Question

1. You are starting a new business. Provide information for the following:

A. What is the business that you will be owning?

a. Explain why you have chosen that business.

B. Provide the form of business (Sole Proprietorship; Partnerships; Corporations and Limited Liability Company) that you have chosen for your company.

a. Explain why you have chosen that form of business.

C. How will your business provide a need in the economy?

2. Explain one item that you have learned in this accounting course that you did not know before?

3. What was most helpful in this accounting course?

4. Explain one thing that you would change about this accounting course?

Answer 1

1.

A

For others, starting a business is a scary, intimidating notion. There are too many unknowns to take the plunge. But if you’re considering becoming an entrepreneur, don’t forget all the benefits that go along with

1. Flexibility. Work your own hours.

2. More spare time (eventually). Spend more time with your family and friends. But note: This is only applicable once your business is established and you have employees handling the majority of necessary responsibilities. Don’t expect to have more spare time until you reach this point. In fact, expect to have much less.

3. Call the shots. Nobody else is going to set the rules. You are.

4. Set your own deadlines. No more last-minute rushing unless you want to do it.

5. Sell how you want to sell. Online? In person? Inbound? Outbound? It’s your call.

6. Create your own environment. You can set the formality and culture of your organization.

7. Pursue your passion. You can do what makes you happy.

8. Create something from scratch. Watch your organization grow from start to finish.

9. Meet new people. Network with other entrepreneurs and professionals.

10. Build a team. You decide who to hire and bring into your company.

11. Create jobs. Improve the economy with new job opportunities.

12. Help people. Use products and services to improve people’s lives.

13. Become an expert. Learn the ropes of your industry through first-hand experience.

14. Invest in yourself. You take the risk, and you’ll gain the rewards.

15. Make more money. If you want a pay raise, you can give yourself one.

16. Financial independence. No one else is signing your paychecks.

17. Tax benefits. Write off your biggest expenses Note: while you do get to write off lots of expenses as an entrepreneur, beware the “self employment tax.”

18. New challenges every day. Find new ways to stimulate your mind.

19. Get exposed to new cultures. Discover new perspectives and approaches.

20. Discover new fields. Delve deeper into your industry.

21. Create an asset. Give yourself something sellable to hedge your bets.

22. Connect with your clients. Forge real, personal connections.

23. Delegate boring tasks. Don’t do anything you don’t want to.

24. You can stop working. Work you enjoy doing can’t be described as “work.”

25. The power to give. Have the power and flexibility to donate time or money to worthy causes.

Related: The 8-Step Battle Plan to Succeed as an Entrepreneur

26. Get involved in the community. Participate actively in your neighborhood and region.

27. Improve your industry. Push your industry forward with new innovations and ideas.

28. Get a mentor. Meet valuable, insightful mentors and learn from them.

29. Become a mentor. Take your own knowledge and experience, and mentor someone else.

30. Learn new skills. Branch out in new departments.

31. Attend new classes and seminars. Constantly refine your skillset and stay updated.

32. Have a big office. If you want the biggest office in your workplace, it’s yours.

33. Work from anywhere. Work from home, an office or a beach if you so choose.

34. Have the option for multiple ventures. Start another business when you’re done with this one.

35. Gain entrepreneurial experience. Being an entrepreneur makes you a better professional in almost any position.

36. Get recognized. Start earning name recognition and build a reputation.

37. Get things done faster. Set your own efficiency rates.

38. Build a personal brand. Take the time to develop your personal brand, and tie it into your business’s.

39. Get more creative. Create your own opportunities and your own solutions.

40. Inspire others. Serve as an example for other people to follow their dreams.

41. Reduce your commute. Find an office space closer to your home.

42. Have more job stability. Never worry about being laid off or fired.

43. Find pride and fulfillment. Finally start taking pride in the work you’re doing.

44. Reach your dreams. If you’ve ever dreamed of being wildly successful, this is your chance.

45. Learn to embrace failure. Even if you fail, you’ll walk away with new skills and more experience you never had before.

46. Have a great story to tell. It will be a fun story for your grandchildren one day, win or lose.

47. Leave something behind. Pass the business down to your children and grandchildren.

48. Change the world. It may seem like a lofty goal for you right now, but your business really could change the world.

49. Resources are plentiful. With the dominance of the Internet, it’s easier than ever to find resources you need, including startup capital, loans, grants and even mentors.

50. There’s nothing stopping you. What’s really keeping you from being an entrepreneur? Of course there are risks, but there’s nothing forcing you not to take them.

B.

Forms of Business Organization

One of the first decisions that you will have to make as a business owner is how the business should be structured. All businesses must adopt some legal configuration that defines the rights and liabilities of participants in the business’s ownership, control, personal liability, life span, and financial structure. This decision will have long-term implications, so you may want to consult with an accountant and attorney to help you select the form of ownership that is right for you.

In making a choice, you will want to take into account the following:

• Your vision regarding the size and nature of your business.
• The level of control you wish to have.
• The level of “structure” you are willing to deal with.
• The business’s vulnerability to lawsuits.
• Tax implications of the different organizational structures.
• Expected profit (or loss) of the business.
• Whether or not you need to re-invest earnings into the business.
• Your need for access to cash out of the business for yourself.

An overview of the four basic legal forms of organization: Sole Proprietorship; Partnerships; Corporations and Limited Liability Company follows. Please also review this summary of non-tax factors to consider.

