You are a semi senior member of staff at the Accounting firm “Turpin, Barker and Armstrong based in Sutton. You have been appointed to deal with a pair of new prospective clients who have inherited quite a substantial sum of money from their grandfather’s will.
These two are brothers want to set up a business but have no knowledge as to what type of business they want to get into let alone the form of business entity available to them
As a Semi-Senior member of the accounting staff, you are required to write a report to be delivered by your firm to these brothers explaining the issues below:
• Explain the different forms of business units(sole proprietorship, partnership, limited company) available, highlighting the benefits and limitations of each
• Explain financial accounting and management accounting, highlighting the differences between the two strands of accounting
• Assuming that you have not been given any information about the inheritance of the brothers. Explain the sources of finance available to a business owner, looking at Short-term sources, Medium-term sources and Long-term sources of finance giving examples of each.
• Style, layout, format (Report writing format expected) and relevance
• Introduction, conclusion and Recommendation
• Referencing – Harvard Style?
The word management accounting means the technique of building the reports of administration and the financial records which represents the precise and suitable fiscal and mathematical data required by the board members of the company to take short term decisions.
The phrase financial accounting means the technique which represents the annual report for the share holders of the company such as the company’s balance sheet and the company’s income statement. The informations are arranged by the firm for the traders of the company, the department of tax of the company and also for the stock holders of the company.
In this research, the research analyst will revise the diverse forms of business units accessible in the market and the notion of financial accounting and the conception of management accounting.
A industry which is owned and operate by a person is known as the sole proprietorship business. It is one of the regular and simplest type of a company. The industry may manage many people but the proprietorship of the company should be one (Kaliski, 2007). This form of industry can be simply created and the proprietor of the business can enjoy with the total amount of gain earned by the company.
The sole proprietorship can be created very simply. When an owner wants to start a company, can start a sole proprietorship company. To control a sole proprietorship company no special type of licenses is required to open a sole proprietorship company. The business which is sole proprietorship business can be maintained till the proprietor wants to operate the company.
Sole Proprietorship Company has lots of merits as compared to other type of industry. The Sole Proprietorship industry have operational and tax advantages company.
One of the operational merits of sole proprietorship industry is the sole proprietorship industry is very simple to construct the company. A person can become a proprietor of a company by running the industry (Mariotti and Glackin, 2013). Other operational merits of this kind of industry is the owner will run the industry single-handedly and will get the gain percentage of the industry alone.
The tax merrits in the sole proprietorship industry are the sole proprietorship company does not required to file a diverse tax. The total gain of the industry or the total debt of the company will be taxable amount on the proprietor own income tax form.
Sole proprietorship has operational demerits and also has liability demerits as compared to other industry.
One of the vital demerits of the sole proprietorship industry is the covert practice to liability. The owner is independently liable for any amount outstanding of the business or obligation of the business.
Another limitation on sole proprietorship is operational demerits of the owner. If the owner wants to include another owner, then the company will no further be sole proprietorship business. The business will be then a partnership industry (Mintzer, 2013). The proprietor of the sole proprietorship industry can only include with his or her companion.
A sole proprietorship stops when the owner stops running the industry. These circumstances can be facade by the company when the owner sells the industry or shut down the company.
A company which is self owned by two or more persons who join their hands to each other to form an organization or a industry with the objective of achieving the profit for the business is well-known as Partnership in company. The persons who stick their hands jointly to form the company are well known as the Partners. The partners of the entity can provide the necessary cash to run the company jointly and can distribute the tasks among the partners of the company. When the person wants to start a company with the individual’s partners, the person should make a decision and distribute the tasks among the partners that how much quantity will each partner will supply, which partner will control the company, who will make progress the debt of the company and who will get the utmost proportion of the gain earned by the business. Before opening the industry all the partners makes an agreement and depending on the same agreement the partners will control the company (Oberrecht, 2010). Depending on the agreement the partners control the business is well known as Partnership Deed. On the basis of this agreement the partners should start the industry and control the partnership industry. The agreement or the partnership deed should be in written rather than in oral, to avoid future controversies.
More than two members: A company which is self owned by more than two members who jointly hold their hands each other to create an organization or a company with the objective of earning the profit for the business is well known as Partnership in an industry. The persons who jointly hold their hands mutually to create the company are well known as the Partners.
