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Accounting Assignment: Accounting Fundamentals

   

Added on  2020-05-28

7 Pages2120 Words108 Views
Running Head: Fundamentals of AccountingFundamentals of Accounting

Fundamentals of Accounting2Question 1:Proficient-level: Identify and describe the three basic forms of business organizations.What are the advantages and disadvantages of each form of ownership?Distinguished-level: Business entities can also be categorized by the type of business activities they perform. Identify and describe the three types. What do all three types have in common?Answer:The three basic forms of business organisations and their advantages and disadvantages are:1.Sole Proprietorship:This means the business is owned and controlled by one person.Advantages:i)Sole decision making power lies in the hands of the owner.ii)All the profits remain with the owner only. No profit sharing will be there.Disadvantages:i)The owner is personally liable for all the misdeeds and law suits.ii)If the owner of the business dies, the business will either terminate or defunct.2.Partnership:Two or more people join hands together and share the profits and losses earned by them.Advantages:i)All the partners will contribute in financing and are equally held liable for the losses.ii)It is easy to form and terminate as per the will of the partners.Disadvantages:i)It is difficult to take decision as every partner’s consent is necessary.ii)The case of conflict arises in-between the partners.3.Corporation:It is an entity owned and controlled by multiple of shareholders. It has a different identity from the owners of the corporation as the entity is recognised as an artificial person.Advantages:i)It can easily raise additional funds by raising share capital.ii)Every shareholder has a limited liability only up to their stake in the capital of the corporation.Disadvantages:i)It is difficult to form and regulate as so many laws and regulations intervene the running of the corporation.ii)The profits are divided to the shareholders only in the ratio of the capital held by them in the company. That means high investment and low returns (Walker, 2009)Categorisation of business entity by the type of business activities they perform:1.Service Companies

Fundamentals of Accounting32.Merchandising Companies3.Manufacturing CompaniesAll these three companies have a common practice to prepare financial statements at the end of the financial year. These financial statements include balance sheet, income statement, the statement of retained earnings and cash flow statement.Question 2:Proficient-level: Identify the primary objectives of every business.What are the four basic financial statements that measure the primary objectives of every business?Describe what information each statement presents and which of the primary objective(s) canbe met through the information presented on the statement.Distinguished-level: Describe the difference between an asset, liability, and equity on a company’s balance sheet.Answer:The primary objective of every business is profit maximization and the survival of the business.The four basic financial statements that measure the primary objective of every business are:i)Balance sheet:This stows the financial position of the company and reports on the company’s assets, liabilities and owner’s equity at a given point of time.ii)Income Statement:This presents the revenues, expenses and profit/loss generate by the company in the reporting period say one financial year. This is also knows as profit and loss statement.iii)The statement of Retained Earnings:Also known as statement of changes in equity shows the movement of owner’s equity in a given period of time.iv)Cash Flow Statement:This shows the inflow and outflow of cash in operating, investing and financing activities of the company.The difference between an asset, liability and equity on a company’s balance sheet:Asset:They are the tangible and intangible items owns and belongs to the company they can be current and non-current as can be kept for more than one year and can be realised in cash before a year (Walker, 2006)Liabilities:

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