THE ECONOMY: ECONOMIC SYSTEMS

Economic system
Definition: Economic system is the system that a country uses to solve its economic problem and answers
the questions of what, how and for whom to produce goods or service.
There are three (3) main economic systems in the world, namely:
1.​ The centrally planned economic system OR Planned economy
2.​ The free market economic system
3.​ The mixed economic system

1.​ A PLANNED ECONOMY

Is the economic system where by the government plans, implements and manages all economic activities e.g.
resources, capital etc.
ORIGIN OF CENTRALLY PLANNED ECONOMY
●​ Before Russian resolution there was no much attention on a planned economy system.
●​ Vladimir lenin wanted control of Russians factors of production.
●​ This was because he wanted to ensure that the poorest citizens would have the goods of services they
needed.
●​ He came into power and his ideas were implemented
●​ These ideas were developed into centrally planned system
●​ This was to coordinate the Russian economy.

Characteristics of a planned economy:

A.​ Ownership
●​ All the factors of production except labour are owned and controlled by the government.
●​ There is no private property of land or business.
●​ The government acts as entrepreneur and own the factories.

B.​ Variety of goods

●​ The government decides on the type and quantity of goods to be produced.
●​ They also decide what consumers will consume at the end.
●​ The government distributes consumer goods through state shops where people often have to
stand in long queues to get their basic necessities.

C.​ Planning
●​ The government sets production targets for state-owned factories and allocate the necessary
resources to each factory.
●​ It is up to the central leaders to determine what is needed and how the resources will be used.
●​ To avoid shortage, the government issues coupons that will allow each family a certain
quantity of goods per month.

D.​ Prices

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 ●​ Prices are fixed by the government and there is no profit motive.
●​ Prices are determined by the cost of production only
Examples of countries that uses planned economic system

​ China

​ Cuba

​ Laos

​ North Korea

​ Vietnam

Advantages of a planned economy:

●​ There is more equal distribution of wealth
●​ Basic needs of all citizens are met
●​ There is no wastage of scarce resources due to competition
●​ There is no unemployment
●​ Mass production by state-owned factories produce good at lower cost per unit
●​ Advertising only informs consumers about the product, and no money is wasted on expensive
advertising to get ahead of competitors
●​ There are no business fluctuations in the form of upswing and downswing

Disadvantages of a planned economy:

●​ There is no variety of goods available
●​ People don’t have freedom to choose their own occupation
●​ Planned economies cannot grow as fast
●​ Private initiative is discouraged
●​ There is no drive to produce better quality since there is no competition

2.​ A FREE MARKET ECONOMY

Is the economic system that works according to the principles of individual’s freedom
ORIGIN OF FREE MARKET ECONOMY
●​ Feudalism was a system where the land and people living on it were completely controlled by a few
people appointed by the king.
●​ So it was ended and free market was introduced.
●​ Free market was supported because freedom and liberty was valued the most in the 18th century.
●​ Free market have also spread globally

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Characteristics of a free market economy:
●​ There is no government intervention in economic activities
●​ There is private ownership of factors of production
●​ Supply and demand for goods determine what, how and for whom to produce
●​ Business decide on the type and quantity of goods to produce in response to demand
●​ An increase in the price of one product encourage business to allocate resources to the production of
that product
Example of countries that uses free market economic system

​ The United State of America

Advantages of a free market economy:

●​ Higher economic growth can be achieved
●​ Human initiative lead to the invention of new and better technology
●​ Competition between sellers leads to better quality products at lower prices
●​ People can choose their own occupation and where they want to live and work
●​ A good variety of goods is available for consumer to choose from
●​ People in a market economy tend to be more productive, because they want to make as much profit a
possible

Disadvantages of a free market economy:

●​ There is a large gap between those with higher income and those with less or no income
●​ Businesses only produce goods and services that make good profit
●​ There are cycles of upswing (high inflation rate) and downswing (high unemployment)
●​ Duplication of products and services lead to wastage of natural resources
●​ Businesses just want to make profits and a less concern about the harm they cause to the environment

3.​ A MIXED ECONOMY

Mixed economic system takes characteristics of both planned and free market economy, meaning there is
government interference as well as private ownership of factors of production.
ORIGIN OF MIXED ECOMIC SYSTEM
●​ Mixed economics was formed to solve free market of planned economic systems.
●​ In mixed economy there both market and planned economies
●​ Both market and planned economies were blended to answer the following:
-what and how much will be produced? , -How will it be produced? ,
-for whom will it be?

Characteristics of a mixed economy:

●​ There is a mixture of private and government ownership of factors of production

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 ●​ Government provide essential public goods and services such as education and healthcare, while
privately owned businesses produce other goods
●​ Government controls unfair business practices such as harmful competition, price fixing and
monopolies
●​ Government also controls and protects the use of natural resources e.g. forest, minerals, water an fish
in the sea
●​ Government promotes economic stability and growth by using tax income to develop and maintain
infrastructure
Example of countries that uses free market economic system

​ United Kingdom

​ South Africa

Advantages of a mixed economy:

●​ Both private sector and government play a role in decision-making
●​ Consumers are free to decide what to consume
●​ There is greater stability and less unemployment
●​ No sector dominates in the economy
●​ Private ownership is allowed
●​ Foreign investments flow more easily to countries with mixed economy
●​ Mixed economy have better environment and human rights records
●​ Freedom of choices create competition between firms, resulting in products of better quality at lower
prices

Disadvantages of a mixed economy:

●​ Business cycle cause periods of unemployment and inflation
●​ The distribution of income is not fair and there is a big gap between the rich and the poor
●​ Too much money can be spent on social grants, creating a huge burden to tax payers
●​ Economic growth can be hampered by too much state intervention and regulations

THE GLOBAL ECONOMY

​ The global economy means that most countries of the world are affected by what happened in other
countries less than they were in the past

Characteristics of global economy:

●​ Free trade between countries: people are allowed to import and export goods without government
or restrictions

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 ●​ Free movement of labour: individuals are allowed to move between countries in order to seek the
best job opportunities
●​ Free movement of capital : make it possible for capital (money and machinery) to move between
countries
●​ International finance: money can be transferred at a faster rate between countries compare to goods,
services and people
Advantages or benefits of global economy:
●​ Consumers can buy imported products at lower prices
●​ Free trade result in a greater number of import and export
●​ Increased global competition led to better quality products and a constant improvement in technology,
e.g. cell phones
●​ Reasonable priced Chines products improve the living standards of South Africans
●​ China can buy natural resources from African countries, process it into finished products and export
the final products back to African countries.

ACTIVITIES: ECONOMIC SYSTEMS

ACTIVITY 1
1.​ Name four countries that have a planned economy.
2.​ Indicate whether the following statements are TRUE or FALSE.
2.1​ In a planned economy there is no profit motive.
2.2​ In a pure market economy there is no interference by the government in the economic activities.
2.3​ In a planned economy there is widespread poverty.
2.4​ In a market economy there is private ownership of the factors of production.
2.5​ In a planned economy prices are determined by demand and supply
2.6​ The USA is an example of a market economy.
2.7​ Economic growth is normally higher in a market economy.
2.8​ In a market economy there is a greater variety of consumer’s goods than in a planned economy.
2.9​ A planned economy has cycles of upswings and downswings
2.10​ Scarce resources can easily be wasted in a market economy.
3.​ Name three disadvantages of a communistic/ centrally planned economy.
SOLUTION: ACTIVITY 1
1.​ Cuba, China, North Korea, Vetnam
2.​
2.1​ True
2.2​ True
2.3​ False
2.4​ True
2.5​ False
2.6​ True
2.7​ True
2.8​ True
2.9​ False

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 2.10​True

3. * Limited variety of consumer goods. Government decides what to produce

*People often stand in long queues to get their basic necessities
*People are not free to choose their occupations.
*Productivity is low, because people cannot make money for themselves.

ACTIVITY 2
1.​ Which country is the best example of a free market system?

2.​ Write down the economic system that is described in each sentence:
(Planned economy, market economy or mixed economy)

2.1​ The government regulates the most important industries, but private ownership is allowed in
smaller industries.
2.2​ An economic system, where the state controls all economic activity.
2.3​ A system in which private business is free to operate in a competitive system, without any
interference by government.
2.4​ Political leaders determine what and how much will be produced and by whom.
2.5​ Prices are only determined by market forces- supply and demand.
2.6​ Property can be owned communally or by the government and individuals.
2.7​ Private ownership of the factors of production and property.
2.8​ Michael Gorbachev realised that this system did not work and tried to improve it, which led to its
collapse in Russia.
2.9​ This system leads to a very uneven distribution of income and wealth.
2.10​ In this system leads to a very uneven distribution of income and wealth.
2.11​ Foreign investments flow more easily t countries under a ……. System.
2.12​ In this system prices are fixed and the price equals the cost of production.

3.​ Write down two disadvantages of mixed economic system.

ACTIVITY 2: SOLUTION

1.​ The United states of America

2.​ 2.1 Mixed economic system

2.2 Planned/ communist system
2.3 Market economy/ capitalism
2.4 Planned/ communist system
2.5 Market economy/ Capitalism
2.6 Mixed economic system
2.7 Market economy/ Capitalism

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 2.8 Planned/ communism
2.9 Market economy/ Capitalism
2.10 Market economy/ Capitalism
2.11 Mixed economic system
2.12 Planned/ Communism

3.​ *Business cycles cause periods of high unemployment and inflation.

*The distribution of income is not fair and there is a big gap between the rich and the poor.
*Too much money can be spent on social grants, creating a huge burden on those who are paying
taxes.
*Economic growth can be hampered by too much state intervention and regulation.

ACTIVITY 3
The Three Economic System Market Planned Mixed
Economy Economy Economic
system
1. Who decides what to produce?
2. Who owns the factors of production?
3. What freedom of choice is there for
workers?
4. How are prices determined?
5. Is there a variety of goods and services?
6. Is there an equal or unequal distribution
of income and wealth?
7. Is there competition?
8 Which country is an example?

