TABLE OF CONTENTS INTRODUCTION...........................................................................................................................1 PART 1............................................................................................................................................1 A) Different types of business organisations with their advantages and disadvantages..............1 B) Main users of accounting information and its importance to different users.........................5 PART 2............................................................................................................................................7 Journal Entries.............................................................................................................................7 PART 3............................................................................................................................................9 A) Journals..................................................................................................................................9 B) ledgers and Trial Balance......................................................................................................10 PART 4..........................................................................................................................................12 a) Income Statement of S Keyes for year ending 30th September 2019...................................12 b) Statement of Financial Position as at 30th September 2019................................................12 CONCLUSION..............................................................................................................................13 REFERENCES..............................................................................................................................14
INTRODUCTION The business operates at multiples levels. Inthe diversified market there are different formsofbusinessorganisationthatcouldbeestablisheddependingontheneedsand requirements. There are different advantages and disadvantages associated with every types of organisation. The forms of business organisation are sole trader, partnership and corporations. Theseorganisationsareestablishedcomplyingwithseparatedlegalrequirements.These organisations have to prepare accounting records as per the applicable framework. Financial statements are necessary for organisations to be prepared as they help the executives of the business to review their performance. It helps them to make changes in their policies and procedures for increasing the efficiency of business(Aljuwaiber,2016). The type of business organisation that is adopted will be influencing multiple factors that will decide about future of company. There are several factors like tax liability, legal liability, establishment cost and the operationalcoststhatvarywiththetypeoforganisation.Thereportwillcovergive understanding about different types of business organisations that can be established. It will also reveal about the importance of financial information to users. PART 1 A) Different types of business organisations with their advantages and disadvantages. As an business owner first decision is about the structure of business organisation. Before making any decision one should know about the advantages and disadvantages of every kind of business. Legal configurations should be adopted by the business defining the right and obligation related to the participants in control, ownership, legal liability, personal liability and lifespan. Business types determines the income tax return to be filed and liabilities of owner and company. When forming business following factors should be accounted for like nature and size of business organisations , control level in organisation, structure, vulnerability of legal lawsuits, tax implications and profit or loss(Dash,Satpathy and Dash,2018). Types of business organisation that are mostly incorporated are : Sole Proprietorship This is the mostly accepted business type. Business of sole proprietor is owned by single owner. Business of sole proprietor is usually established for the benefit of the owner. It is established by single person for becoming the sole owner of firm. Existence of business is entirely dependent upon decisions taken by the owner. The sole right of taking decisions rests 1
with the owner of business. Sole proprietor have the responsibility of running business on day to day basis. There are large number of sole proprietary firms but in aggregate are accounting for very small business receipts(Johanson and Vakkuri, 2017). Example of sole proprietors are freelancers, independent contractors or photographers. Advantages Sole proprietor business is easy to form. Establishment of business is very simple like printing business cards. Also the dissolution of business is an easy process it does not involve lengthy legal requirements. It is least expensive business form that can be established. In this type of business start up costs are very low and also the operational cost are low as they generally operate on small scale. This type of business organisation do not have to follow and comply with major legal requirements and regulations. Owner of the business receives all the profits. They are not required to share the profits with others. Owners have the complete control over the company and have the sole authority of taking decisions.They are not required to corporate income tax return. Income realized by the business of sole proprietor are declared on the income tax return of the individual. Disadvantages Owner of the business has an unlimited liability. They are all liable personally for all the business obligations inclusive of employee's action related to business functions. Sole proprietary firms have limited life, business generally dies with the death of owner. Raising funds for the business is difficult task, only limited loans can be raised. A sole proprietary firm has no separate legal status. Partnership In a partnership business ownership is shared between more than two individuals. Partnerships can be small as well big like accounting firms having dozens of business partners. The partnership firm like sole proprietor is not differentiated from it owners. Partnership are established on agreements between the partners. These agreements could be oral or written. 2
Paraphrase This Document
Need a fresh take? Get an instant paraphrase of this document with our AI Paraphraser
