FINANCIAL ACCOUNTING REPORT
Forms of Business Units There are different forms of business units based on their organization, structure, and ownership. They include partnerships, sole proprietorships and Limited Liability Company (LLC). The different business units serve their advantages and have shortcomings too. Sole proprietorship is a form of business owned and managed by a one person. This is the most common type of business owing to its simplicity and ease of start. Satisfied customers enable the rapid growth of a business. In sole proprietorships, there is little or no leak of business secrets that may harm the activities of the business. In case of business failure or the owners wish to pursue different ventures, this type of business is easy to close down (Chowdhury, 2013).
Sole proprietorship has its shortcomings too. The unlimited liability associated with this type of business unit makes the owner hesitate in taking risks thus limiting the business’ potential to generate high-profit returns. Partners sign a Partnership Deed in which rights of every partner, salaries, and share in the capital are agreed. Partners can only transfer shares on agreement with other partners. The government reserves the right of limiting the number of partners in a partnership. Three types of partnerships exist depending on their formation, and liability of owners. The first is the general partnership in which each partner has a role in the management and takes responsibility in liabilities. Partnerships enable large-scale production in the business thus expanding the business. Through the sufficient capital in the business, modern machines and technology are used to enhance efficiency and productivity.
It is also easy to acquire credit because of increased security. Despite the merits, partnerships have their disadvantages too. Interpersonal disputes are so often in the partnerships which derail the activities of the business. Every member of the cooperative has equal rights. The main aim in forming a cooperative is self-sufficiency among the members thus all members pool resources together to benefit each other. Directors of the cooperative are elected among its members (Dogarawa, 2010). Less capital is required per person in starting a cooperative. The government encourages the creation of cooperatives because of their ability to overcome inequality differences in income among its citizens. It is one of the most prevalent forms of business. There are both public and private companies.
It provides limited liability to its owners. The advantages of Limited Liability Companies include its ability to choose a tax regime. It can choose to be taxed as a corporation, a sole proprietorship or as a partnership if it satisfies the laid out regulations. The type of financing that is required for each business depends on the particular needs of that business. Some require it for expansion while others require for start-up. Finance managers are tasked with the analyzing and choosing the right and most suitable source. They can be classified into long-term sources and medium-term sources of finance. Medium-term Financing Sources These are financing sources that are only available between three to five years. Long-term finance is usually in large amounts and thus paid over long periods of time.
They include equity shares that involve giving percentage ownership to investors thus making them have voting rights within the business, claim to assets and claiming a share of profits. Equity shares are usually irredeemable. Another type of long-term source is the preference shares. They have fixed preferential rights for the investors to lay claim over properties owned by the business and the incurred returns. Management accounting is a field of accounting that analyses the performance of management systems by keeping account of internal reports and financial records that are used in the decision making process and planning in the business. Management accounting is used to ensure the business achieves its goals. Financial accounting involves the generation of financial reports that cover a period like a year.
They include Liquidity and activity reports, profitability and market strength reports and solvency reports. They are used to make decisions about the company usually by investors or auditors. Violation of business law is punishable by the government but breach of business ethics is not punishable but can cause some negative effects on the business. Business ethics include being honest to stakeholders, loyalty to the company, having high morale spirits and maintaining respect for others. Laws and ethics do not contradict. Some of the common ethical issues facing managers include social responsibility. This involves managers ability to make decisions that are acceptable to the society around them. Works Cited Bhattacharya, S. and Londhe, B. Micro Entrepreneurship: Sources of Finance & Related Constraints. Procedia Economics and Finance, 11, pp.
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