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Encyclopedia Of Business And Finance
204 Downloads | 9 Pages 2,043 Words | Published Date: 21/10/2016
On the other hand financial accounting refers to the manner in which the yearly reports of the shareholders such as the balance sheet or the income statement of the company is being represented. This assists the company in understanding the monetary position of the company. All these kinds of data are generally prepared by the company (Kaliski, 2007). These data is for the shareholders of the company, the tax department and the investors in the company.
This research study the researcher tends to analyse the various forms of business units which are accessible in the market along with the examination of the concepts of management accounting and financial accounting.
The different forms of business units:
Sole proprietorship generally refers to the business which is owned as well as run by a person. This type of business may be considered as the simplest form of business and in this type of a business it may be so that many people control the business but it is owned by only one. Such business can be formed by very easily and it also helps the owner to enjoy a lot of profit which is earned from the business (Mariotti and Glackin, 2013).
Formation of Sole Proprietorship:
Formation of sole proprietorship can be done very easily. Under such circumstances where the sole proprietors want to open business they can open a sole proprietorship business may be started. There is no requirement of licenses in the case of sole proprietorship businesses. Further such business may be maintained as long as the proprietor is interested to operate such kind of business.
Advantages of sole Proprietorship Business:
There exist a number of advantages for sole proprietorship business when compared to that of other kind of businesses. Some of the areas where the sole proprietorship has advantages involve operational areas and tax areas (Mariotti and Glackin, 2013).
Among the operational advantages the most significant is that it is comparatively easy to build a sole proprietorship business. Any individual who operates the business would become an owner of the company. The next significant advantage in the operational department is that in these kinds of business the proprietor is the sole operator and such a person alone enjoys the profits of the business.
With regard to the tax advantages in these types of business it needs to be mentioned that it is only this kinds of business where the proprietor need not file for any different tax. The entire profits of the business or loss are generally added in the personal income tax form of the proprietor.
Drawbacks of the Sole Proprietorship Business:
However, there exist some disadvantages of the sole proprietorship businesses. These disadvantages are generally related to liability of the business.
The most important disadvantage of the sole proprietorship business is the hidden experiences of liability related to this. In this type of business the proprietor becomes responsible for the debts of the company and any pressures in relation to the company.
There exists one more restriction as to sole proprietorship which is again related to the operational area. Under such circumstances where the proprietor in interested in including another proprietor, in such cases the business does not remain as the sole proprietorship business. It turns into a partnership business. The only person whom the proprietor can include in his or her business is the spouse.
End of a Sole Proprietorship:
The moment the sole proprietor stops operating the business, the sole proprietorship stops operating. Such a circumstance arises when the proprietor sells the business or shuts down the business.
When a business is owned by more than one individual who pledges to form together a business or an institution with the purpose of earning profit from that business, such a business is called Partnership business and each of the individuals are known as partners. Generally the partners lend the required amount of money and later also divide the profits among themselves. When any person decides to start a partnership business, firstly the decision regarding the division of profits should be made and the contributions to be made by each of the partners. The decisions regarding the loss in the business and the getting of the maximum profits in the company should be discussed and finalised. Before the commencement of the business the partners need to make a proper agreement and the business will be conducted according to those terms of the agreement. This agreement is known as the Partnership Deed. In accordance to this deed the partners are to commence business and operate the company. In order to avoid any controversies in the future the agreement is generally done in writing.
Characteristics of Partnership Business:
More than one member: The primary characteristic of the partnership business is that a minimum of two individuals are required to form a partnership. The objective of the business is to earn profits for the company and hence they tend to hold their hands in partnership and call themselves partners.
Agreement: Before the partnership business commences the partners are required to make an agreement among them with regard to the operation of the business. This agreement would be known as the Partnership Deed and this agreement is generally written down.
Lawful Business: For the smooth running of the business it is essential that the partners stick together and abide by the laws. None of the partners should involves in black marketing or possess black money. In order to keep the businesses running in accordance to the laws it is essential that the taxes are paid in time.
Competence of the Partners: In accordance to the laws of business, the partners cannot be minors. The partners need to stay together to run the business. In case the laws of partnership are not followed then the partnership company would be in trouble with the law. The minors cannot take any decision for running the company and they would be entitled to the profits earned form the company.
Profit Sharing: The primary objective of the business is earning of profits. Hence the amount of share of the profits by the partners needs to be mentioned by the partners in the agreement. Hence once the agreement once made the partners have to abide by the profit rules of the agreement.