ACTIVITY 3: SOLUTION
The Three Economic System Market Planned Mixed
Economy Economy Economic
system
1. Who decides what to produce? Privately Central Private
owned government businesses and
businesses government
2. Who owns the factors of production? Private Central Private
persons government businesses and
government
3. What freedom of choice is there for Freedom to No freedom Freedom to
workers? choose own to choose a choose own
profession on profession profession or
start a business or place to start a business
work
4. How are prices determined? By demand Prices are By demand and
and supply fixed by supply and some

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 government are fixed by
and are government
equal to
production
costs
5. Is there an equal or unequal Yes No Yes
distribution of income and wealth?
6. Is there competition? Unequal More equal Unequal
distribution distribution distribution
7. Is there competition? Yes No Yes
8. Which country is an example? United States China South Africa
of America Cuba The United
North Kingdom
Korea

THE ECONOMY: CIRCULAR FLOW

1.1 Factors of production
These are inputs that are used in the production process to produce output that is finished goods and services.
This include natural resources, labor, capital and entrepreneurship.
1.2 Natural resources
Natural resources form the raw material that is used in the production process. The raw material is converted
into the final product through the manufacturing process e.g. wood makes furniture.
1.3 Labour
Labour is the human power physical or mental that is required to assist in converting raw materials into the
final product. It is provided by people who use their skills, efforts and abilities to produce goods and services.
Types of labour are unskilled, skilled, semiskilled and proffessionals. The remuneration for labour is income
in the form of wages and salaries.
1.4 Capital
Capital is the money, machinery and buildings that are required so that the production process can take place.
It is manmade, mobile and passive factor of production. An example is the factory building in which the cars
are manufactured and the automated machines necessary to do precision work. Remuneration for capital is
interest.
1.5 Entrepreneurship
Entrepreneurship ensures that businesses are established to produce products and services. Entrepreneurship
also ensures that the products and services reach the market

2.Markets

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2.1There are two main markets that form part of the circular flow, goods and service market or product
market and factor market.
2.2 Goods and services market or product market
Businesses offer finished goods and services to the households in exchange for money.
2.3 Factor markets
When factors of production are sold by households to businesses and labour is the most important factor.
This market is made up of two markets namely labour and financial markets. In a labour market employers
demand labour from employees so that they can produce goods and services.
Financial markets consist of financial institutions that provide financial services for their clients e.g Banks,
insurance companies, building societies, etc. Their clients include everybody that
trade in the goods and services or product markets and factor markets.
3.Participants in a circular flow of a closed economy
The main participants in a closed economy are households (consumers), businesses (producers) and
government (public sector).
3.1Households (consumers)
Households include consumers who buy goods and services from businesses and consume them to satisfy
their needs and wants. They also own and provide labour which is a factor of production. Payment for labour
is income which is spent on goods and services.
3.2 Businesses
Businesses produce goods and services by combining the factors of production including labour which is
provided by households. It pays households for their labour and other factors of production e.g buying capital
goods needed in the production process.

3.3 Government
Government is consists of national, provincial and local governments. Their function is to pass laws and
collect taxes from households and businesses. It provides services to the businesses and households with the
money collected from taxes.
4.1Flow of goods and services
Households which are consumers buy goods and services from producers which are businesses. Goods and
services move from businesses to households. When households work for businesses providing labour which
is a factor of production the flow is moving the opposite direction.
The government provides services to both households and businesses e.g education, healthcare and transport.
The government buys goods and services from businesses e.g hiring cleaning business to clean hospitals and
also buy medical equipment to be used in hospitals. Households provide their services which is labour to the
government e.g teachers, police and other general workers.
There is a flow of goods and services between the three participants.

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 CIRCULAR FLOW –FLOW OF GOODS AND SERVICES
Factors of production

​ goods and services

Public goods
and services public goods
and services

4.2 Flow of money

When the goods and services flow between participants there are paid for.
Households earn an income for providing their service which labour to the businesses and government.
Businesses receive income as payment for goods and services they sell from government and households.
Government receives income in the form of taxes from households and businesses. Households who earn
wages and salaries pay personal income tax and businesses company tax. The government will spend income
from taxes to provide services for households and businesses.

CIRCULAR FLOW – FLOW OF MONEY

payment for goods and services

payment/remuneration for factors of
production

taxes on profits
payment for goods
and services
taxes on income

4.3 Flow of factors of production

Households are the main providers of factors of production, land which is bought or rented by businesses,
labour to work in business and entrepreneurial skills to run the businesses.

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ACTIVITIES: CIRCULAR FLOW
ACTIVITY 1
A. Choose the correct answer from the given options
1. The three participants in a closed economy are:
(a) the government, foreign sector and businesses
(b) the government, foreign sector and households
(c) the government, businesses and households

2. The factor market determines the price at which the factors of production are sold. These
factors are:
(a) Land, labour, capital and goods
(b) Land, labour, capital and entrepreneurship
(c) Rent, wages, salaries and profits

3. A closed economy excludes:

(a) Households
(b) Businesses
(c) Foreign sector

4. A strike affects the income of:

(a) Households
(b) Businesses
(c) Both households and businesses

SOLUTION: ACTIVITY 1
1. C
2. B
3. C
4. C

ACTIVITY 2
Pair the concepts in column A with its meaning in column B
Column A (Concept) Column B (Meaning) Answers
1. Closed economy A. Consumers

2. Circular flow B. Compulsory payment to the

government
3. Income C. Excludes the foreign sector
4. Taxation D. Money received
5. Households E. Goods and services and factors
of production flow from one
group to the next
F. Banking

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SOLUTION: ACTIVITY 2
Column A (Concept) Column B (Meaning) Answers
1. Closed economy A. Consumers 1. C
2. Circular flow B. Compulsory payment to the 2. E
government
3. Income C. Excludes the foreign sector 3. D
4. Taxation D. Money received 4. B
5. Households E. Goods and services and factors of 5. A
production flow from one group to the
next
F. Banking

ACTIVITY 3
Use the information below to illustrate the flows of a circular flow diagram of a closed economy. (10)​
​ ​ ​
●​ Factors of production
●​ Households
●​ public goods and services
●​ payment for goods and services
●​ Businesses
●​ taxes on income
●​ payment/remuneration for factors of production
●​ Government,
●​ taxes on profits.

SOLUTION: ACTIVITY 3

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CIRCULAR FLOW

Factors of production✔

payment for goods and services✔

payment/remuneration for factors of
production✔

Public goods taxes on profits✔

and services✔ payment for goods
and services✔
taxes on income✔

(1x1=10)

ACTIVITY 4
List the four factors of production and their remuneration (8)

SOLUTION: ACTIVITY 4
Factor of production Remuneration (1x8=8)
Natural resources/Land✔ Rent✔
Labour ✔ Wages/Salaries✔
Capital ✔ Interest ✔
Entrepreneurship✔ Profit/Loss✔

ACTIVITY 5
Complete the following diagram by writing the most appropriate LETTER next to the correct number in
the block. Choose from the following letters:

A = Factors of production
B = public goods and services
C = payment for goods and services
D = taxes on income
E = payment/remuneration for factors of production
F = transfer payments like old age pensions,
G= taxes on profit

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 ​

(5)

SOLUTION: ACTIVITY 5

2.1.1 A✔
2.1.2 E✔
2.1.3 B✔
2.1.4 G✔
2.1.5 D✔
(5)

ACTIVITY 6
Name and explain the three roles of the participants in the circular flow of a closed economy. ​
(9)

SOLUTION: ACTIVITY 6
Consumers✔
-Represents households also the owners of factors of production.✔✔
-They provide factors of production and get remuneration that allows them to buy goods and services
from businesses.

-Money thus flows from households to consumers.

(Allow any relevant answer)
Business✔
- Represents the producers they manufacture and market the goods.✔✔
-They buy factors of production from the households and money thus flows from the producers to the households.
(Allow any relevant answer)
Government✔
-Collect taxes from households and business and provide essential public goods and services. Eg. Roads, water,
Education and Health services etc.✔✔
-Government employ people from households and pay them salaries/wages.
-Government also buys from business and also provides goods and services eg. Telkom, Transnet, Eskom,
(Allow any relevant answer)

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FINANCIAL LITERACY
CASH RECEIPTS JOURNALS
All cash received (i.e. cash transactions) is recorded in the cash receipts journal (CRJ). The key words for the
transactions to be recorded in the CRJ are

▪​ Received

▪​ Deposited

▪​ Receipts

▪​ Issued a receipt

▪​ Duplicate receipt or original receipt issued

▪​ Cash register slip issued or cash register tape total

A trader usually receives cash from the following sources

▪​ Service fees received from clients for service rendered

▪​ Cash sales of merchandise.

▪​ Cash received from customers who pay their accounts

▪​ Other sundry transactions such as rent income if part of the premises are rented out

▪​ Capital contribution made by the owner of the business

The main source of income in trading businesses is the sale of goods, generally described as sales. The trading
businesses buy goods at a certain price (cost price), and then sell these goods at a higher price (selling price) to the
customers. The total mark-up on all goods sold is called the gross profit. The profit mark up is normally expressed as a
percentage of either the selling price or the cost price of goods sold. The trader may use either the secret code or the
bar code for the cost price and the selling price.
A cash receipts journal of a trading business should have the following columns​ ​ CRJ2
Analysi Costs Sundry Accounts
Doc Debtors
D Details F s of Bank sales of
No control Amount F Details
receipts sales

It is important that the CRJ shows the following

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 1. The name of the subsidiary book
2. The name of the business to whom the subsidiary book belongs
3. The month and the year in which transactions are being entered in the journal
4. The number of the page (folio) in the journal
5. Doc no.: the number of the source document concerned
6. Day: The day on which the money is received and the entry in the journal is made
7. Details: Details of the transaction.
8. F: The folio number of the account named in the details column. The folio number is
only filled in once the posting to the ledger has been done.
9. Analysis of receipts: The amount of money received. These amounts are added at the
end of the day and are usually deposited in the BANK the following day.
10. Bank: The amounts deposited in the banking account according to the deposit slips
11. Sales: Amounts received for cash sales.
12. Costs of sales: The costs price for goods sold for cash.
13 Debtors Control: Amounts received from debtors.
14 Sundry accounts: Sundry accounts columns are used for accounts that do not have
their own analysis columns. The amounts received that apply to Sundry Accounts
must be recorded in the Amount Column, the Folio number of the account named in
the Details column to be credited. The folio number is only filled in once the posting
to the ledger has been done.

