Finance Report: Business Organizations, Accounting, and Statements

This finance report provides a comprehensive overview of business organizations, accounting, and financial statements. It begins with an introduction to various business structures, including sole proprietorships, partnerships, and corporations, detailing their advantages and disadvantages. The report then delves into the importance of accounting information for different users, both internal and external, and the role of financial statements in assessing business performance. Subsequent sections cover journal entries, ledgers, trial balances, and the preparation of financial statements, including income statements and statements of financial position. The report emphasizes the significance of accounting frameworks in ensuring uniformity and comparability across different organizations. The report is designed to provide a solid foundation in financial reporting and analysis.

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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. In the diversified market there are different
forms of business organisation that could be established depending on the needs and
requirements. There are different advantages and disadvantages associated with every types of
organisation. The forms of business organisation are sole trader, partnership and corporations.
These organisations are established complying with separated legal requirements. 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
operational costs that vary with the type of organisation. The report will cover give
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
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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.
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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, admission of partners and action procedures on dissolution. It is essential for
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.
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 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
organisations are not large as public organisations. Shareholders are the owners of the
corporations. All the activities and procedures of corporations have to comply with the rules and
regulations under the law. Legislations are established for guiding and monitoring the
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. Profits after transferring certain amount in reserves are distributed among the
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.
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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-making is a lengthy process in corporations it has to undergo different
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
accounting department. They keep record of all the accounting transactions and these
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
accounting information for assessing the performance of company. They provide owners
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information about whether business is 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 business for 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 of earning profit and the information helps to know
the position of company.
Managers
Another users of accounting information are the mangers. Accounting information is
required by management for planning, monitoring and making the business decisions.
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.
Accounting information is required by managers for monitoring the business
performances by comparing competitor analysis, past performances industry benchmarks and
key performance indicators. Accounting information is required by managers for making
business decisions like pricing decisions, investments and financing (Lăzăroiu, 2015). Using the
accounting information management of the company frame policies and procedures for
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.
Financial information is required for assessing the profitability, risks and valuation of
investments. This information is required by investors for determining about the investment
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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
retailers and final consumers (Musringudin, Akbar and Karnati, 2017). Customers use
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
Date Particulars Debit Credit
01/06/19 Van 2696
To Pressed Garages 2696
( Being van purchased on credit
from Pressed Garages)
03/06/19 Bad Debts 50
To K. Patel 50
(Being bed debt written off for due
from K.Patel)
08/06/19 Past Time ltd 400
To Office Fixtures 400
(Being office fixtures returned to
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Past Time Ltd)
12/06/19 Bank 100
Bad Debts 60
To Q Hanson 160
(Being settlement of Q Hanson a/c)
14/06/19 Drawings 100
To Inventory 100
(Being goods drawn by owner)
28/06/19 Capital a/c 50
To Insurance 50
(Being insurance debited for
personal expense reversed)
28/06/19 Machinery 650
To Electronics R Us 650
(Being machinery purchased on
credit)
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PART 3
Transaction in books of S.Keyes & Co.