Partnership firms are required to be registered under Partnership Act. Legal agreements about the partnership are generally based on decision-making structures, sharing of profits, resolution of disputes,admissionofpartnersandactionproceduresondissolution.Itisessentialfor partnerships to have the agreements before the establishment so that they do not face conflicts at later stage. There are two types of partnership firms that are general & limited. In general form of partnership investment in business is made by all the partners and these partners are responsible for all the debts of business(Mbuga, 2015). Formal agreements are not required in this kind of partnership, agreements could be verbal or implied among the business partners. On the other hand limited partnership are required to have formal agreements among the partners. Certificate of partnership is to be obtained by firm. In this form business partners are allowed to limit their liability in agreed proportion of ownership. Advantages Business potential is raised by combining the strengths of individual partners. All the partners share the resources for business that increases the capital of firm. Partnership firms are easy to establish, are flexible and do not have much regulatory compliances. Attention is only paid while making agreements. Profits are shared among the partners based on the agreements entered into by partners. There is an increased access over the resources that could be used for business. Partnership firms have separate legal status that gives protection in the event of liability. They are not liable for any corporate income taxes. Income is declared by filing tax return of partnership firms but the partners have to declare their proportion of income in individual tax returns.Partnership firms are not expensive to establish whether limited or general. Disadvantages Partners are personally liable for all the business obligations to an unlimited level. It creates personal risk over the partners for the business debts. Decision-making process may not be effective as views of partners may differ depending on the individual perspectives to the point. In absence of partnership agreements conflicts may arise among the partners. A wrong action of single partner can make liable all the partners of the firm. 3
Dissolution of partnership and distribution of the assets and liabilities is complex process. Corporation Corporations are established as separate legal enterprise from that of its owners. A corporation is considered as separate legal person for the tax purposes. Corporation has all the power that rests with an individual.A corporation can be sued, taxes and also it can enter contractual agreements in it own name. Corporation can have its own bank account, can raise loan on its own and can sue or be sued in its own name(Borkowski, 2016.). A corporation is born by law and dies by law. Corporation do not dies with the death of owners. Income generated by the business belongs to company as its personal income. Income is taxed as personal income of the company. Corporation can be private as well as public. Legal requirement related to both the organisations differ from each other. Private organisationsarenotlargeaspublicorganisations.Shareholdersaretheownersofthe corporations. All the activities and procedures of corporations have to comply with the rules and regulationsunderthelaw.Legislationsareestablishedforguidingandmonitoringthe corporations over all the business affairs. Single person or director cannot take the decisions of business. Decisions of the businesses are taken by conducting board meeting and general meetings.Profitsaftertransferringcertainamountinreservesaredistributedamongthe shareholders of company. Establishment of corporation is an expensive process and require lot of legal requirements to be followed(Business Organisations. 2019). Advantages A corporation has an unlimited commercial life. Corporation do not dissolves with the death of owner but remains in existence it is dissolved by law. Corporations can raise funds for the business from public by issuing different securities. Companies can be listed on the stock exchange. Ownership of corporations is transferable and can be transferred number of times by selling the shares. Biggest advantage of establishing corporation is limited liability of feature. The liability of the shareholders is limited to their part of shareholdings. Owners are not personally liable for the debs and losses of company. Personal assets of owners cannot be charged for payment of business debts.Profits are distributed fairly among the shareholders on the basis of their shareholdings. 4
Disadvantages Corporations are regulated by laws and legislations and company cannot contravene the provisions of the act. Compliance with regulations is costly process. Corporations have high operation and organisational costs. Clerical and legal expenses of company can increase the budgetary limits. Decision-makingisalengthyprocessincorporationsithastoundergodifferent procedures before making the decisions(Dipboye, 2016). There is a disadvantage of double taxation in corporations. Taxes are paid on profits of company and also shareholders have to pay taxes on the dividend income. B) Main users of accounting information and its importance to different users. Motive of accounting is accumulating and reporting on the financial informations related to financial positions, performance and business cash flows. The accounting information enable to make decisions on management of business, investments and borrowing money for carrying business transactions. The accounting information are recorded in the accounting records of business where all the transactions are recorded through standardized business transactions. Based on these accounting information financial statements are prepared which include, incomes statement, statement of financial position, cash flow statements, statement for retained earning and the disclosures for accompanying financial statements. Financial statements are prepared using basic accounting frameworks. This frameworks and standards are established for maintaining uniformity in all companies(Judge and Robbins, 2017). This enables users of financial information to make comparisons between the different organisations. Information related to the business operation are provided to companies by accountingdepartment.Theykeeprecordofalltheaccountingtransactionsandthese informations are reviewed by accounting and auditing firms. These informations are used by business executives for deciding about their future growth plans or enhancement of the existing business structure. Accounting information is used by both internal as well as external users. Users and their needs to users. Internal Users Owners First and foremost user of accounting information are owners of the business. Owners use accountinginformationfor assessing the performanceof company. They provide owners 5
Secure Best Marks with AI Grader
Need help grading? Try our AI Grader for instant feedback on your assignments.