●​ Posting is then done to the general ledger at the end of the month after the journals have been casted or pencil
footed.

CASH PAYMENT JOURNALS

All payments made by cheques (i.e. cash transactions) are recorded in the cash payment journal (CPJ). The key words
for the transactions to be recorded in the CPJ are:

▪​ Paid

▪​ Cash invoice received

▪​ Drew a cheque

▪​ Cheque counterfoil

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 ▪​ Issued cheque

▪​ Purchased or bought and paid by cheque

▪​ Cashed a cheque

A trader may make the following cash payments:

▪​ Cash purchases of fixed/ tangible assets, e.g. premises; vehicles; equipment; etc

▪​ Cash paid to suppliers (creditors)

▪​ Cash payments to pay for operating expenses, e.g. rent; electricity; wages; consumables; etc

▪​ Other sundry transactions such as repaying loans; taking out investments (fixed deposits); bank charges;

interest on loans; etc (New Era)

A cash payment journal should have the following columns​ ​ CPJ1

Sundry
Accounts
Doc Account F
D Name of Payee F Bank details
No s

NB: Additional columns may vary from business to business

It is important that the CPJ shows the following columns
1. The name of the subsidiary book
2. The name of the business to whom the subsidiary book belongs
3. The month and the year in which transactions are being entered in the journal
4. The number of the page (folio) in the journal
5. Doc no.: the number of the source document concerned i.e. the cheque counterfoil
6. Day: The day on which the cheque was written out
7. Name of Payee: The name of the person or firm to whom the cheque was paid out,
i.e. the payee
8. F/Fol: The folio number of the account named in the Name of Payee column
9. Bank: The amount of the cheque. This amount will also be written in the appropriate
analysis column

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 10. Wages / Equipment/Stationery, etc: The analysis columns. The amounts from the
Bank column are also written in these columns. These are items that are paid for on a
regular basis.
11. Sundry accounts: These columns are used for accounts that are not regularly paid for
and which therefore don’t have their own analysis columns. Amounts paid out are
written in the amount column. The name of the sundry account to be debited is written
in the Details column and the folio number of the account named in the Detail column
is written in the Folio column. This number is only filled in once the posting to the
Ledger has been done.

Posting is then done to the general ledger at the end of the month after the journals have been casted or pencil footed.
GENERAL LEDGER
POSTING TO THE GENERAL LEDGER
The format of an account in the ledger is as follows:
Ledger Account (1) Folio number of Account (6)
Debit Side (7) Credit Side (8)
Date Details F Amount Date Details F Amount
2a 2b (3) (4) (5)

EXPLANATION OF COLUMNS:
1.​ The name of the ledger account is entered at the top of the page in the centre.
2.​ The date on which the transaction took place year and month (2a) and (2b).
3.​ The name of the ledger account to complete the double entry – contra account.
4.​ A reference to another ledger account or journal from where the information has been entered. Folio numbers
are used for quick reference and control.
5.​ The amount of the transaction.
6.​ The account’s own folio number.
7.​ One leg of the double entry in entered here, and the other on the debit side of the contra account.
8.​ One leg of the double entry is entered here, and the other on the credit side of the contra account.
●​ Balance b/d – balance brought down
The amount that was ended with the previous month
THAT IS
The amount that we will start with the following month.
●​ NOTE: only balance sheet accounts can have a balance from the previous month

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 ●​ Expenses and the income of the business they form another part of our general ledger called NOMINAL
ACCOUNT SECTION
STEP 5
Draw up a Trial Balance: A Trial Balance is a list of all accounts and their balances / totals. It is used to check the
accuracy of the double entry system in the General Ledger.
TRIAL BALANCE
What is a Trial balance?
●​ It is a summary of all the different account that you have in your general ledger. It is very important that your
debit and credit entries balance.
●​ In order to test the accuracy of the entries you have made, you can draw up a trial balance.
●​ This will enable you to establish whether the double entry principle has been applied correctly and consistently.
●​ The total/balance of the debit sides of all the accounts must be equal to the total/balance of credit sides of all
the accounts.
.

TRIAL BALANCE
EMS STORES ON 28 FEBRUARY 2011
BALANCE SHEET ACCOUNTS SECTION FOL DEBIT CREDIT

Capital ( 01:03:2010) B1 111080 00

Drawing B2 1 550 00

Land & Buildings B3 51 080 00

Vehicles B4 31 212 00

Equipment B5 10 000

Trading Inventory B6 23 500 00

Bank B7 14430 00

Cash Float B8 425 00

NOMINAL ACCOUNTS SECTION

Sales N1 33 312 00

Cost of Sales N2 9 900 00

Current Income N3 10 200 00

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 Rent Income N4 12770 00

Wages N5 10 100 00

Stationery N6 2 345 00

Packaging Materials N7 11 970 00

Telephone 850 00

167 362 00
167 362 00

Telephone N8

FINANCIAL LITERACY ACTIVITIES

ACTIVITY 1
Kool Monate, proud owner of Sweet Monate Stores, started a sweet and cake business two months ago. He
sells all sweets and cakes at a profit mark up of 25% on the cost price. The transactions for the month of May
2018 are given below:
INSTRUCTIONS AND INFORMATION:
1. Record the transactions for May 2018 in the following journals:
-Cash Receipts Journal, with analysis columns for Analysis of receipts; Bank; Sales
Cost of sales; Debtors and Sundry accounts.​​ ​ ​ ​ ​ ​
-Cash Payments Journal, with analysis columns for Bank; Trading Stock; Wages; ​​
Stationery and Sundry accounts.​ ​ ​ ​ ​ ​ ​ ​
- -NOTE: Do NOT close off the journals on 31 May 2018
Transactions for May 2018
1 The owner, Kool Monate deposited additional R50 000 directly into the account of the business, receipt
001 issued to him.
3 Cash sales of goods for R1 200 (mark up 25%).
7 Bought trading stock R3 700 and Stationery R 300 from Multi Wholesales, paid by cheque no.C04.
25 Cashed a cheque to pay wages for R 500.

SOLUTION ACTIVITY 1
CASH RECEIPTS JOURNAL OF SWEET MONATE STORES – MAY 2018
Doc Da Details F Analysis Bank Sales Cost of Debtors Amount Details of
No te o Of sales Control Sundry
l receipts
i
o
001 1 Kool 50 000 50 000 50 000 Capital
Monate
CR 3 Sales 1 200 1 200 1 200 960
T1

20
 CASH PAYMENTS JOURNAL OF SWEET MONATE STORES – MAY 2018 CPJ 2
Doc Da Name of F Bank Trading Stationer Wages Amount Foli Details of
No te the payee o stock y o Sundry
li
o
C04 7 Multi 4 000 3 700 300
Wholesal
C05 25 500 500
Cash

ACTIVITY 2 GENERAL LEDGER

The following information was taken from the books of Kleen Painters Stores for the month of February
2018.
INSTRUCTIONS:
Post the totals from the journals to the following accounts in the General Ledger of Kleen Painters stores:
1.​ Bank ​
2.​ Trading Stock
​ ​
Balance the accounts on 28 February 2018
Cash Receipts Journal of Kleen Painters Stores– February 2018 CRJ 2
Analysis Bank Sales Cost Sundry accounts
of receipts of sales Amount Fol Details
95 400 18 000 12 000 77 400

​ Cash Payments Journal of Kleen Painters Stores – February 2018 CPJ 2

Bank Trading Stock Stationery Wages Sundry accounts
Amount Fol Details
15 100 13 000 500 1 600

SOLUTION - ACTIVITY 2
GENERAL LEDGER OF KLEEN PAINTERS STORES
BALANCE SHEET ACCOUNTS SECTION
Dr BANK Cr
2018 Total Receipts CRJ 95 400 2018 Total Payments CRJ 15 100
Feb 28 2 Feb 2
28
Balance c/d 80 300
95 400 95 400
2018 Balance b/d 80 300
Mar 1
21
​ ​ ​
Dr TRADING STOCK ACCOUNT​ ​ Cr​ ​ ​
​ ​
2018 Bank CPJ2 13 2018 Cost of Sales CRJ2 12 000
Feb 28 000 Feb
28

Balance c/d 1000

13 13 000
000
2018 Balance b/d
Mar 1 1000

ACTIVITY 3
ANALYSIS OF TRANSACTIONS
Analyse and record the following transactions in the table provided ​ ​
Example:
Received a cheque from J. Houston for monthly rent, R 600
NO Account Amount = + Liabilities
Asset Owner’s
Debit Credit equity
e.g. Bank Rent Income R600 + 600 + 600 0
Transactions:
1 Owner, C Chaba, contributed R 5 000 into his business bank account
2 Cash sales of merchandise to J. James for R 900. (cost of sales R600)

SOLUTION – ACTIVITY 3
NO ACCOUNT ASSETS OWNER’S LIABILITIES
Debit Credit EQUITY
E.g. Bank Rent Income +600 +600 0
1 Bank Capital +5 000 +5 000 0
2 Bank Sales +900 +900 0
Cost of sales Trading stock -600 -600 0

ACTIVITY 4
TRIAL BALANCE
Use the accounts and amounts given below to complete the Trial Balance of Dees Traders on 31 March 2018. ​
​ ​ ​ ​ ​ ​ INFORMATION
Telephone R 440
Sales R 8 681
Rent income R 2 050
Equipment R 3 500

22
 Cost of sales R 6 100
Capital R9 500
Bank R 8 000 (Dr)
Wages R1 450
Trading stock R1 800
stationery R 550

SOLUTION: ACTIVITY 4
TRIAL BALANCE OF DEES TRADERS FOR MARCH 2018
BALANCE SHEET ACCOUNTS SECTION Fol. DEBIT CREDIT
Capital 9 500
Equipment 3 500
Bank 8 000
Trading Stock 1 800
NOMINAL ACCOUNTS SECTION
Sales 10920
Cost of sales 6 100
Telephone 440
Stationery 550
Wages 1 450
Rent income 2 050
21 840 21 840
​ ​
​
ACTIVITY 5
The following Cash receipts journal was extracted from the books of Moloi Stores.

