1. Why is accounting important in business? Keeping accurate fi nancial accounts is essential for Slurp Yoghurts because every business needs to know: (a) How much money it owes to other people and when the money has to be paid. Creditors are people who are owed money by a business.
(b) How much money the business is owed by others and when this money needs to be paid. Debtors are people who owe a business money.
(c) How much money the business has at any particular time. (d) The value of everything owned by the business. Assets are things of value that the business owns.
(e) How much money it has borrowed from banks and other fi nancial institutions and when these loans have to be repaid. Liabilities are debts that the business owes to other people. (f) If it is making a profi t or a loss.
LO 2.12
2. How can a business monitor income and expenditure?
A very simple system for a business to monitor its income and expenditure is to keep a cash book by dividing a sheet of paper down the middle. On one side, all the money coming into the business is recorded and on the other all the money going out is recorded. Every month the business should add up all the money that has come in and all the money that has been paid out. If it has more money at the end of the month than at the beginning, then it has made a profi t for the month. If it has less money at the end of the month than at the beginning, then it has made a loss for the month. This is the simplest way to keep the fi nancial records of a business.
Example 1: Slurp Yoghurts simple cash book When she fi rst started her business, Karen Jones used a very simple cash book to record cash coming into and going out of the business.