information about whether businessis generating required level of profits or not. It also allows companies to find out the profitability of individual products, departments, branches and of the overall business. This enables owners to identify the risk factor that are to be dealt so that do no affect the growth of organisations(Kinicki and Fugate, 2017). It allow owners to assess the stability level of businessfor given period of time and identifying the extent to which economic factors have affected bottom line of business. Owners can make decisions about whether they should make further investments in business or the financial resources of the company should be used in promising ventures of business. Primary motive of starting a business by owners is ofearning profit and the information helps to know the position of company. Managers Another users of accounting information are the mangers. Accounting information is requiredbymanagementforplanning,monitoringandmakingthebusinessdecisions. Accounting information is used by managers for allocation of human, financial & capital resources for competing with the business needs by budgetary processes. Relevant accounting information is required by managers of company so that they can make prepare and monitor the budgets for various processes, activities, services, department and segments of business. Accountinginformationisrequiredbymanagersformonitoringthebusiness performances by comparing competitor analysis, past performances industry benchmarks and key performance indicators.Accounting informationis required by managersfor making business decisions like pricing decisions, investments and financing(Lăzăroiu, 2015). Using the accountinginformationmanagementofthecompanyframepoliciesandproceduresfor achieving the organisational goals. For these purposes financial information is used by the management. External Users Investors Financial information is used by investors for knowing the performance of investments. Financialinformationisrequiredforassessingtheprofitability,risksandvaluationof investments. This information is required by investors for determining about the investment 6
whether the investment should be retained, bought or sold. It also used by investors for determining how effectively their funds have been utilised by company(Miner, 2015). Lenders Lenders are the financial institutions or individuals who lend funds to company for earning interest income. Accounting information is used by lenders before availing funds for identifying whether business will be able to repay the loans along with interest. They can identify the assets and liability position of company before granting loans to company. Suppliers Sellers are the business organisations or individuals who provide raw materials to business on credit. Accounting information give idea about credit worthiness of business so that they can make decisions before giving raw materials. It is also used by suppliers for assessing the wealth of its customers. Customers Accounting information is used by consumers for knowing the current market position of business and making judgement for business future. Customers of business can be wholesalers,m retailersandfinalconsumers(Musringudin,AkbarandKarnati,2017).Customersuse accounting information for knowing the business performance whether company will be able to continue the supply of parts, raw materials or components that are used for various uses. PART 2 Journal Entries Journal Entries DateParticularsDebitCredit 01/06/19Van2696 To Pressed Garages2696 ( Being van purchased on credit from Pressed Garages) 03/06/19Bad Debts50 To K. Patel50 (Being bed debt written off for due from K.Patel) 08/06/19Past Time ltd400 To Office Fixtures400 (Being office fixtures returned to 7
Past Time Ltd) 12/06/19Bank100 Bad Debts60 To Q Hanson160 (Being settlement of Q Hanson a/c) 14/06/19Drawings100 To Inventory100 (Being goods drawn by owner) 28/06/19Capital a/c50 To Insurance50 (Being insurance debited for personal expense reversed) 28/06/19Machinery650 To Electronics R Us650 (Being machinery purchased on credit) 8
Paraphrase This Document
Need a fresh take? Get an instant paraphrase of this document with our AI Paraphraser
PART 3 Transaction in books of S.Keyes & Co. A) Journals Journal Entries DateParticularsDebitCredit 02/06/19Van3700 To Bank3700 05/06/19Office Fixtures850 To Office Hand ltd850 08/06/19Van 23600 To Draycarts ltd3600 12/06/19Cash90 To Bank90 15/06/19Office Fixtures60 To Cash60 19/06/19Dray Carts ltd3600 To Bank3600 21/06/19Cash2500 To Loan (Y Henry)2500 25/06/19Bank200 To Cash200 30/06/19Office Fixtures340 To Bank340 9
B) ledgers and Trial Balance a) Ledgers LEDGER OF S. KEYES CASH A/C DateParticularsDR. £DateParticularsCR. £ 01/06/19To capital750015/06/19By fixtures60 25/06/19By bank200 30/06/19By bal b/f7240 75007500 CAPITAL A/C DateParticularsDR. £DateParticularsCR. £ 30/06/19To bal b/f750001/06/19By cash7500 75007500 VAN A/C DateParticularsDR. £DateParticularsCR. £ 02/06/19To bank3700 08/06/19 To Draycarts360030/06/19By bal b/f7300 73007300 BANK A/C DateParticularsDR. £DateParticularsCR. £ 25/06/19To cash20002/06/19By van3700 30/06/19To bal b/f753012/06/19 By petty cash90 19/06/19 By Draycarts3600 30/06/19By fixtures340 77307730 FIXTURES A/C DateParticularsDR. £DateParticularsCR. £ 05/06/19 To office hand ltd85030/06/19By bal b/f1250 15/06/19To cash60 30/06/19To bank340 10
12501250 OFFICE HAND LTD. A/C DateParticularsDR. £DateParticularsCR. £ 30/06/19To bal b/f85005/06/19By fixtures850 850850 DRAYCARTS LTD. A/C DateParticularsDR. £DateParticularsCR. £ 19/06/19To bank360008/06/19By van3600 36003600 PETTY CASH A/C DateParticularsDR. £DateParticularsCR. £ 12/06/19To bank9030/06/19By bal b/f90 9090 Y. HENRY A/C DateParticularsDR. £DateParticularsCR. £ 21/06/19To loan250030/06/19By bal b/f2500 25002500 LOAN A/C DateParticularsDR. £DateParticularsCR. £ 30/06/19To bal b/f250021/06/19 By Y. Henry2500 25002500 b) Trial Balance TRIAL BALANCE AS AT 30 JUNE 2019 PARTICULARSDR. £CR. £ Capital7500 Cash7240 Van7300 Bank7530 Fixtures1250 Office Hand ltd850 Petty cash90 Y. Henry2500 11
Secure Best Marks with AI Grader
Need help grading? Try our AI Grader for instant feedback on your assignments.
