Accounting for Business: Types of Enterprise and Long-Term Sources of Finance

This report provides information about accounting and types of business enterprise, including sole traders, partnerships, and public and private limited companies. It also differentiates between share capital and long-term debt with respect to long-term sources of finance. The report concludes that managers need to maintain their books of accounts to keep track of transactions, and that owners often use leverage to finance asset purchases.

Accounting for business

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................3
TASK...............................................................................................................................................3
1.Describing the types of business enterprise with examples.....................................................3
2. Difference between two forms share capital and long-term debt long term sources of
finance public limited companies................................................................................................4
CONCLUSION................................................................................................................................5
REFERENCES................................................................................................................................6

INTRODUCTION
Business accounting is the systematic interpreting and recording of financial information.
The present report will provide detailed information about accounting and types of business
enterprise. It will give evaluation of establishment on type of companies like sole traders,
partnerships. further the report will differentiate the two forms of share capital and long-term
debt with respect to long term sources of finance.
TASK
1.Describing the types of business enterprise with examples
In the context of business unit, there are several forms which can be undertaken by
business entity while establishing venture such as sole traders, partnership, public and private
limited companies. These organization forms differ from each other in terms of legal aspects,
organisational structure and other policies as well as rules. For ensuring smooth functioning of
operations business unit owner should keep in mind following aspects at the time of ownership
form selection:
Sole traders- They may be defined as the one who runs and operates solely without any
interference of others (Mbedzi and Simatele, 2020). It is one of the simplest form of business
enterprise which an entity undertakes while initiating new business. Moreover, in this, business
unit is not obliged to follow standards related to the preparation of financial statements. Sole
traders mainly prepare profitability statement for getting deeper insight about return generated
over expenses. Salon, general stores etc fall under the category of sole traders which possess
unlimited liability pertaining to business operations. This ownership form facilitates quick
decision making as there is no need to include others in business matters. Further, easiness
pertaining to business formation and closure is recognized as one of the main aspects which
encourages entrepreneur to start business as sole trader.
Company- In business world, companies can mainly be distinguished into two such
public and private limited firm. Public limited company may be defined as the one which offers
shares to the public. Shares of PLC’s are listed on the recognized stock exchange which in turn
offers more security to the investors. On the contrary to this, private companies are the one
which neither listed nor traded through stock exchange. Here, it is mandatory to maintain articles
of incorporation which shows number of shares, name location of the business and its main

purpose (Hernández, Yañez-Araque and Moreno-García, 2020). The risk that any person takes in
a company by investing personal money is restricted to the amount of their investment. Here the
lenders of the firm cannot force the members to pay debts. The memorandum of association and
articles of association need o be filed in order to incorporate a company with the registrar of
companies. A company may be private limited or public limited for example- Amazon.
Partnership- Two or more members can come together in order to form a partnership firm.
For establishment of partnership firm, it is mandatory to draft a partnership deed, which needs to
be signed by partners. The deed must be clearly maintained specifying the name of firm and
partners and the capital contributed by them. Ratios and other payments need to be mentioned in
the deed (Musweu, 2021). For example- Hewlett Packard is a famous partnership firm as a
company began business between two friends.
2. Difference between two forms share capital and long-term debt long term sources of finance
public limited companies
Share capital implies for the fund which firm generates by offering shares the the general
public at large (Ghatliya, 2020). In the current times, with the motive to increase return investors
prefer to invest money in the shares of firm which is performing its operations prominently. Two
forms of share capital are enumerated below:
Authorized share capital
 It presents limit to which company is
authorized to increase fund from its
shareholders.
 Company has no obligation to generate
all funds through public subscription.
 This kind of share capital cannot be
raised without shareholders’ approval.
Paid-up share capital
 Paid-up capital refers to the fund which
firm gets through the issuance of
shares.
 By issuing new shares to the potential
shareholder’s firm can increase paid-up
capital.
 As per the legal aspects, public and
private limited company is free from
obligation pertaining to maintain
minimum paid up capital.
Long term debt
A company has a different types of debt instruments it can utilize in order to raise capital.
It is the amount of outstanding debt a firm holds which has generally maturity of 12 months or

more than that (What is Long Term Debt (LTD)?, 2021). It is classified as non-current liability on
the balance sheet with respect to long term finance.
Term loans and mortgage bond
 The term loans have maturities of 5 to
12 years and they are generally secured
and unsecured in nature (Chapman,
2020).
 It is secured by a lien on fixed assets
such as equipment’s. There are various
conditions that favour the utilization of
long-term debts which includes large
profitability.
Bonds
 On the other hand, bonds have
maturities of 10 to 30 years, which is
more than term loans.
 Public limited company choose its
capital structure seeking the
combination of equity and debt so that
it can minimize the cost of capital raise.
 It is publicly tradable securities which
is issued by a company. Different types
of bonds are zero-coupon, high yield
and others.
CONCLUSION
To conclude, when a company take any kind of debt or long-term loans, they are creating
financial leverage, which may increase risk and expected return on the firm’s equity. By examine
the report, it is concluded that the managers need to maintains its books of accounts in order to
keep track on transactions. Additionally, owners will often use leverage to finance the assets of
purchase, as it is reasonable than equity. By investigating the study, it is analysed that there are
different types of companies and its purpose. So if any enterprise needs to choose Any kind of
business then they must observe the needs and purpose of its business.

REFERENCES
Books and Journals
Chapman, G. O., 2020. Comparison of Monetary Policy Actions: UK, Japan, and USA During
the Financial Crisis of 2008. SCMS Journal of Indian Management. 17(1). pp.5-15.
Ghatliya, V. I., 2020. ANALYSIS OF CAPITAL STRUCTURE OF INDIAN OIL
CORPORATION LIMITED (IOCL). International Educational Applied Scientific Research
Journal. 5(12).
Hernández, J. P. S. I., Yañez-Araque, B. and Moreno-García, J., 2020. Moderating effect of firm
size on the influence of corporate social responsibility in the economic performance of
micro-, small-and medium-sized enterprises. Technological Forecasting and Social
Change. 151. p.119774.
Mbedzi, E. and Simatele, M., 2020. Small, micro and medium enterprises financing: Costs and
benefits of lending technologies in the Eastern Cape province of South Africa. Journal of
Economic and Financial Sciences. 13(1). p.10.
Musweu, F. K., 2021. The Importance of including Business Entities in the Introduction of any
Basic Accounting Programme. International Journal of Business Management Insight &
Transformations [ISSN: 2581-4176 (online)]. 5(1).
Online
What is Long Term Debt (LTD)?. 2021. [Online]. Available through: <
https://corporatefinanceinstitute.com/resources/knowledge/finance/long-term-debt-ltd/ >