ACCA/CAT

☆Types of business entity

A business can be organized in one of the several ways:

●Sole trader – 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.

●Partnership – 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.

(Traditionally the big accounting firms have been partnerships, although some are converting their status to limited liability companies.)

●Limited Liability Company – a business owned by many people and operated by many ( though not necessarily the same) 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.

☆Business Transactions: Main types of business transactions for a business include:

●Purchase of inventory for resale

●Sales of goods

●Purchase of non-current assets

●Payment of expenses

●Introduction of new capital to the business

●Withdrawal of funds from the business by the owner

☆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 ( a credit period) before having to make the payment.

☆Definition of accounting

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