Topic 1: Scarcity & Opportunity Cost

Economics

Learning Objectives:

➔ Define and give examples of the economic problem

➔ Define needs, wants and scarcity
➔ Explain the difference between free goods and economic goods
➔ Define opportunity cost
➔ Give examples of opportunity costs in different contexts

Introduction: The Economic Problem

Imagine you have a limited amount of money to spend. You need food to stay healthy
and a place to live for safety—these are your needs. But you might also want a new video
game or a cool toy. Because money is limited, you have to make choices about how to
use it. This is called the economic problem: figuring out how to balance what you need
with what you want.

1. 1 Limited Resources and unlimited wants

What stops people from enjoying all the products they wish to have? It is the lack of
resources.

Resources, including workers and machinery, are scarce. This means resources are
limited in supply. The economic problem of not being able to satisfy everyone’s wants
arises because of scarcity.

People’s wants are infinite. Wants keep increasing. For instance, people want more
luxuries, better clothing, better infrastructure and much more. But the number of
resources to produce goods are limited. This mismatch between what people want and
the maximum that can be produced is why the economic problem exists. Choices have
to be made about how resources are to be used.
Scarcity continues to exist. More goods and services are being produced today than ever,
but people’s desires keep increasing. The growth in wants keeps exceeding the resources
available.

1.2 Economic goods and free goods

Free Goods: These are things we can get easily, and they do not cost us anything. For
example, the air we breathe is a free good. It’s everywhere around us and we do not have
to pay for it. Another example is sunlight. Every day, we get sunlight without having to
buy it. Free goods are always available, and we can use them as much as we want without
paying.

Economic Goods: These are things that cost money and are not always easy to get. For
instance, a video game or a new pair of shoes are economic goods because you have to
buy them, and they are limited. If everyone wanted the same video game, there might not
be enough for everyone, so people have to pay for them. Economic goods are limited, so
we have to choose carefully decide what we want to buy.

1.3 Opportunity cost

Imagine you have $10 and you can either buy a new video game or go out for ice cream
with friends. If you choose to buy the video game, the opportunity cost is the fun you
would have had at the ice cream shop. It’s the value of the option you didn’t pick. So,
opportunity cost helps us think about what we’re missing when we decide.

Opportunity cost is what you give up when you choose one thing over another. It’s the
value of the best option you didn’t pick. For example, if you choose to spend your
allowance on a book, the opportunity cost is the toy you didn’t buy.
1.4 Influence of Opportunity Cost on decision making

Opportunity cost and consumers

When you decide to spend your money on a new game instead of a movie, the opportunity
cost is the fun you miss out on at the movie. This choice helps you decide what’s more
important to you.

Opportunity cost and workers

Taking one job involves an opportunity cost. People employed as teachers could be
corporate employees. They need to carefully choose from jobs available.

Opportunity cost and producers

Producers have to decide what to produce. If a farmer decides to grow potatoes on their
field, he cannot keep cattle on the same field at the same time. Producers have to choose
which option will make them maximum profit.

Opportunity cost and the government

When the government decides to build a new park, the opportunity cost is the other things
it could have done with that money, like improving schools. This affects how they decide
to spend tax money.

Economic goods and free goods

As resources are used to produce economic goods, their production involves an

opportunity cost. However, no resources are used to produce free goods, so they do not
involve an opportunity cost.
Summary:

➢ People’s wants continue to grow

➢ Resources are limited in supply
➢ The economic problem is unlimited wants except limited resources
➢ Economic goods need resources to produce them, free goods do not require
resources.
➢ Opportunity cost is an important concept that emphasizes what people sacrifice
when they make a choice.

Key Terms:

Wants: desire for goods and services

Resources: factors used to produce goods and services

The economic problem: limited resources and unlimited wants

Scarcity: a situation where there is not enough resources to satisfy everyone’s wants

Opportunity cost: the next best alternative forgone

Economic Good: a product which requires resources to produce it and therefore has an
opportunity cost.

Free good: a product which does not require any resources to make it and therefore has
no opportunity cost.
Topic 2: Factors of Production
Economics

Learning Objectives:

➔ Define and give examples of land, labour, capital and enterprise

➔ Explain the nature of each factor of production
➔ Analyse the influences on the mobility of factors of production

Introduction: Factors of production

Imagine you're having a bake sale with your friends. To make it work, you need different things:
ingredients like flour, sugar, butter , plates and a stand , and your friends working to set up and
sell baked goods. You also need a plan or idea to make the stand successful. These are called
the factors of production, and they help create goods and services in any business.Factors of
production are the basic things we need to make goods and services. There are four main
factors: land, labour, capital and entrepreneurship. Understanding these factors helps us see
how products are made and why they cost what they do.

