Module 1: Introduction: Forms of Ownership and Wealth Generation


earned and how much expenses have been incurred. If the business makes a profit then the profit belongs to the owner which will therefore increase the equity of the owner in the business.


If the expenses are more than the income then the business makes a loss. If the business makes a loss it will decrease the owner’s equity.


Profit /(Loss) = Income – Expenses


If a business makes a profit, then the following outcome happens: • The business makes money. • The owner has a successful business. • The business’ s suppliers will continue to have a business to supply goods or services to. • The customers are able to still get the goods or services offered by the business. • The business can continue to create employment.


Income affects owner’s equity because it increases the owner’s equity. Income increases the owner’s worth in a business. Expenses affect owner’s equity because it decreases the owner’s equity. Expenses decreases the owner’s worth in a business.


Businesses can earn an income in different ways. The owners need to decide the business will generate an income. Businesses can either: • provide a service to customers, • sell goods to customers, • or a combination of both.


Type of business


Service


What the business does to earn an income


Renders a service to customers


Retail


Sells goods to customers


How it earns an income Charges a fee for the service Examples


Hairdressers, doctors, mechanics, consulting, events, transportation, coaching


Goods are bought and then sold again at a higher price


Cafés, spazas, warehouses, supermarkets, grocery stores, apparel stores, homeware and appliance stores, internet retailer s, car dealerships


Service and retail


Renders a service and sells goods to customers


Charges a fee for the service, and goods are bought and sold again at a higher price


Hairdressers who provide a service by cutting, colouring and styling hair can also sell products such as shampoo, brushes, and hairdryers.


Activity 1.1


1. Explain why an entrepreneur would want to start a business. 2. Mention at least three advantages of an entrepreneur starting a business. 3. List four types of service business and four types of retail business. 4. Define and provide an example of income. 5. Define and provide an example of expense. 6. Explain the difference between profit and loss.


3


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