SOLE TRADER&LIMITED COMPANY
JINYU ZHANG
contents
1. Introduction
2. Introduction on sole traders and its format of financial statements
3. Limited companies and its format of financial statements
4. Differences between sole traders from that of limited companies in format of financial statements
5. Conclusion
1. Introduction
Financial statements are very important in potential investors, management of operator and other stakeholders to make decisions in the business of a company. Different users of financial statements may have different needs of financial information. So finding a proper format of financial statement is significant. This paper will particularly discuss two business models— sole traders and limited companies and their format of financial statements. First, it will give a brief introduction about sole traders and the characteristics of its format of financial statements. Then it will present the characteristics of limited companies and its format of financial statements. At last, the paper will discuss the advantages and disadvantages of each format of financial statements.
2. Introduction on sole traders and its format of financial statements
Sole trader can be identified as individual businesses. Sole traders can be defined as an unincorporated business that is run by solely an individual. It is also called as a ‘sole proprietor’ or a ‘sole practitioner’. In addition, simply the sole trader is not only the
Sole trader is where a business is run as an individual; so that all profits are their own after tax has been paid on them. Within a sole trader organisation it is possible to employ staff, as the sole trader only means that you own the business personally and do not actually have to work by yourself.
In accounting there is much to be learned, about the financial aspects of a business. In the past five weeks I have learned the importance of financial reports and how they relate to the success of an establishment. These reports may include balance sheets and income statements, which help accountants and the public grasp the overall financial condition of a company. The information in these reports is really significant to, managers, owners, employees, and investors. Managers of a business can take and deduce financial
Fraser, L. M., & Ormiston, A. (201). Understanding financial statements (9th ed.). Upper Saddle River, NJ: Prentice Hall.
A sole proprietorship is a form of business that is owned by a single individual. • Liability – Due to the lack of legal distinction between the owner and the business, the owner is fully responsible and liable for all debts that the business incurs in the same manner that an individual is fully responsible and liable for all debts that they incur. There is no legal distinction between the assets of the owner of the sole proprietorship and the business; this means that creditors have the ability to come after the owner’s business and personal material assets. Income Taxes – Since the business is the same as the owner of the sole proprietorship, all profits or losses from the business are filed by the
Sole Proprietorship: A type of business that is owned by and run by one person with no legal difference between the business and the owner. It is easy to form with no cost or time to initiate. It gives the owner the ability to self-govern the business. There are drawbacks; only one owner can be established not allowing a partner. Also, unlimited liability puts the owner’s personal assets in jeopardy with the creditors.
financial statements” (Waxman, 2013, p. xiii). It is the purpose of this paper to discuss some of
A business operating as a sole trader in the multimedia industry is privately owned by 1 owner. The owner can operate the
The main aim of this assignment is to present an exploration of two major parts of financial statements i.e. Statement of Comprehensive income and statement of financial position. This is done by comparing elements of Balance Sheet and income statement of two separate companies and discussing similarities and difference of Presentation and Disclosures of these two separate organizations.
The “financial statements are formal reports providing information on a company's financial position, cash inflows and outflows, and the results of operations” (Hermanson, p.22). There are four main components that make up a financial statement. The four parts are, balance sheet, income statements, cash flow and, statement of owner’s equity. The balance sheets role is to define the company’s assets liabilities and revenue of the business. The income statement shows the income within the company. Cash flow reviews the position of the company by cash payments and receipts. Lastly, the statement of owner’s equity shows the amount of earnings, stock and other capitals of people in the company. (Hermanson, p.34-35).
Is the most common business type, where the business is operated and owned by a single individual. In this type of business, the sole proprietor provides capital, does not share profit or loss and runs the business alone. As such, the business and the owner are indistinguishable for tax and legal purposes (Dlabay, 2011). To differentiate this business from other business types, a sole proprietorship is discussed under the following characteristics.
Up Arrow Callout: Public Limited Company (plc) What is a Sole-trader? (Builder/local shops/hairdresser) Sole-traders are individuals who own and operate their own businesses.
Balance sheets and income statements are a snapshot of a company’s stability and financial situation. Combined the statements show the income, expenses, and stockholder’s equity in the company. These statements are often analyzed by financial institutions when a company comes to them needing a loan. Stockholders and other investors also look at these statements to make sure their investment will return a profit for them. This paper will look at four different companies and their balance sheets and income statements. The companies are Eastman Chemical Company, Covenant Transportation
Sole traders have unlimited liabilities,meaning that in terms of law there is no separation between them,hence the sole trader is also liable for the debts incurred within the business, which makes it very risky to run for a long-term.
In addition to profit retention …….Also mentions that sole traders personally own assets that are used in the business to achieve its services; which can be seen as an advantage due to disposal proceeds & income from sale of equipment goes to the sole trader directly. During a meeting it was discussed that the sole trader’s assets such as vehicles, lawn mowers and tools are personally his which he uses for personal use at home during weekends as well.
(i) No Separate Legal Entity: legally, the sole trader and his business are not separate entities. In other words, all the assets and liabilities of the businesses are the personal assets and liabilities of the