Land

The factor of production "land" refers to all the natural resources used to produce goods and
services. It includes not only the physical space where production happens, such as farms and
factories, but also the resources that come from the land. For example, a farmer uses land to
grow crops like rice and vegetables. Similarly, a factory might be built on a piece of land, and it
uses raw materials like minerals or water, which also come from the land. These natural
resources are essential for creating products that we use every day.

Labour

Labour involves the mental and physical effort put into the production of goods and services.It
includes all types of jobs, from farming and teaching to building houses and working in factories.
For example, a farmer uses labor to plant and harvest crops, while a teacher uses labor to
educate students. A construction worker uses labor to build homes and buildings. Labor is an
essential part of production because, without people's skills and efforts, it would be impossible
to create the products and services we need and use every day.

Capital

Capital refers to the human made resources used in the production of goods and services. It
refers to the tools, equipment, machinery, and buildings used to produce goods and services. It
includes everything from simple tools like hammers and computers to large factories and
advanced machines. For example, a farmer uses tractors to grow crops more efficiently. Even a
school uses capital in the form of buildings and computers to help students learn.

Labour

The factor of production "enterprise" refers to the creativity and management skills used to bring
together land, labor, and capital to produce goods and services. It involves making decisions,
taking risks, and planning how to use resources effectively. For example, an entrepreneur
might start a bakery, deciding what ingredients to buy (land), hiring bakers (labor), and
purchasing ovens and mixers (capital). The entrepreneur's ideas and management skills help
turn these resources into delicious cakes and bread for customers.

Mobility of the Factors of Production

The "mobility of factors of production" means how easily the different resources used to make
goods and services can be moved or changed.

1. Land: Land is not very mobile because you can't move a piece of land from one place to
another. However, how you use the land can change. For example, a piece of land used
for farming can be turned into a playground.

2. Labor: The mobility of labour varies. Labor mobility depends on how easily people can
move to different jobs or places. Factors like skills, education, and personal situations
(like family) affect labor mobility. For example, a teacher might find it easier to move to a
new school than a factory worker might find moving to a new factory if the new location
has different machines.

3. Capital: The mobility of capital varies on the type of good. Capital mobility refers to how
easily tools, machines, and money can be moved or used for different purposes. Some
 machines can be used in many types of factories, making them highly mobile. However,
specialized machines are less mobile because they can only be used for specific tasks.

4. Enterprise: Enterprise mobility is about how easily entrepreneurs can start new
businesses or change their business ideas. This depends on factors like laws, access to
capital (money), and the entrepreneur's skills and experience. For instance, a person
with good business skills and access to funding can quickly adapt and start a new
business in a different field. Enterprise is the most mobile factor of production.

Summary:

➢ There are four factors of production: land, labour, capital, enterprise.

➢ Land refers to the land itself and all natural resources.
➢ Labour involves the mental and physical effort put into production.
➢ Capital refers to the human made resources used in the production of goods and
services.
➢ Enterprise is the willingness and ability to take risks and make decisions in a business.

Key Terms:
Factors of Production: the economic resources of land, labour, capital and enterprise
Land: gifts of nature available for production
Labour involves the mental and physical effort put into production.
Capital refers to the human made resources used in the production of goods and services.
Enterprise is the willingness and ability to take risks and make decisions in a business.
Mobility: the ability to move from one place to another
Topic 3: The Three Sectors of an Economy
Economics

Learning Objectives:

➔ Define with examples the three sectors of an economy

➔ Explain the importance of each sector
➔ Explain how the three sectors in the economy work together

Introduction

The economy is made up of different sectors that work together to produce goods and
services. These sectors are called the Primary, Secondary, and Tertiary sectors. Each
one plays a special role in how things are made and used. Let's explore what each
sector does and how they are connected.

1. The Primary Sector

The Primary Sector includes activities that involve taking natural resources directly
from the earth. This means using resources like soil, water, minerals, and forests to
produce raw materials that we can use to make other products.

Examples

● Farming: Growing crops like rice, wheat, and vegetables.