Required:
(1)​Post to the General Ledger of Moloi Stores on 31 July 2019. Show cross reference.
(2)​Show the effect of the total amounts on 31 July on the accounting equation, see the previous example.

CASH RECEIPTS JOURNAL OF MOLOI STORES- JULY 2019

CRJ 9
Doc D Details Fol Analysis of Bank Sales Cost of Sundry accounts
No. a receipts sales
y Amount Fol Details

001 - 3 000 3 000 - B1 Capital

1 M.E. Tau 3 000 -

CRT 3 Sales 400 - 400 - 400 - 320 -

- 900 900 - -
CRT Sales 900 - 750

3 AA 200 - 200 200 - N3 Interest

B/S Bank received
1
4 500 - 1300 - 107 - 3 200
0
​ B2​ N1​ N2

23
ACTIVITY 5:SOLUTION
GENERAL LEDGER OF MOLOI STORES
DR. CAPITAL​ CR

DATE DETAILS FOL AMOUNT DATE DETAILS FOL AMOUNT

2019
July 1 Bank CRJ9 3 000 -
BANK B2
2019
July 31 Total receipts CRJ9 4 500 -
SALES N1
2019
July 31 Bank CRJ9 1 300 -
COST OF SALES N2
2019
July 31 Trading stock CRJ9 1 070 -
INTEREST RECEIVED N3
2019
July 31 Bank CRJ9 200 -

2. Effect of the total amounts on 31 July 2019 on the accounting equation

Account s affected Assets Owner’s equity Liabilities
Bank and Capital +3 000 +3 000 0
Bank and Sales +1 300 +1 300 0
Cost of sales and trading stock -1070 -1070 0
Bank and Interest received +200 +200 0

Activity 6
The following Cash receipts journal was extracted from the books of Sizwe General Dealers on 30 November
2019.
Required:
1. Post the accounts on the Cash receipts journal to the general ledger of Sizwe General Dealers. Show cross
reference.
2. Show the effect of the totals from the Cash receipts journal on the accounting equation.

CASH RECEIPTS JOURNAL OF SIZWE GENERAL DEALERS – NOVEMBER 2019 CRJ 9

Doc Da Details Fol Analysis of Bank Sales Cost of Sundry accounts
No. y receipts sales
Amount Fol Details

24
001 - 4 000 4 000 - B1 Capital
1 Skosana 4 000 -
CRT 3 Sales 600 - 600 - 600 - 550 -
CRT Sales 250 - 250 - 250 - 225 -
Malatji 800 - 800 - 800 - N3 Rent
002 30 M.T. income
5 650 - 850 - 775 - 4 800 -
​ ​
Activity 6
GENERAL LEDGER OF SIZWE GENERAL DEALERS
CAPITAL
CR.
DATE DETAILS FOL AMOUNT DATE DETAILS FOL AMOUNT
2019
Nov 1 Bank CRJ9 4 000 -

BANK B2
2019
Nov 30 Total receipts CRJ9 5 650 -

SALES N1
2019
Nov 31 Bank CRJ9 850 -

COST OF SALES N2
2019
Nov 31 Trading stock CRJ9 775 -

RENT INCOME N3
2019
Nov 30 Bank CRJ9 800 -

2. Effect of the total amounts on 30 November 2019 on the accounting equation

Account s affected Assets Owner’s equity Liabilities
Activity 7 Bank and Capital +4 000 +4 000 0
1. Close off Bank and Sales +850 +850 0
the Journal
of Cost of sales and trading stock -775 -775 0
Bank and Rent income +800 +800 0
Rhodesfield Stores given below on 31 May 2019.

25
 2. Post to the General Ledger of Rhodesfield Stores on 31 May 2019.Show cross reference.
3. Show the effect of the total amounts on 31 May on the accounting equation; see the example above.

CASH RECEIPTS JOURNAL OF RHODESFIELD STORES- MAY 2019 CRJ 9

Doc Da Details Fol Analysis of Bank Sales Cost of Sundry accounts
No. y receipts sales
Amount Fol Details

001 M.E. - 60 000 60 000 - B1 Capital

1 60 000 -
Tamesi
CRT 3 Sales 1 100 - 1 100 - 1 100 - 900 -
- 900 - -
CRT 29 Sales 900 820
AA 1 000 - 1 900 - 1 000 - N3 Donation
001 31
Bank income
63 000 - 2 000 - 1 720 - 61 000
​ B2​ N1​ N2

Activity 7 Solution
GENERAL LEDGER OF RHODESFIELD STORES
DR. CAPITAL​ B1
CR.

DATE DETAILS FOL AMOUNT DATE DETAILS FOL AMOUNT

2. 2019
May 1 Bank CRJ9 60 000 -

BANK B2
2019 Total
May 31 receipts CRJ9 63 000 -
SALES N1
2019
May 31 Bank CRJ9 2 000 -
COST OF SALES N2
2019 Trading
May 31 stock CRJ9 1 720 -
DONATION INCOME N3
2019
May 31 Bank CRJ9 1 000 -
Effect of the total amounts on 31 May 2019 on the accounting equation
Account s affected Assets Owner’s equity Liabilities
Bank and Capital +60 000 +60 000 0

26
 Bank and Sales +2 000 +2 000 0

Activity 8 Cost of sales and trading stock -1 720 -1 720 0

Bank and Donation income +1 000 +1 000 0
Given
below is a Cash Payments journal of GAUTENG TRADERS.

1. Post from the Cash payments journal to the General ledger of GAUTENG TRADERS.
2. Show the effect of the total amounts on 30 September 2019 on the accounting equation according to the
headings given on the answer sheet. See example above.

CASH PAYMENTS JOURNAL OF GAUTENG TRADERS-SEPTEMBER 2019 CPJ1

Doc Day Name of payee Fol Bank Wages Trading Sundry accounts
stock Amount Fol Details

001 2 Mpumelelo 780 780 B1 Equipment

Mathega
002 8 Cash 775 775
003 12 Ntsako Mathega 1 420 1 420

30 2 975 775 1 420 780

​ B3​ N1​ B2

Activity 8 Solution

GENERAL LEDGER OF GAUTENG TRADERS

DR. CR
EQUIPMENT B1
2019
Sept 2 Bank CPJ1 780 -
TRADING
STOCK
Trading stock
B2

2019 1 420
Sept 30 Bank CPJ1 -

27
2.
Effect BANK B3
of the
total 2019
Sept 30 Total payments CPJ1 2 975 -

WAGES N1
2019
Sept 30 Bank CPJ1 775 -

amounts on 30 September 2019 on the accounting equation

Activity 9
Given Account s affected Assets Owner’s equity Liabilities
below is a Bank and Equipment - 780 0 0
Cash +780
Payments Bank and Trading stock - 1 420 0 0
journal of +1 420
Norkem
Bank and wages - 775 - 775 0
Park
traders.
1. Post from the Cash payments journal to the General ledger of Norkem Park traders. Show cross reference.
2. Show the effect of each transaction for September 2019 on the accounting equation according to the
headings given on the answer sheet.
CASH PAYMENTS JOURNAL OF NORKEM PARK TRADERS-SEPTEMBER 2019 CPJ1
Doc Day Name of payee Fol Bank Wages Trading Sundry accounts
stock
Amount Fol Details

001 2 Jamani 1 780 1 780 B1 Drawings

002 8 Cash 665 665
003 12 A. Mntanga 800 800
30 3 245 665 800 1 780
​ ​
Activity 9 Solution

DR GENERAL LEDGER OF NORKEM PARK TRADERS. CR.

DRAWINGS B1

2019 1 780
Sept 2 Bank CPJ1 -

TRADING STOCK
B2

28
 2019 800
Sept 30 Bank CPJ1 -

BANK B3
2019 Total
Sept 30 payments CPJ1 3 245 -

WAGES N1
2019
Sept 30 Bank CPJ1 665 -
2.Transaction analysis
Day Account s affected Assets Owner’s equity Liabilities
2 Drawings and Bank -1 780 - 1 780 0
8 Wages and Bank - 665 -665 0
12 Trading stock and Bank +800 0 0
-800
Activity 10
Given below is a Cash Payments journal of Panorama stores.
1. Post from the Cash payments journal to the General ledger of Panorama stores. Show cross reference.
2. Show the effect of each transaction for SEPTEMBER 2018 on the accounting equation according to the
headings given on the answer sheet.

CASH PAYMENTS JOURNAL OF PANORAMA STORES-SEPTEMBER 2018 CPJ1

Doc Day Name of payee Fol Bank Wages Trading Sundry accounts
stock Amount Fol Details

001 2 A. Geyer 230 230 N2 Stationery

002 8 Cash 1 000 1 000
003 12 L.T. Le Roux 2 300 2 300

30 3 530 1 000 2 300 230

​ B3 N1 B1

Activity 10 Solution
Dr GENERAL LEDGER OF PANORAMA STORES Cr
TRADING STOCK B1

2018 2 300
Sept 30 Bank CPJ1 -
BANK B2

2018 30 Total payments CPJ1 3 530 -

29
 Sept
WAGES N1
2018
Sept 30 Bank CPJ1 1 000 -
STATIONERY N2
2018
Sept 2 Bank CPJ1 230 -

2.Transaction analysis
Day Account s affected Assets Owner’s equity Liabilities
2 Stationery and Bank -230 - 230 0
8 Wages and Bank - 1 000 -1 000 0
12 Trading stock and Bank +2 300
-2 300

Activity 11
Given below are the cash journals of Sasavona stores
1. Post from the Cash journals to the General ledger of Sasavona stores. Balance the accounts. Show cross
reference.
2. Show the effect of all the transactions for JULY 2018 on the accounting equation according to the headings
given on the answer sheet.
CASH RECEIPTS JOURNAL OF SASAVONA STORES - JULY 2018
CRJ 1
Doc Da Details Fo Analysis Bank Sales Cost of Sundry accounts
No. y l of sales
receipts Amount Fol Details

001 - 55 000 55 000 - B1 Capital

1 55 000 -

CRT 3 Sales 8 000 - 8 000 - 8 000 - 6 220 -

- 3 500 - -
CRT 29 Sales 3 500 750
001 500 - 4 000 - 500 - N4 Donation
67 000 - 11 500 - 6 970 - 55 500

