Analysis of Business Accounting: Types, Share Capital, and Debt Forms

This report provides an analysis of various business types, including sole traders, partnerships, and companies, detailing their characteristics and examples. It further discusses two forms of share capital, bank loans and debentures, and two forms of long-term debt, equity shares and preference shares, critically evaluating their advantages and disadvantages. The report concludes by summarizing the key aspects of business types, share capital, and long-term debt, emphasizing the importance of understanding these concepts in the context of business finance and accounting. Desklib provides access to this and other solved assignments for students.

Accounting for business

TABLE OF CONTENTS.
INTRODUCTION...........................................................................................................................3
MAIN BODY...................................................................................................................................3
Different types of business..........................................................................................................3
Critically discussing the two forms of share capital:..................................................................4
CONCLUSION................................................................................................................................5
REFERENCES................................................................................................................................6

INTRODUCTION
The present report will analyse on various types of business through examples that exist
in the business environment of any firm. Moreover, two forms of share capital along with two
forms of long term debt in context of long term sources of finance will also be discussed in
detail.
MAIN BODY.
Different types of business.
From the business aspect business enterprise can be categorized under following types.
Sole trader are considered as independent people that run business as single individual.
Moreover, they are accountable for all profits and debts of business. Further, it is the cheapest
business structure as minimum legal formalities are required and all the power and control are in
hands of the individual. Also, sole trader does not have separate legal entity to its owner and
however it has to face certain challenges such as there is unlimited liability, no shareholders to
invest capital, no multiple partners etc. (Coate and Mitschow, 2018). For example: a sole trader
ABC has decided to started small business in UK relating to sales of sportswear products. Hence,
after such decision it is responsibility of the sole trader to gather required resources and do filing
of information along with legal formalities so that business can be conducted in smooth manner.
Partnership on other hand is concern when two or more people agree to carry out certain
tasks for fulfilment of certain business objectives. Also, partners in business hare profits equally
based on the agreement between them (Melnyk and et.al. , 2020). It can be two types general and
limited partnership. In case of general they consider various responsibilities along with debt
obligations whereas in limited partnership is mixture of both limited and general partners (San-
Jose, Mendizabal and Retolaza, 2020). Here general partners operate the business while limited
partners act as investors only where they have no control over company operations. For
example : Red bull and go pro are business partners where red bull sells more than energy drinks
and go pro sell more of portable cameras. Moreover, in such cases written form is signed
between the two parties known as partnership deed that is signed, registered and stamped by the
members.
Company is type of legal entity that is formed by the group of people so that some
common goals can be achieved easily. Moreover, companies can either be public or private,
corporations, associations, trusts, funds etc. depending upon the nature of business that it is

engaged in. Also, it is mainly developed to earn profits out of certain business activities.
Companies have the right to enter into certain contracts, have right to be sued or sue, pay certain
taxes, borrow money from shareholders, hire various employees and much more. However, there
are certain financial risks associated with starting up of any company along with there are long
working hours, tax issues, health risks, increase legal liability etc (Richardson and Shan, 2019).
For example: Unilever that is multinational consumer goods company in London and has various
employees that are associated with certain policy agreements that helps and guide them to carry
out certain tasks in proper and appropriate manner (Putra, 2019). Also, this company is private
company and hence it has to pay several taxes and conduct all activities in legal manner so that
there are no future restrictions or obligations.
Critically discussing the two forms of share capital:
The two forms of share capital can be either bank loans or debentures. Bank loans is type
when bank offers some types of loans for certain period. Moreover, such amount need to be
repaid by the firm on due date along with certain amount of interest on the principal amount.
However, it is critically analysed that such bank loans are tough to qualify as funds are provided
to only those firms that have enough resources and hence it may be difficult for start up and
small business to get such loans (Cockcroft and Russell, 2018). Further, bank loans have high
interest rates that might be difficult for repayment for those firms that does not perform well in
the future. Also, obtaining the bank loan is quite complicated and time-consuming process.
Although, it is quite challenging but there are certain advantages of bank loan such as it
temporary source and once the borrower has repaid it than there no more obligations than
compare with other sources where company need to pay certain dividends as long as business
operates.
Debentures on other hand is type of debt instrument that is known as bond with no
collateral. Moreover, it secures the loan repayments against some borrower assets. Both
government and corporations continuously issue debentures to raise funds or capital for the
company (Osadcha and et.al., 2018). Certain demerits of debentures includes that each company
has limited borrowing capacity and hence with issue of debentures it further reduces. Also,
debentures put burden on the company earnings and therefore there is greater risk when earning
fluctuates. However, financing through debentures is less costly than compared to other costs of
preferences.