● Fishing: Catching fish from rivers, lakes, and oceans.
● Mining: Extracting minerals and metals from the ground.
● Forestry: Cutting down trees for wood and paper.

The Primary Sector provides the raw materials needed for other sectors to create
finished products. Without farming, fishing, mining, and forestry, we wouldn't have food,
metals, or wood to make everyday items.
2. The Secondary Sector

The Secondary Sector involves taking raw materials from the Primary Sector and
turning them into finished products. This means using materials like wood, metal, and
crops to create things that we can use.

Examples

● Manufacturing: Factories that produce cars, clothes, and electronics.

● Construction: Building houses, roads, and bridges.
● Food Processing: Turning raw vegetables into canned foods or dairy into
cheese.

The Secondary Sector adds value to raw materials by transforming them into products
that we can use. This sector is crucial for creating jobs and building the things we need
in our daily lives.

3. The Tertiary Sector

The Tertiary Sector provides services rather than producing goods. This means it
includes all the activities where people help others by offering services like education,
healthcare, transportation, and retail.

Examples

● Healthcare: Doctors and nurses who take care of our health.

● Education: Teachers and schools that help us learn.
● Retail: Stores that sell clothes, food, and other products.
● Transportation: Buses, trains, and airplanes that move people and goods from
one place to another.

The Tertiary Sector is essential for our well-being and convenience. It helps us access
products, learn new things, and stay healthy. Services make our lives easier and more
enjoyable.
How the Sectors Work Together

All three sectors are interconnected. The Primary Sector provides raw materials, the
Secondary Sector transforms them into products, and the Tertiary Sector offers services
to distribute and use these products. For example, wheat (Primary) is turned into bread
(Secondary), which is then sold in stores (Tertiary).

Understanding the three sectors of the economy helps us see how different parts of our
economy work together to provide the goods and services we need. Each sector plays a
vital role in making sure we have food, products, and services that improve our lives.

Summary

➢ There are three sectors in an economy- primary, secondary and tertiary.

➢ The Primary Sector involves activities that use natural resources directly from the
earth.

➢ The Secondary Sector takes raw materials from the Primary Sector and turns
them into finished products.

➢ The Tertiary Sector provides services rather than goods.

➢ All three sectors in the economy need to work together to provide the goods and
services we need.
Topic 4: Division of Labour and Specialisation
Economics
Learning Objectives:

➔ Define division of labour

➔ Discuss the advantages and disadvantages of division of labour to organizations
➔ Discuss the advantages and disadvantages of division of labour to workers
➔ Define specialisation
➔ Discuss the advantages and disadvantages of specialisation to organizations
➔ Discuss the advantages and disadvantages of specialisation to workers

Introduction
In many workplaces, dividing tasks and focusing on specific skills helps get things done
more efficiently. These are known as division of labour and specialisation.

Division of Labour

Division of labour is when a big task is split into smaller parts, and each person or group
works on one part. This way, everyone has a specific job to do. In a bakery, one
person might mix the ingredients, another bakes the bread, and another packages it.
Each person does one part of the job, making the whole process quicker.

Advantages and Disadvantages of Division of Labour for Organizations

Advantages

● Faster Production: By dividing tasks, the bakery can make more bread in less
time.

● Higher Efficiency: Each person becomes really good at their specific task,
which speeds up the process.

● Better Quality: Specializing in one task often means the job is done better.

Disadvantages

● Coordination Required: All parts must fit together perfectly, so it’s important to
manage and coordinate tasks well.
 ● Less Flexibility: If someone is missing, it can slow down the whole process
because tasks are specialized.

Advantages and Disadvantages of Division of Labour for Workers

Advantages

● Skill Improvement: Workers get better at their specific task.

● Less Complications: Each person focuses on one thing, which can make the
job easier.

Disadvantages

● Repetitive Work: Doing the same task every day can become boring.

● Limited Skills: Workers might not learn other skills outside their specific job.

Specialization

Specialization means focusing on becoming an expert in one particular job or skill. A

chef might specialize in making desserts. They spend most of their time perfecting their
dessert recipes and techniques.

Advantages And Disadvantages of Specialisation for Organizations

Advantages

● Expertise: Having experts can improve the quality of work.

● Innovation: Specialists can come up with new ideas and improvements in their
field.

● Increased Efficiency: Experts often complete tasks faster and more accurately.

Disadvantages

● Dependent on specialised workers: If a specialist is absent, it can be difficult to

find someone with the same level of skill.