CASH PAYMENTS JOURNAL OF SASAVONA STORES –JULY 2018 CPJ1

Doc Day Name of Fol Bank Wages Trading Sundry accounts
payee stock Amount Fol Details

30
 001 15 Doris 3 400 3 400 B2 Drawings
Mathega
002 22 Cash 9 000 9 000
003 25 Tsakani 31 000 31 000
stores
31 43 400 9 000 31 000 3 400

Activity 11 Solution

1.Dr. GENERAL LEDGER OF SASAVONA STORES

Cr.
CAPITAL B1
2018 31 Balance c/d 55 000 - 2018 1 Bank CRJ1 55 000 -
July July

55 000 - 55 000 -
2018 1 Balance b/d 55 000 -
Aug
DRAWINGS B2
2018 2 Bank CPJ1 3 400 - 2018 31 Balance c/d 3 400 -
July July

3 400 - 3 400 -
2018 1 Balance b/d 3 400 -
Aug
TRADING STOCK B3
2018 31 Bank CPJ1 31 000 - 2018 31 Cost of sales CRJ1 11 500 -
July July
Balance c/d 19 500 -
31 000 - 31 000 -
2018 1 Balance b/d 19 500 -
Aug

31
 BANK B4
2018 31 Total receipts CRJ1 67 000 - 2018 31 Total CPJ1 43 400 -
July July payments
Balance c/d 23 600 -
67 000 - 67 000 -
2018 1 Balance b/d 23 600 -
Aug

SALES N1
2018 31 Bank CRJ1 11 500 -
July

COST OF SALES N2
2018 31 Trading stock CRJ1 11 500 -
July

WAGES N3

2018 31 Bank CPJ1 9 000 -

July

DONATION N4

2018
July 31 Bank CPJ1 500 -

2.Transaction analysis​

Day Account s affected Account Account Effect on the

debited credited Accounting equation
A OE L

32
 1 Capital and Bank Bank Capital + + 0
3 Sales and Bank Bank Sales + + 0
Cost of sales and Trading stock Cost of sales Trading stock - -
15 Drawings and Bank Drawings Bank - - 0
22 Wages and Bank Wages Bank - - 0
25 Trading stock and Bank Trading stock Bank +
- 0 0
29 Sales and Bank Bank Sales + + 0
Cost of sales and Trading stock Cost of sales Trading stock - -

TERM 2
THE ECONOMY: PRICE THEORY
1.Price theory looks at how prices are determined through the interaction of demand and supply.
Demand
2.Demand is how much quantity of goods and services consumers can buy at a particular price at a specific
time.
3.Law of demand is the law that when the price of goods and services increase the consumers will buy less
and when the price of goods and services decrease more will be bought. As price increases quantity
demanded decreases and as price decrease quantity demanded increase.
4.Other factors that influence demand besides price.
●​ Income of the consumers.
●​ Consumers preferences and buying patterns which may be influenced by weather, advertising and
fashion.
●​ The availability and the price of similar goods (substitute goods) e.g increase in the price of coffee
can increase demand for tea.
●​ The availability and the price of complementary goods e.g increase in the price of sugar will affect
demand for tea and coffee.
5.Demand schedule
This is a schedule that shows the quantity of goods or services demanded at each different prices.
6.Demand curve is graphical representation of demand schedule.
Demand table for sweets for DCX Babies

33
 Price Quantity

1 60
2 50
3 40
4 30
5 20

Demand Curve:

Pr

ce

20 30 40 50 60

34
3

1
0
Origin
D

Quantity

y; P

x; Q

Supply
2.Supply is how much quantity of goods and services suppliers can supply in a market at a particular price at
a specific time.
3.Law of supply is the law that when the price of goods and services increase the suppliers will also supply
more goods and services in a market and at a lower price also less goods and services will be supplied by
suppliers.
4.Other factors that influence supply besides price.
●​ Cost of producing goods, if the it drops more goods will be supplied.
●​ Improved technology and production methods will increase supply.
●​ Increase in the number of producers in the market will increase supply.
●​ The price of similar goods (substitute goods) or complementary goods.
5.Supply schedule
This is a schedule that shows the quantity of goods or services supplied at each different prices.
6.Supply curve is graphical representation of supply schedule.
Supply table for sweets for DCX Babies
Price Quantity

1 20
2 30
3 40
4 50
5 60

35
Pr

ce

20 30 40 50 60
5

1
0
S

36
Quantity

Supply Curve:

P
Q

Equilibrium / Market Price

When supply and demand curves are drawn on the same axis, we see that the two curves meet at a specific
point, namely when the price is R0,60, the sellers are prepared to supply 300 heads of cabbage and the buyers
are prepared to purchase 300 heads of cabbage at that price. This price is known as the MARKET
EQUILIBRIUM PRICE and it represents the price at which the buyer and the seller are prepared to barter.
At any other price the parties will not be able to agree and they will not be prepared to conclude a
transaction.
The price where the quantity supplied of a good equals the quantity demanded of the good. In other words,
there is no shortage or surplus within the market. It is thus a point where demand and supply intersect (E)

Demand and supply schedule for sweets

Price Quantity Demanded Quantity Supplied
1 250 50
2 200 100
3 150 150
4 100 200
5 50 250

DD and SS Curves

37
Pr

ce

50 100 150 200 250

1
0
D

Quantity

ACTIVITIES: PRICE THEORY

Activity 1
1.1Define the term demand.
1.2 Explain the law of demand.

38
1.3 Describe 4 factors that affect the demand for goods and services and state the main factor.
Activity 2
2.1Use the demand schedule for lunch bars below and draw a demand curve.
Demand schedule for lunch bars
Price in rands Quantity demanded
10 60
20 40
30 25
2.2 Explain in your own words the difference between complementary and substitute goods.
Activity 3
3.1Define the tern supply.
3.2 Explain the law of supply.
3.3 Describe 4 factors that affect the supply for goods and services.
Activity 4
2.1Use the supply schedule for lunch bars below and draw supply curve. Supply schedule for lunch bars
Price in rands Quantity supplied
10 15
20 25
30 40

Activity 5
The relationship between demand, supply and price (Individual activity)
1. Answer the questions in your workbook.
Example:
Question: Why do people buy more grapes in December than in July?
Answer: People buy more grapes in December than in July because grapes are a summer fruit. More farmers
sell their grapes in summer.The supply is high and the prices are lower because the demand is satisfied easily
​ ​ ​ ​
a) Why are oranges more expensive in December than in July?​ ​ ​
b) Why is holiday accommodation more expensive during peak holiday seasons?
c) Why do clothing stores have sales at the end of the winter and summer seasons

2. Record your answers in table format.

Demand Supply Price

Example: Grapes in December High High Low
1. Oranges in December

2. Holiday accommodation during peak holiday

season

39
 3. Clothing sales at the end of winter and summer
seasons

Suggested Solutions
a) Oranges ripen in the winter months and that is when there is a higher supply of oranges. The price of
oranges increases in the summer months when the supply is lower and the demand not easily satisfied.
b) During peak holiday seasons, the demand for holiday accommodation is higher because more people are
on holiday. The demand is high, and therefore the price increases.

c) At the end of a season, the demand for that season’s clothes will drop. Because there is a low demand, the
store sells the clothes at discounted prices to get rid of the stock. They need to make space for the new
season’s stock that will be in greater demand.
Demand Supply Price
Example: Grapes High High Low
1. Oranges High Low High
2. Holiday accommodation High Low High
3. Clothing sales Low High Low
Activity 6
Define the following terms:
6.1 Market equilibrium
6.2 Equilibrium price
6.3 Equilibrium quantity
Activity 7
Study the following demand and supply schedule for fish and answer
Answer the questions that follow:

Price Quantity Quantity

demanded supplied
R100 250 50
R120 200 100
R140 150 150
R160 100 200
R180 50 250

7.1 Use the data in the above schedule to draw a demand and supply curve
7.2 Name the equilibrium price and quantity for fish ​ ​
7.3 Define the law of supply. ​ ​

Solution – Activity 7
7.1 GRAPH
D S

40
 180

160
E
140

120

100
s
D

50 100 150 200 250

PRICE 0 QUANTITY

7.2 Equilibrium price is R140 and quantity for fish is 150

7.3 Law of Supply

●​ When the price of goods and services increases, the quantity of goods and services offered by suppliers
also increases
●​ OR If the price of goods and services decreases, the quantity of goods and services offered by suppliers
also decreases.

ENTREPRENEURSHIP: SECTORS OF THE ECONOMY

1.Economists look at the economy from the two sides demand and supply. Demand side is the spending.
Total production of all goods and services produced from all the sectors is the size of the economy on the
supply side.
Production is converting raw material into goods and services. The finished goods form part of Gross
Domestic Product (GDP), the value of finished goods and services produced in a country in a specific period.
In a circular flow diagram, goods and services are sold in goods market where there is a flow of goods and
services from businesses to the households and the flow of money from households to businesses.

There are 3 economic sectors primary sector, secondary sector and tertiary sector. These sectors are identified
by the economic activities that takes place in each.

2.The Primary Sector

All industries and businesses that extract the raw materials from nature or earth. The types of businesses in
this sector are:
-Agriculture: Farmers produce crops and keep livestock.

41
-Fishing: Fishermen catches fish in the Coastline.
-Forestry: Trees are planted and maintained.
-Mining: Extraction of mineral ores from the earth e.g coal, gold, diamond, platinum, iron.

3.The Secondary Sector

All industries and businesses that manufacture and process the raw material from primary sector into finished
or semi-finished goods e.g sugar cane is changed into sugar. Businesses in this sector use machinery and
technology to change raw material. Types of businesses in a secondary sector are:
-Construction
-Electricity, gas and water: generation of electricity, gas and water by public enterprises.
-Manufacturing: Manufacturing of food and tobacco, rubber, furniture and appliances.
-Construction: Building

4.Tertiary Sector
All industries and businesses that provide or sell the goods from primary and secondary sectors. Tertiary
sector is also known as service sector which means it render a service of selling the goods and services to the
households because households cannot by directly from the manufactures. Types of businesses in a tertiary
sector:
-Retail and wholesale service
-Catering and accommodation
-Financial services: Business, insurance banking
-Telephone and communications
-Public and administration: education, health and social welfare, sports and recreation by the government.

