ACCT10001 Chapter Notes - Chapter 3: Sole Proprietorship, Income Tax, Decision-Making
22 May 2018
School
Department
Course
Professor
May be for
-
profit or not
-
for
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profit
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Business = entity or organisation that engages in the trading of goods and/or services
Accounts for 99% of business entities
-
Most common is small to medium sized enterprise (SME)
Forms of business entities
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Sole trader = individual who controls and manages a business
Plumbers
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Electricians
-
Hairdressers
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Carpenters
-
Examples:
Apply for ABN
○
Register for GST if turnover exceeds $75,000
○
Quick and inexpensive to establish
-
Inexpensive to wind down
-
Not subject to company regulation
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Flexible reporting of financial performance and position
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No need to pay separate income tax
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Owner has total autonomy over business decisions
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Owner claims all profits and after
-
tax gains
-
Advantages:
Unlimited liability
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Income taxes are often higher than company tax
-
Limited by skill, time and investment of owner
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Unlikely to do business with the government
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Disadvantages:
Sole trader
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Partnership = association of two or more persons or entities that carry on business and share profits
according to ownership structures outlined in partnership agreement
Suitable for small and medium
-
sized businesses
Common in law and accounting
Not legally required but important to record details
-
Name of partnership
○
Contributions made by each partner
○
Profit and loss sharing agreement
○
Workload
○
Position in the business
○
Decision making
○
Rights of each partner
○
Includes:
-
Partnership agreement
Apply for ABN, register business name
○
No formal requirements for financial statements
○
Easy and cheap to establish
-
No tax on income earned
-
Combines skills, talents and knowledge of people
-
Advantages:
Partners are responsible for liabilities
-
Dissolves if a partner dies/withdraws or there is a dispute
○
Limited life
-
Growth is limited
-
Each partner is an agent with the right to enter into contracts
○
Inappropriate or risky contracts may arise
○
Mutual agency
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Disadvantages:
Partnership
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Document Summary
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