● Higher Costs: Specialists might be more expensive to hire.

Advantages and Disadvantages for Workers

Advantages

● Increased Skill: Specializing allows workers to become very skilled and

knowledgeable in their area.

● Career Growth: Expertise in a field can lead to better job opportunities and
higher pay.

Disadvantages

● Limited Knowledge: Specialists might not know much about other areas of
work.

● Job Security: If demand for a particular skill drops, it can be harder to find a new
job.

Key Terms

➔ Division of Labour: dividend a whole task into a number of repetitive tasks. Each
task is undertaken by one person again and again

➔ Specialisation: Concentrating on one task or process and gaining expertise in

that

➔ Efficiency : doing a task in the best way possible, using the least amount of time, effort,
and resources.
 1

Topic 5: Communication in Business

By the end of this chapter, students should be able to:

→ Define Communication
→ Understand Effective Communication
→ Recognize the Importance of Communication
→ Differentiate Communication Methods
→ Choose Appropriate Communication Methods
→ Identify Barriers to Communication
→ Differentiate Between Internal and External Communication

____________________________________________________________________

Introduction

Imagine trying to play a game with your friends, but no one knows the rules. It would be chaotic,
right? Everyone might end up doing different things, and no one would have fun. The same thing
can happen in business if people don’t communicate well. Communication in business is like the
rulebook for the game. It helps everyone understand what they need to do, how they need to do it,
and why it's important. In this chapter, we'll explore what communication is, why it's important in
business, the different ways to communicate, and how to overcome obstacles to effective
communication.

What is Communication?

Communication is like sharing a message with someone else. It can be done through talking,
writing, or even using body language. When we communicate, we send and receive information.
For example, when you ask a friend to help with homework, you are communicating a request. In
business, communication helps people share ideas, make decisions, and work together

• Message: The information you want to share.

• Sender: The person who gives the message.
• Receiver: The person who gets the message.
• Feedback: A response to the message that helps the sender know if the message was
understood.
 2

What is Effective Communication in Businesses?

Effective communication in business means sharing messages in a way that everyone understands
clearly. It’s not just about talking or writing a message; it’s about making sure that the message is
clear, relevant, and easy to understand. This helps prevent misunderstandings and ensures that
everyone is on the same page.

• Clarity: Making sure the message is clear and easy to understand.

• Relevance: Sharing information that is important and useful to the receiver.
• Understanding: Ensuring that the receiver grasps the message as intended.

Why is Effective Communication Important?

Effective communication is crucial in business because it helps:

Avoid Mistakes: Clear messages reduce the chance of errors and misunderstandings.

Build Relationships: Good communication helps build strong relationships with colleagues,
customers, and partners.

Increase Productivity: When everyone understands their tasks and goals, work gets done more
efficiently.

Resolve Conflicts: Effective communication helps solve problems and disagreements in a

constructive way.

Different Communication Methods

There are several ways to communicate in business. Each method has its own strengths and is
suitable for different situations:

Verbal Communication: Sharing information through speaking.

This includes talking face-to-face or over the phone. It's immediate and allows for real-time
feedback.

Written Communication: Sharing information through writing. This involves sending emails,
reports, or memos. It’s useful for documenting information and can be referred back to later.

Nonverbal Communication: Sharing information through body language, facial expressions, and
gestures. It can add meaning to verbal messages.
 3

Visual Communication: Sharing information through pictures, charts, graphs, and images to
present information clearly.

Choosing the Best Communication Method

Choosing the best communication method depends on several factors:

The Message: Complex information might be better communicated in writing, while simple
updates can be shared verbally.

The Audience: Consider who you are communicating with. For example, detailed reports might
be necessary for managers, while brief emails could work for team members.

The Urgency: If something needs immediate attention, verbal communication or a phone call
might be best.

The Purpose: For formal announcements, written communication is often more appropriate. For
brainstorming or discussions, face-to-face meetings might be better.

Barriers to Effective Communication

Sometimes, communication doesn’t work as well as it should. These obstacles are known as
barriers. Here are some common barriers:

Language Differences: Using complex or technical terms that others don’t understand can cause
confusion.

Distractions: Noise or interruptions can make it hard to focus on the message.

Misinterpretation: If the message is not clear, the receiver might misunderstand it.

Emotional Barriers: If people are upset or stressed, it can affect how they communicate and
understand messages.
 4

Internal vs. External Communication in Business

Internal Communication

Internal communication refers to the exchange of information and messages between people within
the same organization. It involves communication between employees, teams, and departments.