5.Interrelaltionship between three economic sectors

These sectors depend on each other to function, they cannot function independently. The raw material
extracted from nature by primary sector needs to be sold to secondary sector to be processed into finished
goods. Tertiary sector will then perform its function of making sure the goods are sold to the consumers.
Example:- Primary sector - Sugarcane is planted and grown by crop farmer.
Secondary sector- Sugarcane is processed and sugar is made.
Tertiary sector – Sugar is sold to consumers

6.Sustainable use of resources in the three sectors

Sustainable use of resources means using resources responsible without destroying or using it up and
maintain the needs for present and future generations.

6.1 Sustainability in the primary sector

In the primary sector when resources are extracted from nature need to be replaced or allowed to recover.

6.2 Sustainability in the secondary sector

Industries and businesses in the secondary sector have a responsibility of not polluting the environment and
minimize waste which can be harmful to humans, plants and animals when producing goods and services.

6.3 Sustainability in the secondary sector

Goods and services are over consumed which leads to the depletion of natural resources. Resources are also
not distributed equally because of the gap between the rich and the poor. To promote sustainability three Rs
should be followed 1. Reduce - minimize packaging, 2. Reuse - if possible use same item for more than one
purpose 3. Recycle – find new function for used products.

42
7.The role of three sectors
In under-developed economy primary sector contributes more to the GDP of a country as compared to
secondary and tertiary sectors.
In developing economy all the three sectors contribute equally to the GDP of a country.
In developed economy tertiary sector contributes the most as compared to the other two because the standard
of living is high, people afford and are involved in different activities like entertainment, sports and
recreation.

8.Skills needed in the three sectors

●​ Primary sector jobs are mainly unskilled workers e.g. farm workers, mine workers and few
semi-skilled workers who are supervisors and machinery operators.
●​ Secondary sector jobs are largely semi-skilled workers who have been trained one or two specific
tasks e.g. operating a machine and doing same task over and over again.
●​ Tertiary sector jobs are unskilled workers who do routine type like cleaners, semi-skilled and skilled
workers in retail and service businesses e.g cashiers and qualified professionals in education, health,
banking e.g teachers, nurses, doctors, lawyers.

ACTIVITIES: SECTORS OF THE ECONOMY

Activity 1
Write the sector the following businesses belong in the table below
Business/ person Sector ​
1.Cattle farmer
2.Bank
3.Mr Price clothing
4.Uber Activity 1: Solution
Business/
5.Clothingperson
factory Sector
1.Cattle farmer
6.Dressmaker Primary
2.Bank
7.Mining company Tertiary
3.Mr Price
8.Sugar clothing
cane farmer Tertiary
4.Uber Tertiary
5.Clothing factory Secondary
6.Dressmaker Secondary
7.Mining company Primary
8.Sugar cane farmer Primary

Activity 2
2.1 The Primary, Secondary and Tertiary Sector depend on each other in order to function. Explain and use
examples to show the interrelationship between these THREE economic sectors. Use any product of
your choice. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (6)
2.2 Identify at least one type of business found in each sector (3)
2.3 Explain the concept Industry​ (1)
Solution: Activity 2​
2.1
Primary Primary Primary
Extraction of raw material from Extraction of raw material from Extraction of raw material from
the natural environment. the natural environment. the natural environment.
Trees are grown✔✔ Dairy cows are farmed and milked Fish are caught

43
 Secondary Secondary Secondary
Process of transforming raw Process of transforming raw Process of transforming raw
materials into useful goods OR materials into useful goods OR materials into useful goods OR
manufacture goods. manufacture goods manufacture goods
The wood is processed and Milk is processed, treated and Fish is processed,packaged and
furniture is made✔✔ milked frozen

Tertiary Tertiary Tertiary

Provide services or sell goods. Provide services or sell goods Provide services or sell goods
The furniture is sold to the final Milk is sold to the final consumer Fish is sold to the consumer
consumer✔✔
(Accept any correct answer) (2x3=6)

2.2
Primary Secondary Tertiary
●​ Fishing✔ ●​ Construction✔ ●​ Retail✔
●​ Farming ●​ Oil refineries ●​ Restaurants
●​ Forestry ●​ Manufacturing ●​ Financial services
●​ Mining ●​ Food processing ●​ Tourism

Any one per sector and allow relevant answer (1x3=3)

2.3​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
●​ A group of businesses that conduct a similar economic activity✔
●​ Economic activity concerned with the processing of raw materials and manufacture of goods in factories
(Accept any correct answer) (1x1=1)

ACTIVITY 3​​ ​ ​ ​ ​
3.1. Briefly explain the roles of the following sectors:
3.1.1. Secondary sector. ​ ​ ​ ​ ​ ​ ​ ​ ​ (2)
3.1.2. Tertiary Sector. ​ ​​ ​ ​ ​ ​ ​ ​ ​ (2)
3.2. Explain why it is important for the primary sector to ensure the sustainable use of resources. ​​ (2)
3.3. Name two possible products that can be produced from factory processed fruits ​ (2)
3.4. Mention two skills required in the primary sector.​ ​ ​ ​ ​ ​ ​ (2)

ACTIVITY 3: SOLUTION
3.1 Briefly explain the roles of the following sectors:

3.1.1 Role of the secondary sector – transform raw materials to make good. ✓✓​ ​ ​
​ (2)
3.1.2 Role of the tertiary sector – transfer or transport the goods produced by the primary and the secondary
sector to the consumers. ✓✓ (2)
​​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​

44
3.2 Explain why the primary sector in particularly needs to use resources sustainably.​ ​ ​
●​ Natural resources are limited and their quantities cannot be increased. ✓✓
●​ The secondary sector will not be able to obtain natural resources necessary for production if they
are misused. ✓✓ ​ (Any other correct answer)​ ​ ​ ​ (2) ​
​ ​
3.3 Name two possible products that can be produced from processed fruits. ​ ​ ​ ​
Juice, Jam, Dried fruits ✓✓ (Any other correct answer) (2)

3.4 Mention two skills required in the primary sector

Mining, fishing, agricultural skills ✓✓ (2)

FINANCIAL LITERACY: DEBTORS JOURNAL

The primary aim of any business is to maximise profits. Profits are generated from Sales. Many people cannot be able
to make an immediate payment. Businesses therefore have to sell on credit to maximise Sales. Credit customers receive
the goods immediately but make payment at a later date. Each business has a credit policy regarding credit sales, e.g.
payment within 30 days, 60 days, etc.
Granting credit carries an element of risk because there is always the possibility that the customer will not pay. It is
therefore imperative that businesses carefully screen prospective credit customers by checking credit rating, past credit
records, proof of residential address, employer details, etc.
The invoice serves as proof that a goods were sold on credit, a duplicate credit sales invoice will serve as the source
document for the credit sales transaction.
Cycle for the Credit Sales
1st Process
●​ Order received from a customer
●​ Credit sales invoice drawn up, order is executed and delivered to customers
●​ Credit sales recorded in the Debtors (DJ)
●​ Entry posted to the Ledger
2nd Process
●​ Statement of Account is prepared and issued to the customer (debtor)
●​ The debtor makes payment
●​ Cash or cheque is received from the debtor
●​ The transaction is then recorded in the CRJ and a receipt is issued
●​ Posting is then made to the ledger accounts
●​ The Trial Balance is then drawn from the General Ledger at the end of each month.
rd
3 Process
●​ For reinforcement, all the transactions are analysed to show the effect on
Accounting Equation
e.g. If goods are sold on credit, the effect on the accounting equation will be as follows:

45
 No. Subsidiary Source Account Account Assets Owner’s Liabilities
Book document debited credited Equity
DJ Dup. Cr. Debtors Sales + + O
Sales inv. Control
Cost of Trading - - O
sales Stock

An accounting equation A = O + L is a summarised version of a balance sheet. It must be noted that the accounting
equation must always balance i.e. Assets must be equal to Owner’s equity plus Liabilities

The debtors Journal should have the following columns

Inv Date NAME OF DEBTOR Fol Sales Cost of
No Sales

Always remember when posting to the general ledger:

The Debtors Control Account is debited and the Sales Account is credited; the Cost of Sales Account is debited and
the Trading Stock Account is credited
Key words for the transactions in the DJ
●​ Sold goods / stock on credit/ on account
●​ Issued credit sales invoice
●​ Delivered stock / goods together with invoice

ACTIVITY 1
Kool Monate, proud owner of Sweet Monate Stores, started a sweet and cake business two months ago. He
sells all sweets and cakes at a profit mark up of 25% on the cost price. The transactions for the month of May
2018 are given below:
INSTRUCTIONS AND INFORMATION:
1. Record the transactions for May 2018 in the following journals:
-Cash Receipts Journal, with analysis columns for Analysis of receipts; Bank; Sales
Cost of sales; Debtors and Sundry accounts.​​ ​ ​ ​ ​ ​
-Cash Payments Journal, with analysis columns for Bank; Trading Stock; Wages; ​​
Stationery and Sundry accounts.​ ​ ​ ​ ​ ​ ​ ​
-Debtors Journal, with Sales and Cost of Sales
-NOTE: Do NOT close off the journals on 31 May 2018
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 2. List of Debtors balances
O. Skoloto R 3 900
K. Klaar R 2 000
Transactions for May 2018
1 The owner, Kool Monate deposited additional R50 000 directly into the account of the business, receipt
001 issued to him.
3 Cash sales of goods for R1 200 (mark up 25%).
7 Bought trading stock R3 700 and Stationery R 300 from Multi Wholesales, paid by cheque no.C04.
21 Received a cheque from a debtor O.Skoloto for the amount owed by him.
25 Cashed a cheque to pay wages for R 500.

