Income And Expenses

Question 1

What is personal income?

Answer 1

An individual’s total annual earnings from all sources such as wages, investments, dividends, rentals, profits and interest

Question 2

What are the three types of personal income?

Answer 2

1. Cash flow from work
2. Cash flow from capital
3. Cash flow from land

Question 3

What are salaries and wages?

Answer 3

Payment in return for an individual’s labour. The salary or wage amount is agreed upon by the employer and the employee, and is generally specified in the employee’s employment contract

Question 4

What is the main difference between salaries and wages?

Answer 4

Salaries are usually paid monthly. Wages are usually paid weekly

Question 5

How do you get cash flow from capital?

Answer 5

Capital is money or assets. For example, suppose you invest a sum of money in an investment account. You earn interest on your investment every month from the bank. This is because the bank is using your investment to give credit to other customers. The bank charges these credit customers interest, and pays you a porportion of that interest. The interest you earn every month from your investments makes up part of your personal income

Question 6

How do you get cash flow from land?

Answer 6

You can rent out some of your land to other people. The rental they pay you every month is called rental income, and forms part of your personal income

Question 7

What are personal expenses?

Answer 7

All the costs you incur in your daily life. They are what it costs you to live your life

Question 8

Give some examples of personal expenses.

Answer 8

1. Accommodation expenses, such as home rental or bond payments
2. Utility expenses, such as water, electricity, telephone and refuse removal
3. Food costs
   . Travel costs, such as a car payment and petrol costs
   . Clothing costs
   . Medical expenses
   .home, car and life insurance premiums
   . Entertainment expenses
   . Interest on debt such as credit cards and accounts

Question 9

What is net worth?

Answer 9

Your financial value at any given point

Question 10

Give an example of why people calculate their net worth.

Answer 10

So that they can assess how their wealth is growing from year to year

Question 11

What is a statement of net worth?

Answer 11

A statement of your financial worth at a specific time

Question 12

Why do accountants prepare a statement of net worth?

Answer 12

To determine what a business is worth

Question 13

What do accountants take into account when they prepare a statement of net worth?

Answer 13

Assets, income, capital, borrowed capital and liabilities

Question 14

What does a personal or household statement of net worth take into account?

Answer 14

Your personal belongings, income, and debt

Question 15

In business, the statement of net worth is also known as…

Answer 15

The Balance Sheet

Question 16

Personal or household statements of net worth are important because…

Answer 16

They help individuals and families to check on how they are doing financially. This is especially important when they want to make big financial decisions, such as buying a house or car

Question 17

What is the calculation for net worth?

Answer 17

Net worth = total assets - total liabilities
Eg. Assets are worth R1,5 million
Liabilities are worth R600 000
R1 500 000 - R600 000
= R900 000

Question 18

What is surplus?

Answer 18

When income is more than expenses

Question 19

What is deficit?

Answer 19

When expenses are more than the income

Question 20

What are the five steps for drawing up a personal statement of net worth?

Answer 20

1. Get your records together
2. List and add up the total value of your assets, current and non-current
3. List and add up the total value of your liabilities, current and long term
4. Subtract your liabilities from your assets to calculate your net worth
5. Determine whether your net worth is a surplus (positive number) or a deficit (negative number)

Question 21

Business receive income from sources such as…

Answer 21

. Sales of goods, for example, a clothing shop sells clothes
. Sales of services, for example, a guest house selling accommodation
. Interest, for example, a bank charging interest on money it lends to customers
. Rental, for example, when a business owns property and rents it out to individuals or businesses
. Royalties, which are payments to a business for rights to use the intellectual property, such as writing or music, that it owns
. Dividends, which are the amounts that businesses pay to their shareholders as part of the profits that the business has made

Question 22

What are shareholders?

Answer 22

Idividuals or businesses that have bought shares in a business

Question 23

What are shares?

Answer 23

Portions of a business that shareholders buy to provide capital for the business to start up and operate

Question 24

What are business expenses?

Answer 24

The expenses that businesses incur to keep running

Question 25

Give some examples of business expenses.

Answer 25

1. Capital expenses, which are the costs of starting up the business 2. Staff salaries and wages 3. Renting or buying premises from which the business operates 4. Equipment such as ovens for a bakery, trucks for a removal company, or textiles for a clothing business 5. Raw materials for production 6. Office equipment such as computers, furniture and stationary 7. Tax on the business's income 8. Interest on loans or credit 9. Insurance 10. Research and development 11. Medical aid and pension fund contributions 12. Unemployment fund contributions 13. Education and training for staff 14. Utilities for the business premises, such as water, electricity, phone lines and Internet connections

Question 26

What is cash flow?

Answer 26

How money moves into and out of a business

Question 27

Savings and investments in business help to...

Answer 27

Generate more income for businesses because of the interest they earn

Question 28

Business savings need to...

Answer 28

. Earn as much interest as possible so that your money is working for you . Be accessible when you need them

Question 29

Business owners can get advice about the best business savings accounts for their businesses by going to the major banks and asking to see a consultant wjo specialises in business banking. The account types differ according to...

Answer 29

. The size of your business . How much money you want to keep aside as business savings . How quickly you want to be able to access your savings (Some accounts, such as call accounts, allow you to access your savings immediately; other accounts, such as notice deposit accounts, require you to give a notice period of 32 days before you can access your money)

Question 30

Business savings accounts are a useful way for business owners to keep their ________________ separate from their ________________.

Answer 30

personal savings... business savings OR business savings... personal savings

Question 31

What is an investment?

Answer 31

When you buy a financial product such as a policy or investment plan, or a physical object such as a valuable painting, uou get some kind of financial return on that object or product when you sell it or cash it in. There is always some risk involved involved in investing, because businesses don't always know what the returns on their investments will be. There is a good chance that an investment will make the investor money

Question 32

What is unit trust?

Answer 32

A kind of investment in which an investment company or bank takes many people's or business's small deposits and combines them to invest them as one large amount in a trust

Question 33

Give 7 examples of investment companies in South Africa, or companies that sell financial products that businesses can buy as investments.

Answer 33

1. Old Mutual 2. Investec 3. Allan Gray Investments 4. Rand Merchant Bank 5. Liberty Thebe 6. Sanlam 7. Bongani Investment Group 8. Motseng Investment Holdings 9. Alexander Forbes 10. Coronation 11. Stanlib 12. Momentum

Question 34

How can investment become an effective way of saving money?

Answer 34

When businesses invest money, they take it out of circulation for the duration of the investment. This means that nobody in the business can access the money because it is 'tied up' in the investment. So the business cannot spend the money

Question 35

Why is it best to leave money in an investment for a long period of time?

Answer 35

Investments increase in value over time

Question 36

Why do investments increase in value over time?

Answer 36

It allows time for the business in which you invest to grow