Examples:

Team Meetings: When a team gathers to discuss project progress or upcoming tasks, they
are engaging in internal communication.
Emails between Departments: An email from the marketing department to the sales
department about a new campaign is an example of internal communication.
Company Intranet: Information shared on a company's internal website, like updates on
company policies or upcoming events, is internal communication.
Employee Feedback: An employee giving feedback to their manager or receiving a
performance review is internal communication.

Importance of Internal Communication:

Collaboration: Internal communication fosters teamwork and ensures that everyone is aligned
with the company's goals and projects.

Efficiency: Clear communication within the organization helps streamline processes and reduce
misunderstandings, leading to more efficient operations.

Morale: Good internal communication can boost employee morale by keeping staff informed and
involved in company activities.

Problem-Solving: It helps in quickly addressing and resolving issues that arise within the
organization.

External Communication

External communication involves the exchange of information between the organization and
people outside of it, including customers, suppliers, and the public.

Examples:

Customer Service: When a customer contacts a company with a question or complaint,

the response from the company is external communication.
 5

Press Releases: Announcements about new products, achievements, or other important

news shared with the media are examples of external communication.
Marketing Materials: Brochures, advertisements, and social media posts aimed at
attracting customers or informing the public are forms of external communication.
Partnerships: Communication with other businesses or suppliers to negotiate deals or
collaborate on projects is also considered external communication.

Importance of External Communication:

1. Brand Image: External communication helps shape the company’s public image and
reputation. Effective communication can enhance the company’s brand and attract
customers.
2. Customer Relations: Good external communication helps build strong relationships with
customers, addressing their needs and concerns effectively.
3. Business Growth: By reaching out to potential partners, suppliers, and customers, external
communication can drive business expansion and opportunities.
4. Crisis Management: In times of crisis, such as product recalls or negative publicity,
effective external communication is crucial for managing the situation and maintaining
trust.
Topic 6: Employee Motivation

Learning Objectives

By the end of this chapter, you should be able to:

1. Explain what employee motivation is and why it is important.

2. Identify and describe the different types of employee motivation: financial and non-
financial.

3. Determine when financial versus non-financial motivation is most effective.

4. Recognize the benefits of having a motivated workforce.

5. Understand the consequences of a demotivated workforce.

6. Describe Maslow’s Hierarchy of Needs in simple terms.

7. Define key terms related to employee motivation.

Employee Motivation

Employee motivation are the factors which influence the behavior of employees towards achieving
set business goals.

Importance of Employee Motivation

Employee motivation is crucial because it directly affects how well employees perform their jobs.
When employees are motivated, they are more likely to work hard, be productive, and produce
high-quality work. Motivation also leads to happier employees, which can make the workplace
more pleasant and reduce turnover rates.
Think of motivation as the fuel that drives employees to do their best work. Without it, even the
most talented employees might not reach their full potential.

Types of Employee Motivation

There are two main types of motivation: financial and non-financial.

Financial Motivation

Financial Motivation are cash and non-cash rewards paid to employees which are often used to
motivate employees to increase their efforts. This includes:

• Salaries and Wages: a fixed annual payment to employees

 • Bonuses: additional reward paid to employees for achieving targets set by managers.

• Piece Rate: a payment to employees based on the number of units produced

• Commission: a payment to sales staff based on the value of the items they sell.

• Incentives: Special rewards, like profit-sharing or commissions, tied to specific

achievements.

When is Financial Motivation Effective?

Financial motivation works well when employees are motivated by money or when their financial
needs are a major concern. For example, if employees are working hard to save for a big purchase
or need extra money to cover expenses, financial rewards can be very effective.

Non-Financial Motivation

Non-financial rewards are methods used to motivate employees that do not involve giving any
financial reward. These include:

• Recognition: Compliments, awards, or praise for a job well done.

• Career Development: Opportunities for training, promotions, and personal growth.

• Positive Work Environment: A friendly and supportive workplace where employees feel
valued.

When is Non-Financial Motivation Effective?

Non-financial motivation is often effective when employees are already satisfied with their
financial situation but are looking for other types of rewards. For example, employees might value
being recognized for their hard work or having opportunities to learn and grow in their careers.

Benefits of a Motivated Workforce

A motivated workforce brings several benefits to an organization, including:

• Increased Productivity: Motivated employees work harder and complete tasks more
efficiently.