Agreement: Before opening the company all the partners produces an agreement and depending on the same conformity the partners will control the company. Depending on the conformity, the partners control the business is well known as Partnership Deed. Depending on the agreement the partners should start the industry and control the partnership business (Crowther and Trott, 2004). The agreement or the partnership deed should be in written rather than in oral, to avoid future controversies.
Lawful Business: The partners should hang about jointly to control the industry by obeying all the laws. The partners should not do black marketing or should not earn black money from the company. The entity should pay the taxes in the account of Government to keep their business run under all the laws.
Competence of Partners: Maintaining the laws of business, the individuals who join their hands to control the partnership industry. The partners should not be below aged who stays jointly to control the partnership company. If this occurs then the company is not obeying the laws of the partnership industry which can take into problem for the business. The below aged cannot take any type valuable decisions to control the business. The below aged person can only get the share of the gain received by the company (Tesner and Kell, 2000).
Sharing of profits : The main objective of the industry is to receive utmost gain. The sharing of the gain percentage should be written in the conformity. The partners who run the business should obey the conformity to restrict the controversies. If the sharing of gain percentage is not mentioned in the conformity then the gain percentage receive by the business should be split among the partners uniformly.
a) Establishing the Partnership firm is very simple.
b) A lot of resources are obtainable in Partnership firm.
c) The firm is operating by the partners. So, all the owners of the firm can take decision for the firm. This will help the firm to have a healthier decision.
d) The functional issue of the partnership firm is very lithe in nature.
e) All the partners of the firm, split the peril factor of the business among themselves.
a) The debt of Partnership firm is unlimited.
b) There is no assurance of existence for the partnership firm.
c) In Partnership business, the administration of the business has deficient in harmony (Steingold, 2011).
d) The wealth amount in Partnership firm is to control the firm is very limited.
e) The shares of the gain percentage received by the partnership firm cannot be shifted to external people without taking consent from other partners of the firm.
The constitution of integration that precincts the whole quantity of responsibility should be under anxiety of the stock holders of the firm. The description of this kind of constitution of a corporate firm is practiced in the European countries. It is generally well known as the limited liability company. Afterward, this kind of firm is well known as Liability Company.
Two types of limited company exist in the corporate world. One type of Limited Company is well known as Public Limited Company and the other type of Limited Company is well known as Private Limited Company (Shaw and Barry, 2001). In Limited Company, the cash payable of the company is separated from the stock holders of the firm. The ownership of the limited company can simply shifted to another person. Many of the Limited Company is operating all the way through their generations.
When a person thinks to start a limited company, then initially, the person should register the company name with the Companies House. The major purpose of Companies House is to look after the firms which are under Companies House. The registration of the company falls under the Companies Act 2006 (Birkin, 2000). During the 21st Century, there are more than two millions limited company in the corporate market of European countries and over three lakhs limited companies is there in the present year. Under the Act of Companies Act 2006, every limited company should have one director and one company secretary.
a) Traders always have interest to trade in the limited business.
b) The word “ limited” gives an extra weight to the business.
c) The traders can simply shift the stocks in the limited firm and the conformity of limited firm is much more translucent and lithe as compare to other firms.
d) The dividend paid by the limited company and the dividend paid to the investors are less taxable as compared to other types of business.
e) The payable of tax rate is very much less in limited firm (Clubb, 2005).
a) Due to the obligation in lawmaking, the price of accountancy is very high in limited firms.
b) The secretary of the company and the directors of the firm adhere the lawmaking under the Company Act 2006.
c) In limited company, the coercion in legislatives is more in form such as CENVAT, the financial records of the yearly report of the limited firm.
The phrase management accounting means the technique of making the information of management and the financial records which represent the precise and suitable financial and arithmetical information required by the administrators to take small tenure decisions (Beyersdorff, M. 2009).
The phrase financial accounting means the technique which reflects the annual report for the stock holders like the company’s balance sheet and the income statement of the firm (Harrison, W. 2014). This helps the firm to comprehend the fiscal position of the business. This information’s are arranged by the firm for their traders, department of tax of the firm and for the stock holders of the firm (Horngren, C. 2009.).
