Topic 1 – How does accounting help in business?

T- Account Recording
The major components of the balance sheet—assets, liabilities and shareholders'
equity (SE)—can be reflected in a T-account after any financial transaction occurs.

An income statement is a financial statement that shows you the company's income and
expenditures. It also shows whether a company is making profit or loss for a given period. The
income statement, along with balance sheet and cash flow statement, helps you understand the
financial health of your business.

A ledger[1] is a book or collection of accounts in which account transactions are recorded. Each
account has an opening or carry-forward balance and would record transactions as either a debit or
credit in separate columns and the ending or closing balance

A balance sheet is a financial statement that reports a company's assets, liabilities, and
shareholder equity. The balance sheet is one of the three core financial statements that are
used to evaluate a business. It provides a snapshot of a company's finances (what it owns and
owes) as of the date of publication.

Retained earnings (RE) is the amount of net income left over for the business after it has paid out
dividends to its shareholders.

Noncurrent assets are a company's long-term investments for which the full value will not
be realized within the accounting year. ... Examples of noncurrent assets include
investments, intellectual property, real estate, and equipment. Noncurrent assets appear on a
company's balance sheet

Sustainability means meeting our own needs without compromising the ability of future

generations to meet their own needs. In addition to natural resources, we also need social and
economic resources. Sustainability is not just environmental- ism.
Topic 2- Why is economics important for business?

Economics is the study of human behavior as a relationship between unlimited wants (ends) in the
economy and the ability to meet which are limited and costly (scarce). Also what it does to tackle the
causes of the wealth of nation by looking into the nature and environment.

Economics is the study of scarcity and its implications for the use of resources, production of goods and
services, growth of production and welfare over time, and a great variety of other complex issues of vital
concern to society.

Core concepts of economics:

The Margin- A margin is a collection of restrictions that can be thought of as a border. A marginal
change is a change that occurs as a result of a relaxation or tightening of restrictions – either a change in
the limits themselves or a change in response to the limitations changing. (the margin is the
difference between a product or service's selling price and the cost of production )
Marginal cost: cost of producing one additional unit.
Marginal Revenue: Income from one additional unit of output.

The equilibrium- Economic equilibrium is a condition or state in which economic forces are
balanced. In effect, economic variables remain unchanged from their equilibrium values in the
absence of external influences. Economic equilibrium is also referred to as market equilibrium.
(Equilibrium is the state in which market supply and demand balance each other, and as a result
prices become stable).

The point when demand equals supply in a market.

Output is at its equilibrium when quantity of output produced (AS) is equal to quantity

demanded (AD). The economy is in equilibrium when aggregate demand represented by C + I
is equal to total output. (Aggregate demand is a measurement of the total amount of demand
for all finished goods and services produced in an economy).

The cost-benefit principle- The cost benefit principle holds that the cost of providing
information via the financial statements should not exceed its utility to readers. The
essential point is that some financial information is too expensive to produce. (an analysis of
the pros and cons of a given situation or course of action to determine how the
downsides compare to the upsides).
Opportunity cost- Opportunity costs represent the potential benefits an individual, investor,
or business misses out on when choosing one alternative over another.

Microeconomics- Study of markets.

Macroeconomics- Study of economy as a whole. Also studies the links between economies of different
countries.

Circular flow- Simplified description of the behavior of the economy of a country. Describes the flow of
resources between households and firms.

Savings can be described as a leakage from the circular flow.

Investment can be described as an injection into the circular flow

Government expenditure- Government spending or expenditure includes all government

consumption, investment, and transfer payments. ... Government acquisition of goods and
services intended to create future benefits, such as infrastructure investment or research
spending, is classed as government investment (government gross capital formation).
Imports-An import is a good or service bought in one country that was produced in
another. ... If the value of a country's imports exceeds the value of its exports, the country has a
negative balance of trade, also known as a trade deficit.
Exports- Exports are defined as movable goods produced within the boundaries of one
country, which are traded with another country. The sale of these goods generates foreign
currency earnings in the country that produces them and boosts its economic growth.

 Economics considers choices between scarce resources.

