Bus 1050 1st Edition Lecture 19 Outline of Last Lecture I. The Contemporary Double- Entry System (slide in Canvas) A. Assets B. Equity C. Liability II.Introduction to FinanceOutline of Current Lecture III. Saikaku, The Eternal Storehouse of JapanD. IV.Defoe, from The Compleat English TradesmanV. Polo, from The Travels of Marco PoloVI. Bacon, Of Riches Current LectureRecap from previous lecture. A = L + E Productive assets = debt capital, equity capital Most companies do not pay dividends (subject to tax on them and what will you do with the money?) If a company does not pay a dividend then how do you, as an owner, make money? How do you get a return if the company doesn’t pay you a dividend? You’d get it in the form of capital gains or dividends, if they paid them. Saikaku (The Eternal Storehouse of Japan)Saikaku’s main message was that if you want to get rich you shouldn’t spend your money on useless things. (IPhones are a great example) He tells a story of a man that goes by the name of Fuji-ichi, who was very clever and frugal. He knew it all and made the proper decision-making inorder to get rich.Pg. 325 – On this page we learn about a story where Fuji-ichi purchases rice cakes based on their weight. He has the seller come to his house and refuses to open the door. But his clerk These notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a substitute.ends up opening the door and pays for Fuji-ichi’s rice cake. When Fuji-ichi realizes that his clerk has done this, he becomes very angry. This was because as time passed, the rice cakes had cooled off and dried up and as a result their weight had decreased. The value of the cakes was determined by their weight. When they arrived they were warm and moist, but as the time passed by, they became cool and dry. In essence, Fuji purchased evaporated water. The lesson here is, how do you determine the value of something? If Fuji would have negotiated the sale bypiece it wouldn’t have mattered, but he did it by weight so it did. Saikaku goes on to tell another story where Fuji invites some kids who want to know how Fuji got rich. They are sitting in the living room and they hear noises, which sound like Fuji is making food for them. But eventually Fuji comes out and he tells them that the noises they heard were him doing accounting related things and that he was not going to feed them. The moral here is that if you want to get rich, don’t go inviting people to your house for dinner. In other words, don’t look for excuses to waste your money. In retrospect, one could say that Fuji is a lousy manager because he fails to tell his clerk not to open the door.Defoe (The Compleat English Tradesman) Defoe used to be a prolific writer on the subject of business. His best-known book is Robinson Crusoe, which talks about a man who was stranded on an island for 27 years. A move was made off of this book and it was called castaway, with Tom Hanks. Back in the day women used to be second-class citizens, but in this story a women owns her own business. Casting up shop provides information about the financial condition of a company and the results of an operation. This phrase was replaced with the term “closing the books” and now it has been shortened to “closing”. Casting up shop became closing the books, which is now closing. Defoe lists two items at the end of the column. 1) Everything must be set down in a book 2) Everything must be done at the time it occurs. The reason behind this is because if you don’t record it when it happens then you may end up forgetting and it’s as if it never happened. As a result, when you put your balance sheet together, it won’t balance or if it does, it won’t represent what’s actually going on with your business. The better the information, the more likely you’ll make a good decision.Pg. 329 – Here we learn about a story where a man who doesn’t know how to read or write is extremely accurate when it comes down to bookkeeping. The problem with this is that no one else knows how to use his system and he could either be lying or if he passes away no one will know how to work with his system. This is one of the reasons why double entry bookkeeping has persisted for such long time. It’s because it’s universal in application and it works/ is reliable.We also come to learn that it’s important to always finish what you start. On page 330, line 14, we learn about a story where every time a customer buys from a merchant on credit (every business does business on credit) and periodically comes back and pays off portions of his/her account. Every time that customer comes into the shop one must make a journal entry at the time of the transaction. One must debit on the accounts receivable (asset) because when thingsare debited one’s account balance increases. But this is not information and fails to tell us what the balance is. One could find the balance that the customer owes you with the use of A = L + E, which comes from the ledger. The function of the ledger is to find the balance. It’s also important to do things right the first time, and finish the process. It’s not the amount that matters, it’s the diligence. Cash is king. A man with good bookkeeping wants to strive and succeed and vice versa. Second to your soul, a tradesman should always be prepared for death with respect to his books. Marco Polo (The travels of Marco Polo) Paper Money 13th century China, Marco and his father go down to the Silk Road and make deals with the “barbarians”. The entire global economy rests on trust. All currency in the world, people accept it because they trust it. Cuba is an example of a time that people lost trust in trust Pg. 350 People lose their life if they attempt to purchase something with currency people don’t have faith in. Money made from a natural fiber. Capital offense is an offense against the state.Bacon (Of Riches)The more the army has to carry around with them, the less flexible they are. Wealth has the power to make you become less virtuous. There is no use of riches other than for distributive purposes. One could do this by paying wages, use riches to buy things (circulate your wealth through the economy). The ways to enrich are many, most of which are foul. Parsimony means thrifty, frugality. But even this is not innocent because if I’m saving my wealth I’m not