Economy summary chapter 4; balancing the books
Section 1, setting up a business:
Investment budget: You can use an investment budget to estimate how much money you
need to start your own business. On the investment budget you can find things like: inventory
(tables, chairs, cash register etc.), goods in stock (coffee, hamburgers, lettuce etc.) bank
balance (how much money you need in your account to ensure you can run the business)
and money you need in the cash register. If you add all these things together you will find the
total capital / investment.
Profit and loss budget: the profit and loss budget gives an overview of the expected future
costs and returns. This can be handy for a bank if they have to decide if they will or will not
lent you money, because they can see if you’re able to pay your loan back later. In the profit
and loss budget, you can find things like: the revenue (omzet / your profit excluding the VAT)
the cost of sales (how much the goods you sell cost to purchase), the gross profit (the
difference between the total revenue and the total cost of sales), ‘depreciation charges (the
decrease of value of your inventory), rent, employee expenses’, operating cost (all the other
expenses next to the cost of sales), net profit (the gross profit minus the operating costs, this
is your income). Turnover – cost of sales = gross profit / gross profit – operating costs = net
profit.
The financing plan: the financing plan shows where all the money you need (total
investment) comes from. The financing plan includes: equity (what the owner invests
himself), debt capital (borrowed money that has to be paid back later). The total capital is the
equity and debt capital added together. The equity share can increase if you repay you loans
or if you use the profit from the business to invest in for example a new oven.
Section 2, assets and debts:
A balance sheet gives an overview of a company’s assets and debts. The equity is the
difference between the assets and debts. The left side of the balance sheet is called debit,
this side includes all the assets of the company. On the right side you can find the credit, it
tells you how all the assets were financed (liabilities).
Debit: fixed assets (the assets that last for more than one production process or one year /
van), current assets (the assets that last for one production process or less than a year /
meat), debtors (if you want to buy something expensive you will get an invoice (factuur / as
long as you don’t pay your invoice you will be a debtor.) liquid assets (money in bank
account and cash).
Credit: the debts are also called debt capital. Long-term debts (these debts run for more than
one year / money borrowed to pay the building, mortgage loan or money borrowed from
parents), short-term debts (these debts must be repaid within a year / if your company still
has an invoice of another company this is listed as creditors, short term-debts also include
taxes). Equity (how much money you put in yourself / you can calculate the equity by
subtracting everything from the credit side from the total of the debit side).
Section 1, setting up a business:
Investment budget: You can use an investment budget to estimate how much money you
need to start your own business. On the investment budget you can find things like: inventory
(tables, chairs, cash register etc.), goods in stock (coffee, hamburgers, lettuce etc.) bank
balance (how much money you need in your account to ensure you can run the business)
and money you need in the cash register. If you add all these things together you will find the
total capital / investment.
Profit and loss budget: the profit and loss budget gives an overview of the expected future
costs and returns. This can be handy for a bank if they have to decide if they will or will not
lent you money, because they can see if you’re able to pay your loan back later. In the profit
and loss budget, you can find things like: the revenue (omzet / your profit excluding the VAT)
the cost of sales (how much the goods you sell cost to purchase), the gross profit (the
difference between the total revenue and the total cost of sales), ‘depreciation charges (the
decrease of value of your inventory), rent, employee expenses’, operating cost (all the other
expenses next to the cost of sales), net profit (the gross profit minus the operating costs, this
is your income). Turnover – cost of sales = gross profit / gross profit – operating costs = net
profit.
The financing plan: the financing plan shows where all the money you need (total
investment) comes from. The financing plan includes: equity (what the owner invests
himself), debt capital (borrowed money that has to be paid back later). The total capital is the
equity and debt capital added together. The equity share can increase if you repay you loans
or if you use the profit from the business to invest in for example a new oven.
Section 2, assets and debts:
A balance sheet gives an overview of a company’s assets and debts. The equity is the
difference between the assets and debts. The left side of the balance sheet is called debit,
this side includes all the assets of the company. On the right side you can find the credit, it
tells you how all the assets were financed (liabilities).
Debit: fixed assets (the assets that last for more than one production process or one year /
van), current assets (the assets that last for one production process or less than a year /
meat), debtors (if you want to buy something expensive you will get an invoice (factuur / as
long as you don’t pay your invoice you will be a debtor.) liquid assets (money in bank
account and cash).
Credit: the debts are also called debt capital. Long-term debts (these debts run for more than
one year / money borrowed to pay the building, mortgage loan or money borrowed from
parents), short-term debts (these debts must be repaid within a year / if your company still
has an invoice of another company this is listed as creditors, short term-debts also include
taxes). Equity (how much money you put in yourself / you can calculate the equity by
subtracting everything from the credit side from the total of the debit side).
