Wayne Morgenrood 26055407

TBW 470 Financial Management Assignment

Financial Management: Its the physical directing and deployment of various resources of a
company to the areas in which money will be involved. This involves responsibilities such as budgeting, planning, banking and execution of the plans.

Accounting: The systematic process by which records of all financial transactions are made
and analyzed for the statistical value there of as well as the progression of a business.

Fixed Assets: Its items of value that is not part of the daily consumption and purchasing
within the spectrum of the business. Examples thereof include the building of the business, heavy machinery and equipment. It is items that makes the ordinary running of the day possible, without it being bought every day or week.

Current Assets: These are the assets a company can easily convert into cash within a year
without selling any fixed assets and by the normal day to day business. This includes cash, accounts receivable, inventory and marketable securities.

Debit: It is an accounting entry that shows all the current accounts that requires some form
owing. The money that has to be spent in order to keep a business running. Also written on the left side of an accounting ledger.

Credit: This is the complete opposite of debit. This is all the money that is owed to the
company. The amount of incoming money, also written on the right side of an accounting ledger, which will be recorded to know whether or not the company is making any money.

Equity: This is the portion of assets that a companys shareholders own against what the
shareholders borrowed. Thus its the total assets minus the total liabilities of that company.

Accounting Equation: This is a basic accounting principle whereby the total amount of
assets are equal to the total amount of liabilities and owners equity. It is based on the fact that a companys assets are either gained by borrowing money or using money from the owner/shareholder, or from retained earnings.

Debtors: It is an entity that has the obligation of paying a debt to a creditor. This entity can be
a person or company.

Inventory: It is any merchandise, raw material, finished and unfinished products that a
company has. Anything that a company can buy on a regular basis and which is required to be used with fixed assets.

Owners Equity: This is also used in conjunction with equity, which is known as the total assets total liabilities of an individual/company. For a company its called nett worth Long Term Liabilities: The term long term refers to a period longer that one year or twelve
months. Thus the liability a company has in which repayments arent required within 12 months is regarded as a long term liability. The company is also accounted for by its debt obligations to other
parties which last longer than one year.

Current Liabilities: Current liabilities are debts, accounts payable, interest due, loans, and
other obligations that are due and payable within one year. The opposite of long term liabilities

Creditors: It is an entity to which money is owed to. The company/person to which you would
have to pay your debt to.

Overdraft: The amount of cash that is withdrawn over and above the current credit limit of that
account, which the drawer will then pay interest on the amount of money withdrawn. Lets say you have a credit limit of R10000 and you require R11000 you will pay an increased interest rate on the extra R1000 you borrowed.

Turnover: Turnover is the number of times that an average inventory of goods is sold during a
year and thus converted into cash flow. The turnover when accurately computed, is one measure of the efficiency of a business. In other words when the products made in the company are sold to make money.

Income: The total amount of money that is collected from the debtors of your company. And
the earnings of that company over a period of time is synonymic to income.

Fixed Expenses: This is the indication of how much money should be spent on a constant
basis and the amount wont normally change within a financial year. Expenses like rent, mortgages and fixed installment plans for various equipment and salaries all fall under the term fixed expenses.

Variable Expenses: This is an amount that is constantly changing due to the different
amount/time of usage. Things such as the telephone bill, water and electricity, materials (especially in the dental industry, you might do 50 amalgams the one month and the next only 10)

Balance Sheet: This is the accounting tool that is used to show the current financial state of
the company, showing all the physical resources and claims towards those assets. This also include the means by which those resources were gained, whether from the owner/shareholders or from borrowing. It is pretty much a statement showing where all the money of a company is at a specific moment in time

Income/Expenditure Statement: This statement is one that shows all the money that has
flowed into the company during the past as well as the predicted outgoing payments that will have to be made.

Cash Flow Statement: this is a worksheet that enables you to see how the cash that is left
after repayments are made as well as the general expenses are met. It is a record of all the cash receipts and disbursements during a given period in time.

Profit Before Tax: As the term states this is an amount of money that is left over after all the
expenses are deducted from the amount of money received for that product or service, before any calculations are made for payment of taxes. The tax payable on certain goods change constantly and there for this is a very good way of establishing the growth and general profitable turnover of a company.

Profit After Tax: This is the same as PBT but an extra deduction has to made. This is
corporate income tax. This tax is applicable to any registered company and it is law to pay this. Due to the change in the amount of tax on goods, this will show different values and has a poor value in predictability of a company`s earnings.

Break Even Point (Bep) : Once you reach this point in accounting, and there is growth in the
company, things can only be positive. This means that a company has reached a point in business where the total income equals the total expenses of a company. Thus there is no profit and no loss that can be declared by the balance sheet.

Daily Production Goal: A daily production goal is one that is set out by management that will
enable employees to work towards a certain aim to help in the accomplishment of the companys mission and vision. Also to enable the company to be as profitable as possible and have the best possible line of production of whatever they are doing. These goals should be set in realistic manner and it should be reachable. Once reached this will increase general moral and can be used as an incentive for employees.

VAT: Value added tax is the amount of tax that is added to a specific item and is calculated by
the difference between the cost of production and price before any other taxes. This is a principle that can be best described by using an example. The principle has made it fair and put the responsibility of paying tax on every one and not just on the consumer. So it costs the manufacturer R10 to make something. In SA VAT is 14%, so the manufacturer will sell the `X` to a retailer for R12, if there were no tax, but because of VAT he would have to add R12 * 14% = R1.68 to his price due to VAT . And the same will then count for when the retailer sells `X` to a consumer. He would sell is at R15, and add R2.10 to his price but only pay 0.42c as tax, because the manufacturer already paid the R1.68.

PAYE: Pay as you earn is a method implemented by government to enable easier collection of
personal income tax. The method by which income tax is levied to any employee is based on the gross amount of money they will receive. And according to the current tax laws and classifications for that financial year, the amount of deductions made can be calculated. Lets say you earn R100 000 per annum, you would fall in a category of say 20%, and that will then be deducted and paid to the revenue services. But if you earn R200 000, you would have to pay 40% tax.

UIF: This is a fund that protects employees against a loss of income for at least 3 months after
retrenchment, illness, or maternity. The employer has the obligation to pay 1% of an employee`s salary (excluding commission) to the unemployment insurance fund, and the employee should also pay 1%. Thus 2% is paid. It is a normal deduction made on any paycheck

Business Plan: A business plan is a plan which will have all the financial details of that
company, as well as all the requirements such equipment, human resources and materials. This plan will have the exact details in which the shareholders/owner aims to deal with production and repayments of any loans that will be made. It will also include a proper mission and vision.

Debtor Age Analysis: This is an analysis made in order to find out who owes you money
according to time. The usual trend that is followed is a time span of 030, 30-60, 60-90 and 90+ days after the issuing of the invoice. In order to predict the amount the money that is supposed to flow into a company, as well as to find out the means by which the debtors deal with their debt, a debtor age analysis can be made.