A) Journals
Journal Entries
Date Particulars Debit Credit
02/06/19 Van 3700
To Bank 3700
05/06/19 Office Fixtures 850
To Office Hand ltd 850
08/06/19 Van 2 3600
To Draycarts ltd 3600
12/06/19 Cash 90
To Bank 90
15/06/19 Office Fixtures 60
To Cash 60
19/06/19 Dray Carts ltd 3600
To Bank 3600
21/06/19 Cash 2500
To Loan (Y Henry) 2500
25/06/19 Bank 200
To Cash 200
30/06/19 Office Fixtures 340
To Bank 340
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B) ledgers and Trial Balance
a) Ledgers
LEDGER OF S. KEYES
CASH A/C
Date Particulars DR. £ Date Particulars CR. £
01/06/19 To capital 7500 15/06/19 By fixtures 60
25/06/19 By bank 200
30/06/19 By bal b/f 7240
7500 7500
CAPITAL A/C
Date Particulars DR. £ Date Particulars CR. £
30/06/19 To bal b/f 7500 01/06/19 By cash 7500
7500 7500
VAN A/C
Date Particulars DR. £ Date Particulars CR. £
02/06/19 To bank 3700
08/06/19
To
Draycarts 3600 30/06/19 By bal b/f 7300
7300 7300
BANK A/C
Date Particulars DR. £ Date Particulars CR. £
25/06/19 To cash 200 02/06/19 By van 3700
30/06/19 To bal b/f 7530 12/06/19
By petty
cash 90
19/06/19
By
Draycarts 3600
30/06/19 By fixtures 340
7730 7730
FIXTURES A/C
Date Particulars DR. £ Date Particulars CR. £
05/06/19
To office
hand ltd 850 30/06/19 By bal b/f 1250
15/06/19 To cash 60
30/06/19 To bank 340
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1250 1250
OFFICE HAND LTD. A/C
Date Particulars DR. £ Date Particulars CR. £
30/06/19 To bal b/f 850 05/06/19 By fixtures 850
850 850
DRAYCARTS LTD. A/C
Date Particulars DR. £ Date Particulars CR. £
19/06/19 To bank 3600 08/06/19 By van 3600
3600 3600
PETTY CASH A/C
Date Particulars DR. £ Date Particulars CR. £
12/06/19 To bank 90 30/06/19 By bal b/f 90
90 90
Y. HENRY A/C
Date Particulars DR. £ Date Particulars CR. £
21/06/19 To loan 2500 30/06/19 By bal b/f 2500
2500 2500
LOAN A/C
Date Particulars DR. £ Date Particulars CR. £
30/06/19 To bal b/f 2500 21/06/19
By Y.
Henry 2500
2500 2500
b) Trial Balance
TRIAL BALANCE AS AT 30 JUNE 2019
PARTICULARS DR. £ CR. £
Capital 7500
Cash 7240
Van 7300
Bank 7530
Fixtures 1250
Office Hand ltd 850
Petty cash 90
Y. Henry 2500
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Loan 2500
TOTAL 18380 18380
PART 4
a) Income Statement of S Keyes for year ending 30th September 2019.
Income statement as at 31 September
Revenues
Sales 400000
less returns 2000 398000
Total Revenues 398000
Expenses
Cost of goods sold 245400
Carriage inwards 810
Motor expenses 1500
Carriage outward 2400
Rent 4000
Telephone charges 540
Wages and salaries 21000
Insurance 750
Office Expenses 400
Sundry Expenses 200
Total Expenses 277000
Net Income 121000
b) Statement of Financial Position as at 30th September 2019.
Statement of Financial Performance as at 30
September 2019
ASSETS
Non Current Assets
Van 21000
Fixtures and fittings 18000
Current Assets
Accounts receivables 52000
Inventory 40000
Cash in hand 3500
Cash at bank 9000
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Total Assets 143500
LIABILITIES
Non Current Liabilities
Current Liabilities
Creditors 12000
Shareholder's equity
Capital 25000
Less: drawings 14500 10500
Retained Earnings 121000
Total Liabilities 143500
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.
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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-Vis Organisational Communication and Attitude of Employees. Asian Journal of
Research in Business Economics and Management. 8(10). pp.1-8.
Dipboye, R., 2016. Exploring industrial & organizational psychology: Work & organizational
behavior. Exploring Industrial & Organizational Behavior, First Edition, 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
banking industry: A Case of NMB Sinza Branch (Doctoral dissertation, 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) of the principles. IJER-INDONESIAN JOURNAL OF EDUCATIONAL
REVIEW. 4(2). pp.155-165.
Online
Users of Accounting Information. 2019. [Online]. Available through :
<https://www.accountingformanagement.org/users-of-accounting-information/>.
Business Organisations. 2019. [Online]. Available through :
<https://www.rifkindpatrick.com/Blog/2015/November/The-4-Major-Business-Organization-
Forms.aspx>.
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