• Better Quality Work: Employees who are motivated are likely to put more care and effort
into their work, leading to higher quality results.

• Low rate of absenteeism: employee’s do not miss work without a valid reason.

• Higher Job Satisfaction: When employees are motivated, they feel happier and more
satisfied with their jobs, which can lead to a more positive workplace.

• Reduced Labour Turnover: Employees who are satisfied and motivated are less likely to
leave their jobs, reducing the costs associated with hiring and training new employees.
 • Enhanced Creativity: Motivated employees are more likely to come up with new ideas
and innovative solutions.

Consequences of a Demotivated Workforce

A demotivated workforce can have several negative effects on an organization:

• Lower Productivity: Employees who are not motivated may work more slowly or put in
less effort.

• Poor Quality of Work: Lack of motivation can lead to mistakes and lower quality results.

• Higher Absenteeism: Demotivated employees may take more sick days or be absent more
often.

• Increased Labour Turnover: Employees who are unhappy with their jobs are more likely
to quit, leading to higher recruitment and training costs.

• Negative Work Environment: A lack of motivation can create a toxic work atmosphere,
where employees are unhappy and less cooperative.

Introduction to Maslow’s Hierarchy of Needs

Maslow’s Hierarchy of Needs is a theory that helps us understand what motivates people.
According to psychologist Abraham Maslow, people have different levels of needs that they try to
satisfy in a specific order:

1. Physiological Needs: Basic needs for survival, like food, water, and shelter.

2. Safety Needs: The need for security and stability, such as a safe working environment and
job security.

3. Love and Belongingness Needs: The need for relationships and feeling part of a group or
team.
4. Esteem Needs: The need for self-esteem and recognition from others.
5. Self-Actualization Needs: The desire to grow and achieve personal goals and potential.

Maslow believed that people need to satisfy lower-level needs before they can focus on higher-
level needs. For example, if employees’ basic needs are met, they will be more motivated to seek
recognition and personal growth.
Fig 1: Maslow’s hierarchy of needs

Key Definitions

• Productivity: The amount of work done or results achieved in a given time.

• Efficiency: How well tasks are completed using the least amount of resources.

• Job Satisfaction: The feeling of contentment and happiness with one’s job.

• Financial Motivation: Financial Motivation are cash and non-cash rewards paid to
employees which are often used to motivate employees to increase their efforts.

• Non-Financial Motivation: Non-financial rewards are methods used to motivate

employees that do not involve giving any financial reward

• Labour Turnover: the rate at which employees leave a business

Topic 7: Introduction to Accounting

Objectives:

→ What is bookkeeping?
→ What is accounting?
→ Objectives of accounting
→ Difference between accounting and bookkeeping
→ Important users of accounting
→ Accounting Equation

Introduction

Accounting is often called the "language of business." It involves recording, summarizing, and
reporting financial transactions to help people understand the financial health of a business or
organization. In simpler terms, accounting tells us how much money is coming in, how much is
going out, and what is left over. This information is crucial for making smart business decisions.

What is Bookkeeping?

Bookkeeping is a part of accounting that focuses on the day-to-day tasks of recording financial
transactions. This includes keeping track of sales, purchases, receipts, and payments. Think of
bookkeeping as the foundation of accounting—it's the detailed record-keeping that helps
accountants create financial reports.

What is accounting?

Accounting is using bookkeeping records to prepare financial statements and to help in decision
making.

Objectives of Accounting

The main objectives of accounting include:

1. Recording Transactions: Keeping a detailed record of all financial activities.

2. Summarizing Data: Organizing and summarizing the recorded transactions to make sense
of the data.
3. Reporting Financial Performance: Preparing financial statements that show how well a
business is doing.
4. Assisting Decision-Making: Providing valuable information to help managers and
stakeholders make informed decisions.
Difference Between Accounting and Bookkeeping

While bookkeeping and accounting are closely related, they are not the same:

• Bookkeeping: Involves the routine task of recording daily financial transactions.

Bookkeepers ensure that every transaction is accurately logged in the right accounts.
• Accounting: Involves analyzing and interpreting the data collected by bookkeepers.
Accountants use this information to prepare financial statements, analyze business
performance, and provide insights for decision-making.

In short, bookkeeping is like collecting ingredients for a recipe, while accounting is like cooking
and presenting the dish.

Important Users of Accounting

Different people and groups use accounting information for various reasons:

• Business Owners: To understand profits, losses, and cash flow.