SOLUTION ACTIVITY 1
CASH RECEIPTS JOURNAL OF SWEET MONATE STORES – MAY 2018
Doc Da Details F Analysis Bank Sales Cost of Debtors Amount Details of
No te o Of sales Control Sundry
l receipts
i
o
001 1 Kool 50 000 50 000 50 000 Capital
Monate
CR 3 Sales 1 200 1 200 1 200 960
T1
002 21 O.Skoloto 3 900 3 900 3 900

CASH PAYMENTS JOURNAL OF SWEET MONATE STORES – MAY 2018 CPJ 2

Doc Da Name of F Bank Trading Stationer Wages Amount Foli Details of
No te the payee o stock y o Sundry
li
o
C04 7 Multi 4 000 3 700 300
Wholesal
C05 25 500 500
Cash

DEBTORS JOURNAL OF MONATE STORES FOR MAY 2018 DJ 5

Inv.
Day Name of debtor Fol Sales Cost of Sales
No
1 14 J Naidoo 1000 00 800 00

ACTIVITY 2
ANALYSIS OF TRANSACTIONS
Analyse and record the following transactions in the table provided ​ ​
Example:
Received a cheque from J. Houston for monthly rent, R 600

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 NO Account Amount = + Liabilities
Asset Owner’s
Debit Credit equity
e.g. Bank Rent Income R600 + 600 + 600 0
Transactions:
1 Owner, C Chaba, contributed R 5 000 into his business bank account
2 Credit sales of merchandise to J. James for R 900. (cost of sales R600)

SOLUTION – ACTIVITY 2
NO ACCOUNT ASSETS OWNER’S LIABILITIES
Debit Credit EQUITY
E.g. Bank Rent Income +600 +600 0
1 Bank Capital +5 000 +5 000 0
2 Debtors control Sales +900 +900✔ 0
Cost of sales Trading stock -600 -60 0

TERM 3

ENTREPREPEURSHIP: FUNCTIONS OF THE BUSINESS

A business performs activities with an aim of making a profit.
Activities are performed within the business in order for it to function effectively and efficiently. These
activities are functions of the business.
General Management function
Financial function
Production function
Human resources function
Public relations function
Purchasing function
Marketing function
Administration function

1.General management
A manager is a person who follow policies and procedures of the business to control and direct whether
activities are carried out correctly and completed.
1.2There are three levels of management, top, middle and lower management
Top management

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 ●​ positions include Chief Executive Officer (CEO), Chief Financial Officer (CFO), General
managers, partners in a partnership and owner in a sole trader. Their role is to develop vision
and mission statement and looking at the business as a whole.
●​ It involves long and strategic plans.
Middle management
●​ Positions include the head of departments in the business and their role is to develop
procedures based on the policies and ensure these are met.
●​ Medium term planning.
Lower management
●​ Positions include supervisors, foremen and team leaders and these are guided by the medium
term plan by developing short term plan in managing activities.
●​ Controlling of day to day activities, short term planning.
1.3 Management tasks
All managers irrespective of the levels have duties to perform and these are basic elements of management.
Acronym of these elements is POL: Planning, Organising, Leading and Control
●​ Planning is to formulate goals and targets and focus on the future
●​ Organising provide structure and planning, allocate resources and focus to the future.
●​ Leading motivating and guiding and the focus is people.
●​ Controlling check that goals are achieved if not correct and focus on the goals.

2.Financial function
●​ This function is about managing and controlling finances in the business.
●​ It also operates in levels of management within the finance department, top management (CFO),
middle management (Internal auditor) and lower management (debtors clerk, cashiers)

Roles of the financial function

●​ Plan for where and how the business is going to source capital.
●​ Prepare for the cash budget for the business to remain liquid.
●​ Ensure all the financial transactions are recorded in the financial books of account, reporting and
drawing up of financial statements.
●​ Ensure that the business have control measures in place to protect and maintain asset like asset
register.

3.Purchasing function
●​ The purchasing department is responsible for buying material or trading stock that is needed in the
business. This also include stationery and cleaning material.
●​ Top management example: Managing Director (DM)
●​ middle management: purchasing manager
●​ lower management: chief buyer

Roles of the purchasing function

●​ Ensure there is a constant supply of raw material for the production function.
●​ Quality material needs to be purchased at all times to maintain good quality and standard of the
output.
●​ Buying in bulk can enable the business to save by being granted trade discount and also negotiating
best price.

4.Production function
●​ This function is responsible for producing goods and services that the business is responsible for.

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 ●​ In this function also it operates at top, middle and lower management.

Roles and responsibilities of the production function

●​ Production function must produce goods and services in demand.
●​ Ensuring waste is eliminated while producing.
●​ Ensuring quality output at all times.
●​ Optimising efficiency.
●​ Setting daily production goals ensuring that targets are met.
●​ Ensuring and maintaining safety in production at all times

5.Marketing function
●​ Marketing function can be easily summarized as four Ps which is known as marketing mix.
✔​ Product

✔​ Price

✔​ Place

✔​ Promotion
●​ The same level of management applies in production function.

Roles and responsibilities in the production function

●​ Product: Analysing the needs of the consumers, designing and producing the product as well as
packaging.
●​ Price: right price determination is part of marketing the product, the price being higher than the price
of producing an item.
●​ Place: The route taken by a product from manufacturer to consumer, the physical location and
methods of distribution used by marketing department. Businesses differ some still use method
traditional method (manufacturer = wholesaler = retailers = consumers) of distribution while others
use modern ones (manufacturer = online retailer = consumer)
●​ Promotion: These are all activities that are used by the business to promote and advertise their
products to the target market. Forms of promotion are:
o​ sales promotion (samples and coupons)
o​ advertising (radio, television)
o​ word of mouth (using existing customers to advertise)
o​ social media

6.Human resources
●​ Human effort is an important in the business and human resource department’s responsibility is
managing labour.
●​ Different levels of management distribute duties and responsibilities according to levels.

Roles and responsibilities of the human resource function

●​ Identify the job vacancies.
●​ Recruit and appoint people suitable for the positions within the business.
●​ Training and developing staff.
●​ Communicate with labour unions in desputes.
●​ Work with finance department in determining remuneration packages.
●​ Assist employees in personal development.
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7.Administration function
●​ The business depends on information to run the activities and administration function is responsible.
●​ Administration is responsible for gathering, processing, storing and sharing information.
●​ Levels of management also applies in administration for it to function effectively.

Roles and responsibilities of administration function

●​ All information whether hard copy or electronic is collected, analysed and stored so that it can be
shared for running the business and future references.
●​ Process and store employees records like leave forms.

8.Public relations
●​ The public relations department is involved with managing the views and opinions of the public about
the business.
●​ Duties within the public relations department is distributed in management levels.

Roles and responsibilities of public relations function

●​ Create a positive image of the business in general public.
●​ Communicate business projects with the general public.
●​ Ensure that all activities in the business are environmentally friendly.
●​ Check and respond to feedback from media.

ACTIVITIES: FUNCTIONS OF THE BUSINESS

Activity 1
Read the following scenarios and then decide which management function will be applicable in each:
1.1 The workers work with very dangerous chemicals that could cause an accident if not handled
carefully. The company needs to take precautions and protect itself.
1.2 The company needs to make some long- term strategic decisions.
1.3 Employees want to strike because of poor working conditions.
1.4 The company was recently involved in a big scandal regarding the dumping of toxic waste. The
company needs to establish good relations with the community.
1.5 The factory needs a new machine because the old one cannot be fixed. ​ ​ (2x5 =10)

Activity 1: Solution
1.1 Risk Management✔✔
1.2 General management✔✔
1.3 Human resource Management✔✔
1.4 Public Relations management✔✔
1.5 Purchasing management✔✔

ENTREPRENEURSHIP: BUSINESS PLAN

1.Business plan

51
A business plan is a document drawn by an entrepreneur outlining the structure of the business, purpose of
the business and the methods he /she is going to use to achieve the goals set. A business plan is important
because it serves as a guide to develop the business as it grows, it is also a working document which needs to
be updated as set goals are reached and new goals are set.
2.Why a business must prepare a business plan
●​ Primary reason is to get funding to start a business and financial institutions will request it to be able
to make a decision to grant a loan.
●​ A potential entrepreneur will be able to do analysis of both business and the business environment in
which the business will operate.
●​ Potential threats and challenges can be identified and come up with solutions.
●​ Entrepreneur’s strengths and opportunities identified to assist in achieving goals for the business.
●​ It’s a tool to measure success and performance of the business.
●​ If a small business wants to attract a partner or top-notch manager.
●​ It guides staff and partners as to the direction of business.
●​ It assists in putting it together strategic supplier and partner relationships.
FORMAT OF THE BUSINESS PLAN
1.The cover page
●​ Cover page must contain the name of the business and current date.
2.The table of contents
●​ List of contents in sections that are in the business plan with relevant page numbers.
3.Executive summary (basic description of the business)
●​ Vision and mission of the business.
●​ Short, medium and long term goals
4.Description of goods and services to be offered.
●​ A clear description of the products or services including packaging and branding
●​ The value of the goods and services to the customers.
●​ Quality, price and the availability of the product or the raw material.
5.The owner of the business
●​ Knowledge and skills the owner have
●​ Your skills and experience
●​ Knowledge of your industry
●​ Your name, age, status, health, education, qualifications, etc.

6.SWOT Analysis
●​ Analysing both internal and external aspects of the business using SWOT analysis tool.
●​ S - Strengths - Internal analysis
W- Weaknesses –external analysis

52
 O - Opportunities – external analysis
T – environment in which the business exists
7.Management plan
●​ Details of potential employees.
●​ How the business will be structured and personnel involved and their duties, an organization chart can
be provided showing functions of the management and size of operational teams.
●​ External resources which will be utilized such as legal and marketing services.
8.Marketing plan
●​ Define your target market
●​ Pricing
●​ Production and selling
●​ Competitors

9.Financial plan
●​ How much money is needed to start a business, if it’s a loan specify repayment plan.
●​ Estimate of initial and future operating expenses.
●​ How to finance the future growth of the business.
●​ Strategies in place to manage cash flow.
10.Additional information
●​ Promotional stuff business cards, logo, etc.
●​ Advisors
●​ Registration documents

BUSINESS PLAN ACTIVITIES

Activity 1
Look at the names of different businesses below, then answer questions that follow:
Numbe Business Name Products or service
r
1. Waltons
2. Crazy Pets
3. Food lovers
4. DEF Plumbers
5. Omega Printers
6. Noma Kitchen
7. Nail Artist

1.1. What do these business sell or what service do they provide.?

53
Solution - Activity 1

Numbe Business Name Products or service

r
1. Waltons Stationery
2. Crazy Pets Pet food
3. Food lovers Fruit and vegetable
4. DEF Plumbers Repair water pipes
5. Omega Printers Printing services
6. Noma Kitchen Sell cooked food
7. Nail Artist Do nails

Activity 2
2.1Name 3 important aspects of management that should be outlined in the business plan.
2.2 Explain why is it important to include the skills and qualification in a business plan.

