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Jobs and Businesses

Jobs and Businesses. To understand accounting, we’ll start with something familiar and easy, and build up from there. Situation 1: MEE’s Moto Taxi “Job”. I Need Money! I Need a Job!.

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Jobs and Businesses

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  1. Jobs and Businesses To understand accounting, we’ll start with something familiar and easy, and build up from there.

  2. Situation 1:MEE’s Moto Taxi “Job”

  3. I Need Money! I Need a Job! Here’s the deal….. Each day, you must work for at least 8 hours, and give me all the money you get from customers. Then, at the end of each day, I’ll give you 100 baht from our “profits”. Mee’s FRIEND says: I’ll help you. I’ll give you a job. I’ll be your manager…….. Mr. MEE says: I need money! need a job! …. You can use my old motorbike as a moto taxi, and we can get rich! OK. I’ll come tomorrow to get your motorbike. How much money do I get? So, the next day, the new “job” begins……

  4. Mee’s FRIEND dreams From Customers: 115 Baht MEE is Ready to GO! Done for the day! From Customers: 40 Baht From Customers: 185 Baht From Customers: 70 Baht From Customers: 230 Baht From Customers: 285 Baht So, 100 baht for MEE…and 185 baht for FRIEND (for doing nothing!)

  5. What Really Happened STOP!!! Your driving is no good. Give me your documents. One hour later… With no more money in his pocket….. Huh? What? And no more job….. MEE is Ready to GO! And one less friend…. From customers: 125 Baht Hey nice lady! Want some beer? Ugh! You can ride my moto …. For free! With only 20 baht in his pocket, MEE returns to his friend, hoping to get his 100 baht salary…….. 1 hour (and 2 beers) later….. Police Fine: 100 Baht (left from customers = 80 Baht) MEE walks home….. From customers: 40 Baht From customers: 180 Baht From customers: 85 Baht

  6. What about the Money?

  7. Situation 2:The Moto Taxi “Business” To make some money……and to get his friend back…..MEE has a new idea! MEE meets again with his FRIEND.

  8. We Both Need Money! I Have an Idea! Well, that will be my problem, not yours. Do we have a deal ,then? Really. Listen. This time, I’ll give you 100 baht each day for the motorbike. But I get to keep the rest of the money. OK. But you’ll have to re-fill the petrol in the motorbike at the end of the day, too. Mee’s FRIEND says: After last time, I can’t believe you have an idea! Mr. MEE says: Sorry about last time. But I have a new idea! …If there is any. So, the two shake hands. And the next day, MEE’s new “business” begins……

  9. MEE’s “Business” Begins From Customers: 115 Baht MEE is Ready to GO! Done for the day! From Customers: 40 Baht From Customers: 185 Baht From Customers: 70 Baht From Customers: 230 Baht From Customers: 285 Baht So, 100 baht for Mee’s FRIEND, plus 35 Baht for petrol, …and 150 baht for MEE!

  10. Compare the 3 Situations Though these situations aren’t exactly comparable – there were slight differences in each example – there are LESSONS here. LESSON: When planning a new business, think of ALL POSSIBLE COSTS (petrol, police) LESSON: Think about staff/wage incentives. LESSON: It’s not just the money (left), but the situation(s). Unexpected situations can arise and create problems. LESSON: Don’t own cash businesses where you can’t monitor the cash and the staff. Think about…… What makes a “job” a job, and a “business” a business?

  11. Going Beyond “Pocket Money”

  12. Categorizing Cash Flows * The following definitions are true for the simple example of Mee and his Friend. But will be refined (made more exact) as we introduce more complicated business circumstances.

  13. Categorizing MEE’s Transactions (Situation 2) A “Cost”, or COGS is a special kind of expense. These costs are directly related to sales, and will increase when sales increase. Other expenses will not increase, even when sales increase.

  14. MEE’s Income Statement(also known as the Profit & Loss (P & L) Statement) Notice the structure of this Income Statement. We first separate out and subtract COGS to get the Gross Margin. As we’ll see later, it’s important for many reasons to distinguish between gross profits from sales, and net profits from the business.

  15. When Self-Employed, What is a “Salary”?

  16. MEE’s Cash Flow Statement Another way to view business activity is through a Cash Flow Statement, which explains the change in a Business’s Cash Balance. For Mee, the cash flow comes entirely from Operations, which is regular business activity. Moreover, Mee started with nothing. For this and other reasons, Mee’s Cash Flow Statement is trivial (super simple).

  17. Think About …..

  18. Consider these alternative business relationships, and how they effect the money received by MEE and his FRIEND.

  19. MEE’s Income Statement And the other half of the profits (50 baht) go to his ANGRY Friend! And 125 Baht for FRIEND First, MEE takes his 150 baht salary…. SITUATION 2: Mee decides that he should get a salary before they share the profits. After all, Mee is working while his lazy Friend is sleeping. SITUATION 1: Instead of MEE paying FRIEND 100 baht to use the moto, MEE and FRIEND share the profits 50:50 And then MEE takes half the profit (50 baht). MEE decides on a salary of 150 baht (without telling FRIEND)! 125 Baht for MEE

  20. Next Lesson: We learn about the Balance Sheet from MEE’s sister BEE.

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