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MANAGEMENT AND DEVELOPMENT
SPECIALIST AND EDUCATOR
According to the law of our land, income acquired by any individual carrying on ‘pastoral, agricultural or other farming operations’ is indeed taxable, and must be combined with all taxable income that is collected from other streams of income to conclude the taxpayer’s taxable income for each year of assessment.
The latest figures on the South African Revenue Services (SARS) website indicate the rate of tax according to income received (Table 1).
Here is a list of some important words used in the world of bookkeeping:
- The process of identifying, analysing, recording, accumulating, and storing information and data about the activities of a business.
- The process of preparing summary reports of these activities internally for managers and externally for those entitled to receive financial reports about the entity.
- Accounting reports are called financial statements and are used to make informed decisions.
- Accounting includes preparing tax returns that every business and income earner must file with SARS.
A balance sheet is a financial statement that reports a company's assets, liabilities and shareholder equity. It provides a snapshot of a company's finances – what it owns and owes on date of publication.
- Assets are all resources that are available to a business in the form of cash, receivables, inventory, buildings, and any other properties that can be used for the business. Assets can be physical possessions like inventory and buildings, or they can be monetary resources such as cash and accounts receivables.
- Liabilities are those things a business owes, usually a sum of money.
- Equity is the amount of assets left in the business for its owners after deducting all the liabilities such as bank loans and trade payables (Figure 1).
Financial statements are prepared at the end of every financial period (1 March to 28 February) and whenever else it’s needed. The main elements of a balance sheet are called accounts – such as cash, inventory list with current values, notes payable, and capital stock e.g. a farmer may still have grain stored in a silo. A balance sheet refers to the equality (or balance) of assets with the total of liabilities and owners’ equity.
This is cash flow from earning profit or from operating activities the flow of money out and into the bank account.
DEBITS AND CREDITS
Accounting jargon for decreases and increases recorded in accounts.
- Creditors are individuals or business entities that are owed money because they have provided goods or services or loaned money to another entity.
- Debtors are individuals or business entities that owe money to another entity because they were supplied with goods or services, or borrowed money from them. The debt is often divided into monthly repayments over a period agreed upon by the two parties until the debt is paid off. Debtors often need to pay interest in the original value of the loan.
- Interest is a fee charged by the entity giving the loan to the debtor for the privilege of repaying a debt slowly over an extended period of time.
- Credits record all the money flowing into an account i.e. money due to the business.
- Debits record all the money flowing out of an account i.e. money owed by the business.
The financial reports of businesses include three primary financial statements namely, the balance sheet, income statement, and statement of cash flows.
These are recorded in an inventory list and include a wide variety of long-life, physical resources used by a business in conducting its operations e.g. land, buildings, machinery, equipment, furnishings, tools, and vehicles.
This financial statement summarises income generated from sales and expenses/losses.
In an income statement, the preferred term for final or bottom-line profit is net income.
Accountants or bookkeepers keep the books ordered by systematically recording all financial activities of a business on a month to month basis. The financial statements of a business are then compiled for the accounting year which ends on the last day of February.
Publication: February 2022