Chapter 1-3 Flashcards
Trading business
Buys inventory from suppliers and sells goods to customers.
E.g. Electronics, Furniture, Vehicles
Service business
Provide services to customers.
E.g. Shipping, Consulting, Medical services
Sole Proprietorship [SP]
Owned by 1 person.
Less likely to be granted loans due to lack of personal assets.
Obliged to pay incurred debts or losses with personal assets.
Has absolute control over the business.
Exists as long as owner is alive and desires to continue operation.
Easy to transfer ownership.
Has minimal administrative duties to adhere to.
Limited Liability Partnership [LLP]
Owned by 2 partners or more.
More likely to be granted loans as there are more sources of $$.
Partners are not personally liable to debts and losses incurred.
Control over business is shared among partners.
Exists forever until wound up or struck off.
All partners need to agree to acknowledge transfer of ownership.
Has few regulatory duties to comply with.
Private Limited Company [PLC]
Owned by 50 or less shareholders who buys shares and contributes capital.
More likely to be granted loans as there are more sources of $$.
Shareholders are not obliged to pay using personal assets (may not receive dividends).
No control over running of business unless part of management team.
Exists forever until wound up or struck off
Can pay a stamp duty to tax authority to give shares to another person or organisation.
Must comply with statutory requirements.
What are shares?
Shares are units of business ownership.
What are collaterals?
Collaterals are assets that lenders can sell to get their money back if borrower does not repay the loan.
What is a stamp duty?
Stamp duty is a tax related to the transfer of property, stocks and shares.
What does statutory mean?
Statutory refers to laws passed by the government while regulatory refers to rules issued by an authority appointed by the government.
Internal stakeholders? [3]
Owners & Shareholders, Managers, Employees
External stakeholders? [5]
Suppliers, Customers, Lenders, Government, Competitors
Owners & Shareholder’s decision with business?
Whether to continue to invest in the business or sell it depending on risks and returns related to the business.
Managers decision with the business?
Whether to consider ways to improve the performance and profitability of the business.
Employees decision with the business?
Whether to continue working at the business.
Suppliers’ decision with the business?
Whether to sell to the business on credit, depending on its ability to pay.
Customers decision with the business?
Whether to buy from the business, depending on its ability to provide goods/services needed and after-sales service.q
Lenders decision with the business?
Whether to grant loans to the business, depending on its ability to repay the loan principal and interest timely.
Government decision with the business?
Whether the business complies with the tax regulations and decides the amount of tax to collect from it.
Competitors decision with the business?
Whether they are comparable to the business and how to improve their own performance.
What is the role of accounting?
To provide accounting information for stakeholders to make informed decisions regarding the management of resources and performance of businesses.