• Managers: To make decisions about spending, budgeting, and planning for the future.
• Investors: To evaluate whether to invest in a company based on its financial performance.
• Creditors: To determine whether to lend money to a business.
• Government: To collect taxes and ensure businesses comply with regulations.

The Accounting Equation

At the heart of accounting is the accounting equation:

Assets = Liabilities + Capital

This equation represents the relationship between what a business owns (assets), what it owes
(liabilities), and the owner’s interest in the business (equity).

• Assets: Everything a business owns that has value, like cash, inventory, and equipment.
• Liabilities: What a business owes to others, such as loans and unpaid bills.
• Capital: The total of resources invested into the business by its owner.

This equation must always be balanced, meaning that the total assets will always equal the total
liabilities plus the owner’s equity.
Types of Assets

Non- Current Assets: Assets that have a long life and benefits of which are not exhausted within
one year. Example: Building, Equipment, furniture, fixtures and fittings, Motor Van, goodwill
(intangible asset), etc.
Current Assets: Assets that have a short life and benefit of which are exhausted within one year.
Example Cash, bank, inventory

Types of Liabilities

Current liabilities: Liabilities that have to be paid within one year. Example: Trade payables.

Non-current liabilities: That do not have to be paid within one year. Example; bank loan.

Key Terms:

Transaction: Transaction refers to any event which is measurable in terms of money and which
changes the financial position of a business concern.

Asset: Resources owned by the business

Current Asset: Assets that have a short life and benefit of which are exhausted within one year.

Non-Current Asset: Assets that have a long life and benefits of which are not exhausted within one
year.

Capital: The total of resources invested into the business by its owner.

Liability: Resources that are owed by the business

Current Liability: Liabilities that have to be paid within one year.

Non-Current Liability: Liabilities that do not have to be paid within one year.

Inventory: Goods unsold and retained with the business.

Topic 8: The accounting equation
Accounting Equation:

It States that after every transaction the total of assets should be equal to capital and liabilities. It
can be stated in the form of an equation which is:

Assets = Capital + Liabilities.

A= C+L, A-C=L, A-L=C

Assets: Resources owned by or owing to a business are known as assets.

There are two types of assets.

1. Current assets: Assets that have a short life and benefit of which are exhausted within one
year.

Examples:

• Inventory: Goods or products a company has in stock, ready to be sold or used in its
operations.
• Trade Receivables: Money that customers owe to a company for goods or services
already provided, but not yet paid for.
• Other Receivables (Prepaid Expense):Payments made in advance for goods or services
that will be used in the future, like rent or insurance. It is an asset until the expense is
incurred.
• Accrued Income: Income that has been earned but not yet received or recorded. For
example, if a company provides a service but hasn’t been paid by the end of the
accounting period, the income is "accrued" until payment is made.
• Bank Balance: The amount of money a company has in its bank accounts at a given
time. This includes any deposits, withdrawals, or other bank transactions.
• Cash Balance: The amount of physical cash a company has.

2. Non-current assets: Assets that have a long life and benefits of which are not exhausted
within one year.

Example:

Building, Equipment, furniture, fixtures and fittings, Motor Van

Capital: The total of resources invested into the business by its owner.

Liabilities: It represents anything owed by a business. There are 2 types of liabilities:

Current liabilities: Liabilities that have to be paid within one year.

Examples:

• Trade Payables: Money a company owes to its suppliers for goods or services it has
already received but has not yet paid for.
• Other Payables (Accrued Expense): Costs a company has incurred but not yet paid for
by the end of the accounting period. For example, if a company has used electricity in a
month but won’t pay the bill until the next month, the expense is "accrued" in the current
period.
• Prepaid Income: Money a company has received in advance for goods or services it has
not yet delivered. For example, if a customer pays in advance for a subscription or
service, the company recognizes the money as "prepaid income" until it provides the
service.
• Bank Overdraft: A situation where a company spends more money than it has in its
bank account, creating a negative balance. The company is borrowing money from the
bank, and usually, it will be required to repay it with interest.

Non-current liabilities: That do not have to be paid within one year.

Example: Bank loan.

Class Activity 1: Identify whether each item is an asset, liability or capital.

Item Asset / Liability / Capital

Cash in Bank
Inventory
Loan from Bank
Office Furniture
Owner’s Investment
Trade Payable
Building
Computer Equipment
Office Van
Wages payable
Trade receivable