Simple Business Accounting: The Scenario
We will base the whole resource on something simple. Assume that you have decided to set yourself up in business in school selling fruit. You have borrowed £100 from your parents, which you have agreed to pay back at the end of the school year. Also, three of you have each put in £20 to the project. You have agreed to split the profits (assuming you make any) equally between yourselves. You have called your business 'Fruit28'.
The Head has given you permission to be able to operate and has agreed some premises that you can use to sell your products.
There is a small, secure, store shed, which has been cleaned out and modified, that you are going to use. This acts as your market stall. You have agreed to buy this shed and have paid the Head £30. There is, however, a maintenance cost to be paid on the shed, which works out at £5 per week. You have also bought 10 wooden boxes in which to display the fruit, a large secure money box in which to keep your float and takings and you have bought three new white lab coats through the science department as a 'uniform'.
Perhaps the school stall is not as grand as this, but you get the idea! Copyright: Victor Machado, from stock.xchng.
You are in a position to buy your fruit, as you have an uncle who is a greengrocer. He goes to fruit markets every morning to buy his stock and has agreed with you to supply you with fruit from his stock. You provide him with a list of the things you want and he delivers them to the school first thing in the morning in return for a small fee to cover his delivery costs.
You arrive at the school and, along with your two friends, unload the fruit and put it onto the display stands ready for business. You sell your fruit for half an hour before school, during break, lunch and then after school for another half an hour.
If there is any leftover fruit, your uncle comes and collects it at the end of the day. However, you still have to pay for that, so it is important that you estimate the likely sales carefully. For the first two weeks, you were not very accurate - on some days you had too much and on others not enough.
Task 1
Read through the scenario above. Make a list of all the things that you have had to buy to get the business up and running.Now try to divide the list into two sections. On one side, put in your fixed assets; on the other, your current assets. (See the definition below to help you). Do not worry if you do not get it right at this stage - we will come back to these terms later.
- Assets - all the things that the business 'owns'.
- Fixed assets - all the things a business owns but which are not used up in production.
- Current assets - all the things a business owns which are used up in production.
Having now identified all the things that you have had to buy, there are also things that you will have to pay out to set up and run the business.
Liabilities - refers to the money the business owes to other people.
Task 2
Make a list of all the liabilities you have in your business.