There are four types of business formation:
1. Sole Proprietorship: - In the Sole Proprietorship One single Individual operate and run the business, therefore he is solely responsible for any kind of profits/losses. The Owner has its own full control on business.
2. Partnership: - In the partnership formations there are two or more person come together and operate their own business which is called as partnership. They both have sharing ratio for profits/losses. It depends on the capital contribution or they may decides equally or any ratio. Say 1:1 which is equally, 1:2 etc. In any losses both will be liable for it.
3. Limited Liability Company:- The Limited Liability Company, also …show more content…
There are Internal and external users of financial Information
Internal users are those who are inside the company:
1. Management: Manager use the Financial information to analyze companies performance and also for any kind of steps to be taken for improving company position.
2. Employees: Employees Use the financial statement for understanding the laws and section which is apply for taxation and what consequences can occur on their remuneration in future.
3. Marketing: marketing people use it for comparison with their competitors and to discuss how to increase the prices and profits.
4. Finance department: Finance department use this information widely for preparing tax return.
External Users are those who are outside the company:
1. Investors: Investors use financial information to check wether they invested in company which is maximizing their profits or not, wether its worth to invest in such companies or not.
2. Customer: They use for selecting suppliers. Which suppliers they should go for major contact , they check how long suppliers going to last enough for service.
3. Creditors: creditor includes Suppliers and also banks. Company borrows money from bank and bank need to check companies profitability and …show more content…
Competitors: They may use to compare their statements and profitability ratio and can make their strategies to gain more profits.
6. Tax Authorities: to check whether they have follow proper rules and regulation for their income tax returns or not.
Discuss the different types of business activities.
Three types of Business activities.
1. Operating Activity: operating Activity includes the activity which is going to contribute for manufacturing the product.
• Revenue : amount earned from sale. Sales revenue, Interest earned.
• Collection from debtor also known as Accounts receivable: money which going to receive from customer
• Inventory: stock available for sale
• Expenses: Interest payable, tax , selling and administration expenses, cost of goods sold.
• Payment to Creditors.
2. Investing Activity: it includes Investment which going to use for more than one year.
• Purchase of Fixed Assets
• Sale of Investment
• Purchase of computer, furniture etc to run business
3. Financing Activity: its provide over all overview of companies financial position.
• Issue of equity and preference Shares
• Selling of Shares
• Payment of Dividend
• Payment of Interest
• Repayment of bank Loan
Discuss the 4 major financial