Accounting for Business: Sole Proprietorship and Finance Report

This report delves into the core principles of accounting for a business, specifically focusing on the decisions faced by an entrepreneur, Tim, who is planning to purchase a shop and start his own business. The report begins by analyzing different forms of business organization, such as sole proprietorship and partnership, and their implications on business operations and liability. It then explores how the chosen form of business impacts financing decisions, highlighting the capital requirements and sources of finance, including owner contributions and bank loans. The report further discusses the importance of accounting information, such as budgets and trend analysis, for making informed business decisions. Finally, it outlines the essential accounting skills and knowledge needed for effective financial management, including accounting processes, communication, and financial resource management. The report emphasizes the significance of these elements in ensuring the success and sustainability of a business venture.

Running head: ACCOUNTING FOR BUSINESS
Accounting for Business
Name of the Student:
Name of the University:
Author’s Note

1
ACCOUNTING FOR BUSINESS
Table of Contents
Introduction........................................................................................................................2
Discussion..........................................................................................................................2
Form of Organization.....................................................................................................2
Impact on the Choice of Finance...................................................................................3
Raising of Finances........................................................................................................3
Accounting Information..................................................................................................4
Accounting Skills and Knowledge..................................................................................4
Conclusion.........................................................................................................................4
Reference..........................................................................................................................5

2
ACCOUNTING FOR BUSINESS
Introduction
The main purpose of accounting process is to classify and summarise the
financial information relating to a business and the same is used for formulating
financial statements. The assessment shows the decision which is taken by Tim for
purchase of a shop and thereby start his own business operations (Arend 2013). The
matter which is to be considered by Tim as discussed below would be the form of
business which can be established and what sources of finance would be the most
appropriate for his business.
Discussion
Form of Organization
The decision regarding the form of business which needs to be established
depends on the scale of operations of the business and the nature of the business
activities. There are various choices which is available to Tim regarding the form of
organization which can be established and some of the same are listed below which
would be most appropriate for the business.
 Sole Proprietorship: This is a form of business which is managed by a single
person and it is often called one-person company. This type of business does not
enjoy the right of a separate legal entity and the liabilities associated with the
business is only applicable to the owner or sole proprietor of the business.
Advantages
 The business is very easy to establish and terminate as well which makes it an
obvious choice for small scale businesses.
 This form of business is much easier to control and the rewards of the business
also belongs to the owner only.
Disadvantages
 The liability of the such a form of business is unlimited and thereby the owner is
personally liable for all debts in regards to the business.
 It is difficult for such form of business to acquire loans from markets for its
growth.
 Partnership: The partnership form of a business is a business structure where
two or more individuals manage the operations of the business and the profits
and risks of the business are bear by all the partners of the business (Casson
and Rose 2014). It is optional for a partnership to register the business.
Advantages
 The business has access to capital from banks easily
 The business can be managed in a more efficient manner due to segregation of
duties according to thee expertise of the partners.
Disadvantages
 The liabilities of the partners are unlimited as per the terms of agreement of the
partnership and also considering the debts of the business.

3
ACCOUNTING FOR BUSINESS
 The partners have to act as an agent of the business and thereby as per agency
rules are responsible for each and every action taken by others.
Impact on the Choice of Finance
The nature of a business has a major impact on the financing needs of the
business and therefore Tim needs to consider the form of business first and also
consider the financing requirements. The sole proprietorship requires lesser amount of
capital to operate as the scale of operation of a sole proprietor is usually small.
However, in partnership, capital is required even though the partners contribute to the
capital fund of the business (Lee, Sameen and Cowling 2015). In the case of Tim, a
shop will be opened therefore the scale of operation would be small initially and
therefore sole proprietorship business would be the most obvious choice.
Raising of Finances
The form of business which Tim would be starting off with will be a sole
proprietorship considering the scale of operations of the business. In a sole
proprietorship, majority of the capital required is to be contributed by the owner (Burns
2016). Tim would be providing significant amount of capital for starting the business and
if there is more requirement for additional finance, loan from banks is always an option
which is available to Tim. In order to get the bank loan of the required amount, Tim
would be required to provide collateral securities equalling the loan amount which is
required by the business. The collateral security which can be provided may be any
vehicles, gold, share and bonds and even the papers for the new shop which he will
purchase. Tim would also be required to show his projected earnings from the business
so that he can satisfy the bank that he would be able to manage the serviceability of the
loan.
Accounting Information
Accounting information can be used effectively businesses to take important
decisions regarding investments and some of the tools available for showing accounting
information are budgets, trend analysis and several other tools. The budgets would help
Tim to forecast the income and expenses of the business and thereby show a projected
profit from the operations of the business. Further trend analysis would help the
business to identify the current trend in the market and take decisions according to the
market conditions. The accounting information provides Tim with a idea of the capital
which would be required by the business (Fraser, Bhaumik and Wright 2015). The non-
financial information would be the risks which is faced by the business in the market and
level of competition which the industry faces.
Accounting Skills and Knowledge
The skills and accounting Knowledge which is required are listed below in details:
 Accounting Skills: A proper knowledge of the accounting process and the
transaction which are involved in the same needs to be possessed byTim.
Further, a knowledge of accounting standards is also important.

4
ACCOUNTING FOR BUSINESS
 Communication Skills: Tim needs to have proper communication skills so that
the decisions are appropriately communicated among staff and it also helps in
building relations with customers (Rossi 2014).
 Financial Management: Tim also needs to manage the financial resources of the
business in an appropriate manner both own capital and borrowed capital of the
business.
Conclusion
The discussion above shows the importance of choice in regards to a form of
business and how the same impact the financing decisions of the business. The
discussion also shows the sources of finance which can be used for accumulating
capital. In addition to this, the necessary skills which Tim needs to possess while
conducting the operations of the business.

5
ACCOUNTING FOR BUSINESS
Reference
Arend, R.J., 2013. The business model: Present and future—beyond a
skeumorph. Strategic Organization, 11(4), pp.390-402.
Burns, P., 2016. Entrepreneurship and small business. Palgrave Macmillan Limited.
Casson, M. and Rose, M.B., 2014. Institutions and the evolution of modern business.
Routledge.
Fraser, S., Bhaumik, S.K. and Wright, M., 2015. What do we know about
entrepreneurial finance and its relationship with growth?. International Small Business
Journal, 33(1), pp.70-88.
Lee, N., Sameen, H. and Cowling, M., 2015. Access to finance for innovative SMEs
since the financial crisis. Research policy, 44(2), pp.370-380.
Rossi, M., 2014. SMEs’ access to finance: An overview from Southern Italy. European
Journal of Business and Social Sciences, 2(11), pp.155-164.