Beak even point, is the point where the income
generated from sales is exactly equal to the total
costs.
Safety margin:
- Safety margin refers to how far above the break – even point the
business has to perform in order to ensure the business can
safely continue to exist.
The benefits of buying summaries with Stuvia:
Guaranteed quality through customer reviews
Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.
Quick and easy check-out
You can quickly pay through credit card or Stuvia-credit for the summaries. There is no membership needed.
Focus on what matters
Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!
Frequently asked questions
What do I get when I buy this document?
You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.
Satisfaction guarantee: how does it work?
Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.
Who am I buying these notes from?
Stuvia is a marketplace, so you are not buying this document from us, but from seller kayleevandyk. Stuvia facilitates payment to the seller.
Will I be stuck with a subscription?
No, you only buy these notes for $4.62. You're not tied to anything after your purchase.