Solution – Activity 2
2.1- Detailed information of the management and their duties.
-Details of how the business will be structured and who will be involved.
-Information about employees including their skills and qualifications.
- External resources which will be utilized such as legal and marketing services.
2.2 It will help the owner to convince potential funders who will offer funding that the skills and qualification
of employees are relevant to the job they will be doing.
Activity 3
3.1 Describe what marketing plan does.
3.2 Give the target market of the following goods:
(a) Petrol
(b) School uniform
(c) Sewing machine
(d) Desks
(e) Pram

Solution - Activity 3
3.1Marketing plan outlines how the product will be marketed as well as the target market, how the price will
be determined and dealing with competitors.
3.2 (a) Petrol - drivers, grass cutters
(b) School uniform - learners
(c) Sewing machine – dressmakers, tailors
(d) Desks – learners
(e) Pram – babies or parents

Activity 4

54
4.1What does SWOT stands for.
4.2Explain what is a vision and mission in a business.
Solution – Activity 4
4.1 S-Strength, W- Weaknesses, O- Opportunities, T- Threats
4.2 -The vision the business is the statement which describes what the business aim to achieve in future and it
must be updated regularly to accommodate changes in the environment.
- Mission statement clarifies the reason why the business exist, it must be short, inspirational and capture the
attention.
Activity 5
Name any 5 reasons why Business plan is drawn.
Solution – Activity 5
●​ To get funding to start a business
●​ To do analysis of both business and the business environment in which the business will operate.
●​ Potential threats and challenges can be identified and come up with solutions.
●​ Entrepreneur’s strengths and opportunities identified to assist in achieving goals for the business.
●​ It’s a tool to measure success and performance of the business.
●​ If a small business wants to attract a partner or top-notch manager.
●​ It guides staff and partners as to the direction of business.
●​ It assists in putting it together strategic supplier and partner relationships.

Activity 6: Business Idea

1. Find out which goods are sold in your community.
(a) Do a survey of retail businesses in your community. Record your findings in the table below. List at least
10 retail businesses. ​ ​ ​ ​ ​ ​
Type of business Products sold by business Size of business
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.

b) Identify a gap in the market. Talk to people about their need for manufactured goods. List five goods that
are in demand in your community but are not supplied. ​

2. Find out about which services are sold in your community.

(a) Do a survey of service businesses in your community. Record your findings in the table below. List at
least 10 service businesses. ​ ​ ​ ​
Type of business Services provided by business Size of business
1.
2.
3.
4.

55
 5.
6.
7.
8.
9.
10.

(b) Identify a gap in the market. Talk to people about their need for services. List five services that are in
demand in your community but are not offered.

Activity 7
7.1 Write down SWOT in full? ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​
7.2 List the three goals of a business that should be included in a business plan. ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​
7.3 Name and briefly explain one item that should be in a financial plan of a business plan. ​ ​
​ ​ ​ ​ ​ ​
Solution - Activity 7

7.1 Strengths, Weakness, Opportunity, Threats

7.2 - Long-term goal
- Medium-term goal
-Short-term goal
7.3 Startup costs- business must know in advance what the initial cost of starting the business will be OR
Budget– the businessman must draw up a budget to get an idea of his income and expenditure for the
present and the future

CREDITORS JOURNAL
A business buys stock and other items such as equipment for cash or on credit. All credit purchases are recorded in the
Creditors Journal (CJ). Any services acquired on credit e.g. repairs are also recorded in the CJ. The source document
for credit purchases is an original credit purchases invoice, which a buyer receives from his/her supplier or creditor.

Cycle for a credit purchase

1st Process ​
●​ The business places an order for goods with a supplier (Creditor)
●​ The order is executed by the creditor and goods are delivered to the premises of the business.
●​ Posting is then made from the CJ to the ledger accounts.
Always remember:
●​ When posting to the Ledger, the Creditors Control Account is always credited by sundry purchases or total
purchases and all accounts from creditor’s journal are debited by creditors control account.
●​ Creditors control account is always a liability to the business.

56
2nd Process
●​ The business receives a statement of account from the creditor.
●​ The business makes a cheque payment and record the payment in the CPJ.
●​ The entry is then posted from the CPJ to the Ledger accounts.
●​ Then the trial balance is drawn from the General Ledger at the end of each month.
3rd Process
●​ For reinforcement, all the transactions are analysed to show the effect on Accounting Equation
●​ A. If an asset is bought on credit, the effect on the accounting equation will be as follows:
●​ B. If an expense has been incurred on credit, the effect on the accounting equation will be as follows:
No. Subsidiary Source Account Account Assets Owner’s Liabilities
Book document debited credited Equity
A CJ Original Asset Creditors + O +
cr. Pur. account control
inv.
B CJ Original Expense Creditors O - +
Cr. Pur. Account Control
Inv.
An accounting equation A = O + L is a summarised version of a balance sheet. It must be noted that the accounting
equation must always balance i.e. Assets must be equal to Owner’s equity plus Liabilities
The CJ should have the following columns:
Inv Date Name of The Fol Creditors Trading Sundry
Creditor Control Stock Accounts

Notes on the CJ
Invoice numbers need not be in a consecutive order because they have been received from various suppliers/ creditors.
Some businesses re- numbers the invoices internally for better control. In this case the invoice numbers in the CJ will
appear sequentially.
Total purchases are recorded in the Creditors Control and the relevant Analysis Columns. The Analysis Columns may
vary from business to business.

Key words for the transactions in the CJ

●​ Bought on credit/ on account
●​ Took delivery of stock/ goods the was ordered on credit

57
 ●​ Received a credit invoice
●​ Services done on credit

ACTIVITY 5
Required:
Magazi café is a retail enterprise selling goods at a mark-up of 25% on cost.

1. Record the transactions of Magazi café in the following journals:

(1)​CRJ: with analysis columns for; Analysis of receipts, Bank, Sales, Cost of sales and Sundry
accounts.
(2)​CPJ: with analysis columns for; Bank, Trading stock, Wages, Creditors control, trading stock
and sundry accounts.
(3)​Debtors journal
(4)​Creditors Journal with columns for Creditors control, trading stock and sundry accounts.
2. Close off the journals on 31 October 2019
3. Post to the General ledger, Debtors ledger and Creditors ledger.
4. Balance all the accounts
5. Complete a trial balance at the end of the month.

Transactions: October 2019

3.​ The owner, Mrs. N. Magazi, paid R40 000 into the business bank account as her capital contribution.
Receipt 01 was issued to her.
4.​ Bought merchandise from Viljoen suppliers; R2 875 less 20% trade discount, paid by cheque 001.
5.​ Bought merchandise on credit from BL Morema, R37 400.Received their invoice no.189, renumbered
101.
6.​ Sold merchandise for cash, R6 800.
14.​ Cashed cheque no.002 to pay wages, R400.
Supplied merchandise to the value of R500 on credit to Z.I. Nkosi and issued invoice no.113.
20.​ Bought trading stock on credit from BL Morema, R5 240, and received invoice no. 780.
​ N. Swart repaired lights in the business, received invoice no. HA-006 for R420.
​ Credit sales of merchandise to N.S. Koboka for R125; invoice no. 114 was issued.
21.​ Cashed cheque no. 003 to pay wages, R400.
​ Issued cheque no. 004 to BL Morema on account, R1 270.
​ Received a loan from Kotze bank, R6 000 and issued receipt 03.
26.​ Received a cheque from Z.I. Nkosi on account, issued receipt 04, R205

TERM 4
THE ECONOMY: TRADE UNIONS
1. Concept of trade unions
A trade union is an organization made up of members who are mainly workers. The purpose of the trade
union is to protect the interest of its members and the rest of the workers in the workplace.
Trade unions prevent businesses in exploiting workers and taking advantage of workers because of high
unemployment rate.

2.Effect of trade unions on businesses

58
 ●​ Trade unions are responsible for representing workers in negotiations with employers and emploers
are represented by employer organisations.
●​ When employers organisations and trade unions negotiate about industrial issues, the process is called
collective bargaining.
●​ Trade unions speak on behalf of all the workers especially when bargaining for salaries and wages,
not only its members benefit but all the workers in the industry.
●​ In times when negotiations between trade unions and employers organisations fail, trade unions resort
to industrial action with a hope that their demands will give in their demands. Forms of the industrial
action:
o​ Go slow: Workers perform their duties minimally and productivity will be reduced but
workers will still receive normal pay.
o​ Strike: Unsuccessful go slow will lead to workers engaging in full strike action where workers
do not go to work and production stops. Employers also stop paying the workers, known as
NO WORK – NO PAY.
o​ Lockout: In extreme situations when employers are forcing employees to accept their offer,
they lockout the employees and do not allow them to work. Employees will not be paid and
that is when sometimes employees will resort to destroying property for employers.

3. Contributions of trade unions to sustainable growth and development

●​ Trade unions ensure that the workers are treated fairly, economic grow and jobs are created without
negatively affecting the environment and the standard of living of the society improves.
●​ Challenges to sustainable development in South Africa:
o​ High rate of unemployment.
o​ Lack of finance
o​ Unskilled labour
o​ Poverty
o​ Low levels of economic growth

Ways in which trade unions can promote sustainable development

o​ Ensure that jobs are created which will increase the standard of living and alleviate poverty.
o​ Promoting economic growth by encouraging businesses to adopt efficient and improved production
techniques.
o​ Promoting developing workers and fair wages to reduce poverty.
o​ Encourage businesses to use production techniques that are not harmful to environment like pollution.
o​ Ensure workers are disciplined even during the industrial action.

FINANCIAL LITERACY REVISION

●​ Term 1, 2 and 3

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