Loan2500 TOTAL1838018380 PART 4 a) Income Statement of S Keyes for year ending 30thSeptember 2019. Income statement as at 31 September Revenues Sales400000 less returns2000398000 Total Revenues398000 Expenses Cost of goods sold245400 Carriage inwards810 Motor expenses1500 Carriage outward2400 Rent4000 Telephone charges540 Wages and salaries21000 Insurance750 Office Expenses400 Sundry Expenses200 Total Expenses277000 Net Income121000 b) Statement of Financial Position as at 30thSeptember 2019. Statement of Financial Performance as at 30 September 2019 ASSETS Non Current Assets Van21000 Fixtures and fittings18000 Current Assets Accounts receivables52000 Inventory40000 Cash in hand3500 Cash at bank9000 12
Total Assets143500 LIABILITIES Non Current Liabilities Current Liabilities Creditors12000 Shareholder's equity Capital25000 Less: drawings1450010500 Retained Earnings121000 Total Liabilities143500 CONCLUSION From the above study it can be concluded that there are different types of business organisation. Before establishing an organisation it is essential to know the structure of business. They should analyse the factors such as nature and size of business, tax structure and ownership. All the business organisation have different regulatory requirements to comply. Accounting information is prepared by organisations for keeping record of financial transactions and to assess the performance of organisations. Financial information is used by different users as per separate needs. 13
REFERENCES Books and Journals Aljuwaiber, A., 2016. Communities of practice as an initiative for knowledge sharing in business organisations: a literature review.Journal of Knowledge Management.20(4). pp.731-748. Borkowski, N., 2016. Organizational behavior in health care. Jones & Bartlett Publishers. Dash, K., Satpathy, S.P. and Dash, S.K., 2018. Socio-Academic Diversity in Organisations Vis- A-VisOrganisationalCommunicationandAttitudeofEmployees.AsianJournalof Research in Business Economics and Management.8(10). pp.1-8. Dipboye, R., 2016. Exploring industrial & organizational psychology: Work & organizational behavior.ExploringIndustrial&OrganizationalBehavior,FirstEdition,Sattvic Publishing. Johanson, J.E. and Vakkuri, J., 2017.Governing hybrid organisations: Exploring diversity of institutional life. Routledge. Judge, T.A. and Robbins, S.P., 2017. Essentials of organizational behavior. Pearson Education (us). Kinicki, A. and Fugate, M., 2017. Loose Leaf for Organizational Behavior: A Practical, Problem-Solving Approach. McGraw-Hill Education. Lăzăroiu, G., 2015. Work motivation and organizational behavior. Contemporary Readings in Law and Social Justice. 7(2). pp.66-75. Mbuga, D.G., 2015.The Relationship between service delivery and customer satisfaction in the bankingindustry:ACaseofNMBSinzaBranch(Doctoraldissertation,Mzumbe University). Miner, J.B., 2015. Organizational behavior 4: From theory to practice. Routledge. Musringudin, M., Akbar, M. and Karnati, N., 2017. The effect of organizational justice, job satisfaction, and organizational commitment on organizational citizenship behavior (OCB)oftheprinciples.IJER-INDONESIANJOURNALOFEDUCATIONAL REVIEW. 4(2). pp.155-165. Online UsersofAccountingInformation.2019.[Online].Availablethrough: <https://www.accountingformanagement.org/users-of-accounting-information/>. BusinessOrganisations.2019.[Online].Availablethrough: <https://www.rifkindpatrick.com/Blog/2015/November/The-4-Major-Business-Organization- Forms.aspx>. 14