Session 1
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Types of business entity
A business can be organized in one of the several ways:
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Sole trader
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a business
owned and operated by one person.
The
simple
form
of
business
is
the
sole
trader.
This
is
owned
and
managed
by
one
person
,
although there might be any number of employees. A sole trader
is fully personally liable
for any losses
that the business might make.
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Partnership
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a business
owned and operated by two or more people.
A partnership is a business owned jointly by a number of partners.
The partners are
jointly and severely liable for any losses
that the business might make.
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Traditionally the big accounting firms have been partnerships, although some are
converting their status to limited liability companies.
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Limited Liability Company
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a business
owned by many people and operated by many
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though not necessarily the same
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people
. Companies are
owned by shareholders
.
Shareholders are also known as
members
. As a group, they elect the
directors
who run the
business. Companies are always limited companies.
In
summary,
types
of
business
entity
should
be
differentiated
in
Ownership;
Operation
right
and
Liability
for the business to undertake.
For
all three types
of entity, the money put up by the
individual, the partners or the
shareholders,
is
referred
to
as
the
business
capital
.
In
the
case
of
a
company,
this
capital
is divided into
shares.
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Business Transactions:
Main types of business transactions for a business include:
鈼廝urchase of inventory for resale
鈼廠ales of goods
鈼廝urchase of non
-current assets
鈼廝ayment of expenses
鈼廔ntroduction of new capital to the business
鈼廤ithdrawal of funds from the business by the owner
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Cash and credit transactions:
Cash transactions: the buyer pays for the item immediately or possibly in advance.
Credit transactions: the buyer does not have to pay for the item on receipt, but is
allowed some time
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a credit period
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before having to make the payment.
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Definition of accounting