Four Types Of Business Formation

Decent Essays
Discuss the various business structures and formations.
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

Related Documents

  • Decent Essays

    Given this, the liabilities of a firm can be classified into short-term and long-term. The short term liabilities, on the one hand, are whereby the debt is paid within a period of one year. The long term debts, on the other hand, are those debts that are paid over a long period of time such as mortgages. The owners of the business include the shareholders and investors. When the owners finances the business or increases the assets of the business it is called equity.…

    • 711 Words
    • 3 Pages
    Decent Essays
  • Decent Essays

    It represents the amount of disposable income that a consumer or firm has to spend on future investments or on present consumption. Profit is a benefit that is realized when the amount of revenue gained from a business activity goes beyond the expenses, costs and taxes needed to keep the activity. Any profit gained goes to the owners, and they can decide where to spend it. A company may have large amount of earnings but have very little profit. It is calculated: Profit = Total Revenue – Total Expenses Profit before tax (PBT) is a profitability measure that shows company's profits before the company pays corporate income tax.…

    • 936 Words
    • 4 Pages
    Decent Essays
  • Decent Essays

    “There are many points in supporting how the financing reports are put together to help progress for the future. ROCE (Return on Capital Employment) this shows the performance of the company and managers and the efficiently of the asset income statement and shows that over a period of a year that there is a decrease in the earnings for the year. There are two main factors that affect ROCE and they are the profitability and sales this is the key business and can reflect earning power of a business also give a return on the…

    • 1042 Words
    • 5 Pages
    Decent Essays
  • Decent Essays

    Customer Metrics

    • 1202 Words
    • 5 Pages

    The quantitative data is comprised of the number of product/service sold. The quantitative data is also by the measured by the profit and loss of a company. The financial metrics are measured by investors buying or selling stocks into a company. The company management for identifying strengths and weaknesses in the business objectives also measures the financial metrics. The financial metrics are collected through the different financial forms.…

    • 1202 Words
    • 5 Pages
    Decent Essays
  • Decent Essays

     It shows the percentage of total assets that are financed by the creditors. Interest cover ratio = Earnings before interest and taxes/ Interest expense  Measures the ability of the company to repay its interests on debts.  A high ratio indicates its better ability on repayment. Ratios related to distribution decision process Table 4 below introduces three types of ratios related to distribution and their implications. Dividend Yield Ratio would show a general picture to the shareholders about how extent to be worthwhile to invest this company comparing with the market price.…

    • 816 Words
    • 4 Pages
    Decent Essays
  • Decent Essays

    Hence, management accounting produces internal reports design for the necessity of managers inside the organisation, the financial accounting produces external financial statements for public use and presents to shareholders, creditors and governmental agencies, focusing its action on historical aspects generating accurate and timely data observing the organisation as group. When management accounting not only analyses the company as a whole but also divides the organisation into departments (Shim & Siegel, 1999). Although management accounting and financial accounting have different objectives inside an organisation these have a close interaction. As mentioned earlier the management accounting makes use of financial information such as the inflow of stock and company out flow to customers to create cash flows and observe the company profit. This measurement supports management on its decisions making either in short term as long-term.…

    • 1522 Words
    • 7 Pages
    Decent Essays
  • Decent Essays

    Madison Plc Case Study

    • 1730 Words
    • 7 Pages

    in simple words, how good they are managing to pay their debtors and receiving money on time or not. Before making any decision on what company should be acquire, there is need to look at previous three balance sheet of both the companies and make comprise between profit and loss figures. They should acquire that company which is having strong background and making profits. In addition to that, before making any decision on new investment company need to look at return on investment. Furthermore, ratios analysis will be also very useful to make comparison between figures of both the companies.…

    • 1730 Words
    • 7 Pages
    Decent Essays
  • Decent Essays

    Apple Inc Case Study

    • 1341 Words
    • 6 Pages

    Net sales consists of revenue generated from selling products and revenue is recognized when customers order the product and the product is being shipped to them, if the company receive payments in advance it records that as deferred revenue. 4. Shipping and warrant cost are estimated and included in the cost of sales. 5. The Company has entered, and may enter in the future, into interest rate swaps to manage interest rate risk on the Notes.…

    • 1341 Words
    • 6 Pages
    Decent Essays
  • Decent Essays

    “Components of Financial Management” Managers within the firm, as well as the firm’s owners and lenders, keep track of the firm’s performance by reviewing its financial statements - income statement, balance sheet, and statement of cash flows. Every business firm, small or big, from a sole proprietor to Partnership to the business organization, all of it keeps the record of its financial transaction. It is known as financial statement. Financial statement is the mirror of the financial situation of a company. Financial statement includes various types of financial transaction depending on the operation of cash.…

    • 840 Words
    • 4 Pages
    Decent Essays
  • Decent Essays

    Management of a firm that is suspected to face solvency issues may distribute dividends as a signal of financial strength within the company. Bhattacharya (1979), John and Williams (1985) argue that dividends mitigate asymmetric information problem between shareholders and management. Their studies indicate that dividend payments convey information about future profitability of firm only if firm pays dividends on a regular…

    • 941 Words
    • 4 Pages
    Decent Essays