Accounting for Business Types of business enterprise
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This report discusses the existence of sole trader, partnerships and company. It also explains the difference between forms of share capital and long term debts for the business. The report highlights the importance of businesses in providing employment and contributing to the economic development of the country.
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Accounting for Business Types of business enterprise
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TABLE OF CONTENTS INTRODUCTION...........................................................................................................................1 MAIN BODY...................................................................................................................................1 CONCLUSION................................................................................................................................1 REFERENCE...................................................................................................................................2
INTRODUCTION Accounting for business means preparing, recording and summarizing all business transactions. Accounting is the important part of the business in order to record daily as well as special transactions. This report will discuss about the existence of sole trader, partnerships and company. Further it will discuss about the difference between forms of share capital and long term debts for the business. MAIN BODY Three different types of businesses enterprise exist Mainly there are three various kinds of business enterprise which are sole trader, company and partnerships (Teece and Linden, 2017).Sole trader or sole proprietor means single owner of the business which have complete control over the business. They are responsible for everything in the business whether it is financial related decisions or hiring employees etc. sole trader have unlimited liability which means that they have sell his or her personal property for paying back to their creditors. It is one of the easiest form of business and it is often easy to start and also easy to exit. Example of sole trader are social media consultants, freelancers, copywriters etc. Next ispartnershipswhich means the formal agreement which is made between two of more than two people which come into contract to start the business (Defourny and Nyssens,2017). Under this enterprise partners share the profits on the agreed ratio. Partnerships are of many types which are sleeping partners, working partners, nominal partner, general partnerships etc. example red bull and go pro, Levis and Pinterest etc. third one iscompanywhich is also called as the artificial person. Company gets registered with their own name and have many owners in the form of shareholders. Company have team of directors which takes important decisions. Company raises funds by providing shares to the shareholders and in return they pay dividend to their shareholders out of the company's profit. Company is the large enterprise and the owner of the company has limited liability (Lee, 2019). When it will get dissolved than payment will be done to the debtors and than to the shareholders. Example Tesco, marks and Spenser etc. 1
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these three type of businesses exist because they provide employment to many people. It also contribute in the economic development of the country. Often government provide subsidy or other support to the small businesses so that they can grow. In order to increase the economic development of the country it is required to have more and more businesses. Due to lack of companies in the country often people migrate to another country and because of that talented and knowledgable citizen of the country moves to other country. So this is also the reason that government support businesses because they provide jobs to many people. Differentiate between share capital and long term debt Share capitalis the capital which is raised by the company from the public by issuing shares at stock exchange. Company invite public to purchaser shares from them. Public gives funds to the company and in return company provides them dividend. long-term debtmeans the debt which have more than 12 months of maturity period (Long Term Debt., 2020). Company often taken long term debt so that they can satisfy the long term funds requirements of them. Banks and other financial institutions provide long term debt to the company. Debts are the financial obligations of the businesswhich they have to pay anyhow. Company require time to pay their long term liabilities because they generate cash by selling their inventory. The two types of share capital are common stock and preferred stock. The major difference between share capital and long term debt is that when company issue shares then they have to provide ownership to the shareholders but in the case of long term debtsthere is no need to provide ownership to the company (Farah and Amin, 2021). Shareholders can be called as company's owner and institution which provide long tern debt are the creditors of the company.In case of share capital company has to pay dividend to the shareholders and in case of long term debt it is required to pay interest to the financial institution. Company will pay dividend to the shareholders only if company had earned profits but in case of long term debt, interest is paid by the organisation in any situation whether the firm is incurring profit or loss interest is compulsory to pay. Shareholders have the voting rights in the company while the institution which has provided funds to the company have no voting rights. two types of long term debts are bonds and bank loans. Shareholders have the power to interfere in company's decision-making while in case of long term debt it is not allowed (Shahab, Mohammad Zaheri and Asadi, 2017). If company will wind up their business operations then money has to be paid to the financial institutions or investors 2
which has given long term debt but money is to be given to the shareholders at the end after company has done all the payments. CONCLUSION Through this report it can be concluded that it is required to exist business enterprise so that people can get employment and also it contribute in the economic development of the country. This report has evaluated sole trader, partnerships and company in detail. Share capital are the owner of the business while long term debt is the fund which is raised by the company from financial institutions. Company also issue bonds for fulfilling its long term finance requirements. 3
REFERENCE Books and Journals Defourny, J. and Nyssens, M., 2017. Mapping social enterprise models: some evidence from the “ICSEM” project.Social Enterprise Journal. Farah, I. and Amin, C., 2021. The Effect of Debt To Asset Ratio, Long Term Debt To Equity RatioandTimeInterestEarnedRatioonProfitability.BINABANGSA INTERNATIONAL JOURNAL OF BUSINESS AND MANAGEMENT.1(1). pp.68- 78. Lee, I., 2019. The Internet of Things for enterprises: An ecosystem, architecture, and IoT service business model.Internet of Things,7, p.100078. Shahab, A., Mohammad Zaheri, M. and Asadi, N., 2017. Impact of Long-term Debt on OverinvestmentProblemofAgency.AdvancesinMathematicalFinanceand Applications.2(4). pp.93-105. Teece,D.J.andLinden,G.,2017.Businessmodels,valuecapture,andthedigital enterprise.Journal of organization design.6(1). pp.1-14. online LongTermDebt.,2020.[Online].Availablethrough: <https://corporatefinanceinstitute.com/resources/knowledge/finance/long-term-debt- ltd/> 4
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