The phrase financial accounting means the technique which reflects the annual report for the stock holders whereas the management accounting reflects the monthly or weekly report for the administrators of the firm and for the chief executive officer of the industry (Miller-Nobles, et al 2014). The information which the manager get from the management accounting reflects the administrator of the firm that how much money is accessible in the firm’s account, the generation of sales revenue, the cash payable by the firm, the cash receivable by the firm and also gives much other arithmetical data about the industry (Needles, B. and Powers, M. 2007).
According to the character of the resource of business, they are mostly confidential as interior resource and exterior resource. On the other hand, they are also segmented as petite term resource of business, intermediate term resource of money and elongated term resource of money.
Petite term resources of economics are those which are accessible only for a year. Likewise, middle term resources of economics are available for company up to 5 years and elongated term resource of money are accessible for more than 5 years.
Individual resources of funding can be segmented under some of the above declared three heads. On the other hand, normal stocks assets are the most important elongated term resource of money. Along with this, credit assets, bank credit and undertaking assets are also considered as the elongated term resource of money. However, may credit assets also known as the intermediate term resource of money. The over draft of bank is the key petite term resource of money.
Considering the resources of money whether it is petite term, intermediate term or elongated term, there required to assume the officially authorized construction of the company association like it is a Limited or Private Limited Company. For example, Limited and Private Limited Company can put on the market to sell their stocks, but sole investors, joint venture or Partnership Company cannot sell their stocks in the market. So, based on the officially authorized organization of the company, the resources of money may changes.
Likewise, the employ of funding also reflects the type of resource required to be used. For example, situation of a new company one person should go for elongated term resource of funding. Supplementary, the profit percentage also reflects the type of resource of funding should be used. In this framework, the stage of risk or risk absorbing capabilities, first choice of the owners, the stage of quantity are needed also mostly affects the accessibility of the resource of money.
Conclusion:
The research analyst studied in this research that the diverse kinds of business units. They are Sole Proprietorship business, Partnership business, Limited Company. There are many merits imposed in the each and every type of business unit. From the merits, the research analyst finds that the Limited Company firm is better than the other two types of firm. There are some demerits imposed in each and every type of firm units.
The research analyst also studied in this research about the significance of management accounting and financial accounting in a firm to control the firm productively. To obtain the aim of the business, the management accounting study and financial accounting is required. These two types of bookkeeping tools also help the firm to realize the situation of the business.
Each business units have merits and demerits. The traders should maintain about the merits and the demerits of the industry units. The traders should classify the kind of firm the trader wants to control. The trader should try to diminish the demerits of the industry unit by observance about the demerits of the industry unit.
References:
Kaliski, B. (2007). Encyclopedia of business and finance. Detroit: Macmillan Reference USA.
Mariotti, S. and Glackin, C. (2013). Entrepreneurship. Upper Saddle River, N.J.: Pearson/Prentice Hall.
Mintzer, R. (2013). Start your own grant writing business. Irvine, Calif.: Entrepreneur Media.
Oberrecht, K. (2010). How to start a home-based photography business. Guilford, Conn.: Globe Pequot Press.
Sinclair, J. (2007). EBay business the smart way. New York, NY: Amacom.
Crowther, J. and Trott, B. (2004). Partnering with purpose. Westport, Conn.: Libraries Unlimited.
Tesner, S. and Kell, G. (2000). The United Nations and business. New York: St. Martin’s Press.
Birkin, M. (2000). Building the integrated company. Aldershot, Hampshire, England: Gower.
Shaw, W. and Barry, V. (2001). Moral issues in business. Belmont, CA: Wadsworth.
Steingold, F. (2011). Legal guide for starting & running a small business. Berkeley, Calif.: Nolo.
Needles, B. and Powers, M. (2007). Introduction of financial accounting.
Beyersdorff, M. (2009). International GAAP 2014.
Harrison, W. (2014). Financial accounting. Harlow: Pearson.
Horngren, C. (2009.). Introduction to financial accounting.
Miller-Nobles, T., Mattison, B., Matsumura, E. and Horngren, C. (2014). Horngren’s financial & managerial accounting. Boston: Pearson.
Needles, B. and Powers, M. (2011). Principles of financial accounting.
Warren, C., Reeve, J. and Duchac, J. (2013). Corporate financial accounting. Mason, Ohio: South-Western Cenage Learning.
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