Accounting is knowledge of how well can manage your own money or money of others.
It is very important to understand how money works. Many businesses as well as people fail just because of lack of knowledge. We're not being taught about money at schools and even by our own parents. Successful people like stock brokers or business owners still ver struggle to get out of massive debts.
The purpose of this article is to give your brief introduction about accounting which hopefully will bring interest for you to study it further.
Well,lets get started,shall we?
It is very important to understand how money works. Many businesses as well as people fail just because of lack of knowledge. We're not being taught about money at schools and even by our own parents. Successful people like stock brokers or business owners still ver struggle to get out of massive debts.
The purpose of this article is to give your brief introduction about accounting which hopefully will bring interest for you to study it further.
Well,lets get started,shall we?
Finance = money. We all need money to purchase the goods and service we require. Business need finance too – without money they cannot pay wages, buy materials, or pay for assets.
There are a few main reason why business need finance:
1) The business is starting up
A new business needs fixed assets such as a factory and machinery, and current assets such as stock. The finance needed to launch a business is often called start up capital.
2) To provide sufficient working capital
This is the finance require for day to day activities such as paying wages, suppliers, buying stock.
Liquidity = a business is ‘liquid’ if it has ability to pay its debts when there are due.
3) The business is having problems…
The business may be making a loss and so wants to invest in new machinery which will make it more efficient OR it may be a profitable business that has a cash flow problems.
4) The business may want to grow
This may be through opening new outlets or taking over a competitor.
Some of these situations will need investment in the business for many years, others only for a short-time.
The expenditure (spending) that firms make can be split up into
EXPEDITURE
Capital Revenue
Capital expenditure is money spent on assets that will last for more than one year, for example, buildings and machinery.
Revenue expenditure money spent on day-to-day expenses which do not involve the purchase of a long-term asset, eg wages and rent.
Business will usually try to manage their working capital so that is enough to finance their revenue expenditure.
There are a few main reason why business need finance:
1) The business is starting up
A new business needs fixed assets such as a factory and machinery, and current assets such as stock. The finance needed to launch a business is often called start up capital.
2) To provide sufficient working capital
This is the finance require for day to day activities such as paying wages, suppliers, buying stock.
Liquidity = a business is ‘liquid’ if it has ability to pay its debts when there are due.
3) The business is having problems…
The business may be making a loss and so wants to invest in new machinery which will make it more efficient OR it may be a profitable business that has a cash flow problems.
4) The business may want to grow
This may be through opening new outlets or taking over a competitor.
Some of these situations will need investment in the business for many years, others only for a short-time.
The expenditure (spending) that firms make can be split up into
EXPEDITURE
Capital Revenue
Capital expenditure is money spent on assets that will last for more than one year, for example, buildings and machinery.
Revenue expenditure money spent on day-to-day expenses which do not involve the purchase of a long-term asset, eg wages and rent.
Business will usually try to manage their working capital so that is enough to finance their revenue expenditure.
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