Advantages of Partnership Business
Some of the advantages of the partnership business have been mentioned below:
Firstly, the establishment of the business is extremely easy;
Secondly, the amount of resources present in this business is much more;
Thirdly, the business is run by the partners and so the decisions in the business are made by the partners;
Fourthly, the operational area is extremely flexible and
Finally, the in most cases, all the partners share the risk factor in the business.
Drawbacks of Partnership Business:
However, there are a few disadvantages of partnership business as well.
Firstly, the liabilities in this case are generally unlimited;
Secondly, there exists no certainty with regard to the partnership life;
Thirdly, usually in partnership cases the management tends to lack harmony amongst them;
Fourthly, the capital amount in this type of business is extremely limited and
Finally, the profit sharing cannot be transferred to the others without the permission of the partners in the company.
The concept of limited company is more prevalent in the European countries. In this type of business structure the assimilation is such that the entire amount of accountability is with the shareholders of the company. This type of business structure is also called Limited Liability Company. However, later the name was modified to Limited Company (Mariotti and Glackin, 2013).
Generally there exist two types of Liability Company. The first kind is known as the Public Limited Company and the second type is known as the Private Limited Company. In the case of Limited Company the money that remains outstanding of the company is usually removed from the shareholders of the company. In these kinds of companies the proprietorships can be transferred from one person to another very easily (Kaliski, 2007). There are a number of such Limited Companies which has been running through the generations.
Formation of Limited Company:
While establishing a Limited Company, the most essential thing to do is to complete the process of registration. The owner of the Limited Company needs to register the company in the Companies House. In accordance to the Act of Companies Act, 2006, all the Limited Company is required to have one director and one secretary. However, presently the inclusion of secretary is not required. The Companies House looks after the registered companies under the act. The estimated research shows that during the beginning of the 21st century there existed almost two million companies in the corporate market in the country.
Merits of Limited Company:The corresponding investors exhibited adequate interests in investing into the Company.
Additional benefit is derived from the phrase “limited.”
All investors may favorably transfer shares into the firm, and that the agreements of it are quire flexible as well as transparent in nature as compared to others.
All the dividends that the company pays to the investors are comparatively less taxable in comparison to others.
The rate of paying taxes is considerably low in case of limited Company.
Demerits of Limited Company:On account of legislative compulsion, accountancy cost is quite high in these companies.
The Company secretary as well as directors controls the legal aspects under the Company Act 2006.
In cases of Limited Companies, enforcements within legislature is higher like that of VAT or annual account reports of such Companies.
This concept refers to the approach to prepare reports relating management as well as accounting that represents the perfect numerical as well as financial data required by the organizational managers for taking important decisions in the shortest time period.
This term refers to the approach that presents the annual report relating to the shareholders such as company balance sheets as well as income statements. It enables a firm to effectively understand the key financial status of the firm. This is prepared by the firm and meant for the investors, company’s tax department, and also company’s shareholders.
Distinction between Financial and Management Accounting:
Financial accounting refers to the approach to present annual report meant for the shareholders. on the other hand, management accounting presents weekly or monthly report meant for organizational managers or chief executive officers of firms (Kaliski, 2007). The report provided by the management accounting enables managers to have an idea about the amount of cash possessed by the firm, revenue generated from sales, accounts payable by the firm, amounts receivable by the firm, and provides several other statistical data related to the firm.
The studies of research analyst show presence of different business units, these are Partnership business, Sole Proprietorship, and Limited Company. Several benefits are achievable from each business unit. Benefits of research analyst studies identify that Limited firms are better off as compared to other types. Disadvantages also exist in such business units. They also study significances of management as well as financial accounting within a firm for operating business successfully. For achieving the objectives of the firm, such study is required. These tools support the firm for understanding status of the firm.
Each of the business has merits as well as demerits. All investors must pay attention to such merits and demerits. They must identify various business types that investors wish to operate in. they must attempt for minimizing the demerits of business units by focusing on the demerits carefully.
Kaliski, B. (2007). Encyclopedia of business and finance. Detroit: Macmillan Reference USA.
Mariotti, S. and Glackin, C. (2013). Entrepreneurship. Upper Saddle River, N.J.: Pearson/Prentice Hall.
Mintzer, R. (2013). Start your own grant writing business. Irvine, Calif.: Entrepreneur Media.
Oberrecht, K. (2010). How to start a home-based photography business. Guilford, Conn.: Globe Pequot Press.
Sinclair, J. (2007). EBay business the smart way. New York, NY: Amacom.
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