Distinguishing between Equity and Long Term Debt in Accounting for Business

This report discusses the types of companies and their financial structures, and distinguishes between equity and long term debt. It explains the advantages and disadvantages of holding equity shares and preference shares, as well as the advantages and disadvantages of long term debt such as term loans and bonds.

Accounting for
Business

Table of Contents
INTRODUCTION...........................................................................................................................1
MAIN BODY...................................................................................................................................1
Distinguish between the equity and long term debt :..................................................................2
CONCLUSION................................................................................................................................4
REFERENCES................................................................................................................................5

INTRODUCTION
Business organisation is the structure or entity design for a motive of carrying a money making
institution. These concern are expected on system of law governing and property right,
incorporation, exchange and globally working organisation. In these firm finance is the like a
heart that runs a business forward. The company makes money in order to add an employees and
grow their business on long term basis(Alanzi, 2018). This is important component in the
organisation as it makes the operations more smooth and reduce the risk. The report will explain
that the types of companies exist and the difference between the equity and long term debt.
MAIN BODY
Company is the association or institution of people to engage in and operate a organisation. The
firm is made in various terms like taxes and financial liability aims depending on the company
laws of its justice. The company consist a various types of companies that are listed
below(Shawver, 2020).
 Sole trader business - It is also best-known as sole proprietorship, it is a type of
organization hold and conduct by the one person and there is no presence of legal
conflicts between members and the business organization. The institution considered in
the concept of sole trade business is Alan S kindred the accountancy firm . These type of
ventures like to own the company by themselves. They like to control the business in
their style and process. These companies exist because the owners of these industry are
the desired of earning profit and giving a long term growth.
 partnership limited business - It is an legal documented agreement between two or
more individuals, accept to collaborate to implement their common interests. These kind
of business are concerned with (LLP) limited liability partnerships. The company which
is the high-grade model of partnership firm is Casper and west Elm. These associate have
to share the earnings as per written in bond or according to the invested amount. In this
type venture there is high risk of battles between units(Georgiou, 2018).
 Companies - The structure of association which comes under the companies act and
consist a large number of employees and hold by the boards of director. These companies
provides equity to the public in market that benefits a concern directly. These of
companies have a common seal to represent their brand. These companies exist because
1

they are created by members and developed if they manage to get on the far side of
endurance level. These types of structure in United kingdom are Unilever and many more
who contributes in the economy of country(Maama and Appiah, 2019).
Distinguish between the equity and long term debt :
These are terms which are involved in the performance of the business. These are described
below.
Equity
Shares are the units of business owner in a company. It is a group or investment as mutual
funds, limited partnership and property investment. These are control by the owner of the
company. These gives direct benefit in the company revenue and profit. It consist a major types
of shares which are described below(Al-Htaybat, Hutaibat and von Alberti-Alhtaybat, 2019).
 Equity shares - These are named as ordinary shares, these are movable and traded
actively by investors in stock markets. As equity share holder the person have no rights of
voting on industry issue, but they have right to receive dividends. Moreover the dividends
are provided by the profits of the business, these are not fixed. These shareholders are
subject to the maximum risk. It also consist a types which are authorised share capital,
issued shared capital, subscribe share capital and paid up share capital.
The advantages of holding equity shares
1. Dividend
2. limited liability
disadvantages
1. High risk
2. Limited control
 Preference shares - these are the second types of shares issued by the company. These
shareholders receive preference in receiving profits of a company rather than the equity
shareholder. Even they have a voting rights in the organisational issues. It also consist
types these are cumulative and non cumulative preferences shares, participating non
participating share, convertible, non convertible and redeemable and non redeemable.
Advantages
1. Higher claim on company assets
2. Additional investor benefits
2

disadvantages
1. costly source of finance
2. preferences in claims
Long term debt
It is the type of debt that mature more than one year . It have a options of expanding the policy
from the date of forfeit(Seah‐Tan, 2021).
1. Term loan - It is a monetary loan that is repaid in daily payment over a time period over
a set of duration. It involves an unfixed interest rates that will add additional amount to
repaid.
Advantages
1. Manages monthly payment- these are ranged in 1 to 5 years, but some terms have the
maturity period of 20 years.
2. Limited total loan cost – the cost are reasonable as well due to property as collateral.
Disadvantages
1. Depreciation- it happen with some equipments presents a challenge.
2. complicated process – sometimes it is a complicated process specially if it is a new
business and don't have much in method of financial statements to issue.
2. Bonds – It is the units of corporate debt provided by the company and secured as trade able
assets. It is a fixed income instruments since bonds traditionally paid a fixed interest to the debt
holders(Bangemann, 2017).
Advantages
1. Bonds have a clear and transparent advantages over the other secured policies.
2. The bondholder also enjoys the a measures of legal protections, under the law of various
countries.
Disadvantages
1. These are subject of risk such as credit risk, reinvestment risk, liquidity risk and event
risk
2. Changes of price directly effect the mutual funds that controls bonds .
3

CONCLUSION
From the above report it is concluded that the business organisation is the structure that are
performing action for money making with including the profitability for industry. The above
discussed topics explains that it is a risk oriented process. Every type of company enjoy when
they are earning a good return from the market .
4

REFERENCES
Al-Htaybat, K., Hutaibat, K. and von Alberti-Alhtaybat, L., 2019. Global brain-reflective
accounting practices: Forms of intellectual capital contributing to value creation and
sustainable development. Journal of Intellectual Capital.
Alanzi, K.A., 2018. Female accounting students and their academic performance: evidence from
Kuwait. Journal of Islamic Accounting and Business Research.
Bangemann, T.O., 2017. Shared services in finance and accounting. Routledge.
Georgiou, O., 2018. The worth of fair value accounting: dissonance between users and standard
setters. Contemporary Accounting Research, 35(3), pp.1297-1331.
Maama, H. and Appiah, K.O., 2019. Green accounting practices: lesson from an emerging
economy. Qualitative Research in Financial Markets.
Seah‐Tan, S., 2021. Business Combinations under Common Control: A Controlling Entity Cost
Approach. Australian Accounting Review.
Shawver, T.J., 2020. An experimental study of cooperative learning in advanced financial
accounting courses. Accounting Education, 29(3), pp.247-262.
5