Equity share are also source of long term debt for the company as it represents
investments that are made by owner of business. Also, all rewards and risks are also enjoyed at
the same time by the individuals. Hence, certain advantages of such sources are that it is
permanent source of finance for the firm and less cost of capital is involved(Benefits and
Disadvantages of Equity Shares Investment, 2021). Moreover, they are of liquid nature in way
that they can be sold easily in capital market. However, it is critically analysed that these type of
source cannot be redeemed easily during the lifetime. Also, they can lead to speculation in the
market during certain business period.
Preference shares are another long term sources of finance where they carry certain
special rights as dividend is paid prior before the equity share and also at the time of winding up
of company the capital is paid in advance before any shareholders. Moreover, this source of
finance has limited appeal and it has low return in situations when company is earning high
profits (Birt and et.al., 2020). Also, these shares do not carry any voting rights and hence they
don not have control over the company. Although benefit of such source is they are flexible as
company can issue redeemable preferences shares for fixed period. Moreover, different types of
preference share can be issued based on the needs of investors (Kimmel, Weygandt and Kieso ,
2018.)
CONCLUSION
From the above report it can be concluded that there are various types of business such as
sole traders, partnership and cooperation etc. that had been described with use of various
examples. Moreover, various forms of share capital and two forms of long term debt had also
been analysed in detail.

REFERENCES
Books and Journals
Birt, J. and et.al., 2020. Accounting: Business reporting for decision making. John Wiley & Sons.
Coate, C. J. and Mitschow, M. C., 2018. Luca pacioli and the role of accounting and business:
Early lessons in social responsibility. In Research on Professional Responsibility and
Ethics in Accounting. Emerald Publishing Limited.
Cockcroft, S. and Russell, M., 2018. Big data opportunities for accounting and finance practice
and research. Australian Accounting Review. 28(3). pp.323-333.
Kimmel, P. D., Weygandt, J. J. and Kieso, D. E., 2018. Financial accounting: Tools for business
decision making. John Wiley & Sons.
Melnyk, N., and et.al. , 2020. Accounting trends in the modern world. Independent Journal of
Management & Production. 11(9). pp.2403-2416.
Osadcha, O. O. and et.al., 2018. Implementation of accounting processes as an alternative
method for organizing accounting. Financial and credit activity: problems of theory and
practice. 4(27). pp.193-200.
Putra, Y. M., 2019. Analysis of Factors Affecting the Interests of SMEs Using Accounting
Applications. Journal of Economics and Business. 2(3). pp.818-826.
Richardson, V. J. and Shan, Y., 2019. Data analytics in the accounting curriculum. In Advances
in Accounting Education: Teaching and Curriculum Innovations. Emerald Publishing
Limited.
San-Jose, L., Mendizabal, X. and Retolaza, J. L., 2020. Social Accounting and Business
Legitimacy. Handbook of Business Legitimacy: Responsibility, Ethics and Society,
pp.967-981.
Online
Benefits and Disadvantages of Equity Shares Investment. 2021. [Online]. Available
through:<https://efinancemanagement.com/sources-of-finance/benefits-and-disadvantages-of-
equity-shares-investment>.