 It uses models to simplify decisions.
 For a business micro and macro economics are important.
Topic 3 – Deciding what a business should produce.

Complimentary goods…..A complementary good is a good whose use is related to the use of
an associated or paired good. Two goods (A and B) are complementary if using more of good
A requires the use of more of good B.

Factors like price, income and tastes are known as variables and they alter and affect how
markets operate.

The demand for a good depends on several factors, such as price of the good, perceived
quality, advertising, income, confidence of consumers and changes in taste and fashion.
We can look at either an individual demand curve or the total demand in the economy.

Supply will be determined by factors such as price, the number of suppliers, the state of
technology, government subsidies, weather conditions and the availability of workers to
produce the good.

The invisible hand is a metaphor for the unseen forces that move the free market
economy. Through individual self-interest and freedom of production and consumption, the best
interest of society, as a whole, are fulfilled.

The free market is an economic system based on supply and demand with little or no
government control. It is a summary description of all voluntary exchanges that take place in a
given economic environment.

Matters to consider when you decide to produce and sell….

 Financial resources available to business.

 Availability of raw materials.
 Any existing specialist area in which it operates.
 Skill and availability of labor force.
 Level of risk business owner can accept

State Aid is a term that refers to forms of public assistance, using taxpayer-funded resources,
given to undertakings on a discretionary basis, with the potential to distort competition and affect
trade between member states of the European Union. In general, State aid is banned because
of its anti-competitive effects.
Topic 4 – Deciding when to produce products.

Learning outcome:

Economic system- a system of production, resource allocation and distribution of goods

and services within a society or a given geographic area.

Economic environment- all the external economic factors that influence buying habits of
consumers and businesses and therefore affect the performance of a company. These
factors are often beyond a company's control, and may be either large-scale (macro) or small-
scale (micro).

Role of Government- (1) provides the legal and social framework within which the
economy operates, (2) maintains competition in the marketplace, (3) provides public goods
and services, (4) redistributes income, (5) cor- rects for externalities, and (6) takes certain
actions to stabilize the economy.
 An externality arises when a person engages in an activity that influences the well-
being of a bystander who neither pays nor receives compensation for that
effect (1). If the impact on the bystander is adverse, it is called a negative externality. If
it is beneficial, it is called a positive externality.

Development of strategy- Product development strategy refers to the methods and actions used
to bring new products to a market or modify existing products to create new business. ... Each
stage requires a strategy to be successful and generate revenue for a business.

Developing Economy- A developing economy also called a less developed economy or

underdeveloped country is a nation with an underdeveloped industrial base, and a low
Human Development Index (HDI) relative to other countries. ... Also, the general term less-
developed economy should not be confused with the specific least developed country. (Africa)

Emerging/ Newly Industrialized Economy- developing economies that have advanced

towards industrialization and might become developed, at some point, in the near future.
(India)

Developed Economy- a region, typically a country, with an abundance of wealth and

resources available to its residents or citizens, also referred to as developed, industrialized,
or mature economies. Lack of reliance on agriculture. (Dubai)
Free Market Economy- A free market is one where voluntary exchange and the laws of supply and
demand provide the sole basis for the economic system, without government intervention

Planned Economy- an economic system in which the elements of an economy (as labor,

capital, and natural resources) are subject to government control and regulation designed to
achieve the objectives of a comprehensive plan of economic development — compare free
economy, free enterprise.

Mixed economy- A mixed economy is an economy organized with some free market
elements and some socialistic elements, which lies on a continuum somewhere between
pure capitalism and pure socialism. ... Mixed economies socialize select industries that are
deemed essential or that produce public goods.
 A socialist economy is a system of production where goods and services are
produced directly for use, in contrast to a capitalist economic system, where goods
and services are produced to generate profit (and therefore indirectly for use).
"Production under socialism would be directly and solely for use.
 Continuum Economics is a leading independent macroeconomic, policy & financial
markets research firm. Our global client base consists of banks, asset managers,
corporations, central banks and government organisations. Research is produced from
our London, New York and Singapore research centres for a global audience.
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