Sole Proprietorship

The vast majority of small businesses start out as sole proprietorships. These firms are owned by one person, usually the individual who has day-to-day responsibility for running the business. Sole proprietorships own all the assets of the business and the profits generated by it. They also assume complete responsibility for any of its liabilities or debts. In the eyes of the law and the public, you are one in the same with the business.

Advantages of a Sole Proprietorship

• Easiest and least expensive form of ownership to organize.
• Sole proprietors are in complete control, and within the parameters of the law, may make decisions as they see fit.
• Profits from the business flow-through directly to the owner’s personal tax return.
• The business is easy to dissolve, if desired.

Disadvantages of a Sole Proprietorship

• Sole proprietors have unlimited liability and are legally responsible for all debts against the business. Their business and personal assets are at risk.
• May be at a disadvantage in raising funds and are often limited to using funds from personal savings or consumer loans.
• May have a hard time attracting high-caliber employees, or those that are motivated by the opportunity to own a part of the business.
• Some employee benefits such as owner’s medical insurance premiums are not directly deductible from business income (only partially as an adjustment to income).

Partnerships

In a Partnership, two or more people share ownership of a single business. Like proprietorships, the law does not distinguish between the business and its owners. The Partners should have a legal agreement that sets forth how decisions will be made, profits will be shared, disputes will be resolved, how future partners will be admitted to the partnership, how partners can be bought out, or what steps will be taken to dissolve the partnership when needed; Yes, its hard to think about a “break-up” when the business is just getting started, but many partnerships split up at crisis times and unless there is a defined process, there will be even greater problems. They also must decide up front how much time and capital each will contribute, etc.

Advantages of a Partnership

• Partnerships are relatively easy to establish; however time should be invested in developing the partnership agreement.
• With more than one owner, the ability to raise funds may be increased.
• The profits from the business flow directly through to the partners’ personal tax return.
• Prospective employees may be attracted to the business if given the incentive to become a partner.
• The business usually will benefit from partners who have complementary skills.

Disadvantages of a Partnership

• Partners are jointly and individually liable for the actions of the other partners.
• Profits must be shared with others.
• Since decisions are shared, disagreements can occur.
• Some employee benefits are not deductible from business income on tax returns.
• The partnership may have a limited life; it may end upon the withdrawal or death of a partner.

Types of Partnerships that should be considered:

1. General Partnership
Partners divide responsibility for management and liability, as well as the shares of profit or loss according to their internal agreement. Equal shares are assumed unless there is a written agreement that states differently.

2. Limited Partnership and Partnership with limited liability
“Limited” means that most of the partners have limited liability (to the extent of their investment) as well as limited input regarding management decision, which generally encourages investors for short term projects, or for investing in capital assets. This form of ownership is not often used for operating retail or service businesses. Forming a limited partnership is more complex and formal than that of a general partnership.

3. Joint Venture
Acts like a general partnership, but is clearly for a limited period of time or a single project. If the partners in a joint venture repeat the activity, they will be recognized as an ongoing partnership and will have to file as such, and distribute accumulated partnership assets upon dissolution of the entity.

Corporations

A Corporation, chartered by the state in which it is headquartered, is considered by law to be a unique entity, separate and apart from those who own it. A Corporation can be taxed; it can be sued; it can enter into contractual agreements. The owners of a corporation are its shareholders. The shareholders elect a board of directors to oversee the major policies and decisions. The corporation has a life of its own and does not dissolve when ownership changes.

Advantages of a Corporation

• Shareholders have limited liability for the corporation’s debts or judgments against the corporation.
• Generally, shareholders can only be held accountable for their investment in stock of the company. (Note however, that officers can be held personally liable for their actions, such as the failure to withhold and pay employment taxes.
• Corporations can raise additional funds through the sale of stock.
• A Corporation may deduct the cost of benefits it provides to officers and employees.
• Can elect S Corporation status if certain requirements are met. This election enables company to be taxed similar to a partnership.

Disadvantages of a Corporation

• The process of incorporation requires more time and money than other forms of organization.
• Corporations are monitored by federal, state and some local agencies, and as a result may have more paperwork to comply with regulations.
• Incorporating may result in higher overall taxes. Dividends paid to shareholders are not deductible from business income; thus this income can be taxed twice.

Subchapter S Corporation

A tax election only; this election enables the shareholder to treat the earnings and profits as distributions, and have them pass through directly to their personal tax return. The catch here is that the shareholder, if working for the company, and if there is a profit, must pay his/herself wages, and it must meet standards of “reasonable compensation”. This can vary by geographical region as well as occupation, but the basic rule is to pay yourself what you would have to pay someone to do your job, as long as there is enough profit. If you do not do this, the IRS can reclassify all of the earnings and profit as wages, and you will be liable for all of the payroll taxes on the total amount.

Limited Liability Company (LLC)

The LLC is a relatively new type of hybrid business structure that is now permissible in most states. It is designed to provide limited liability features of a corporation and the tax efficiencies and operational flexibility of a partnership. Formation is more complex and formal than that of a general partnership.

The owners are members, and the duration of the LLC is usually determined when the organization papers are filed. The time limit can be continued if desired by a vote of the members at the time of expiration. LLC’s must not have more than two of the four characteristics that define corporations: Limited liability to the extent of assets; continuity of life; centralization of management; and free transferability of ownership interests.

C.

In any market economy, business plays a huge role. Business is the engine of an economy. Business provides jobs that allow people to make money and goods and services that people can buy with the money they make. Without business, the economy would be very inefficient and/or very primitive.

In any economy, people need jobs. In any but the most primitive economies, people need to be able to buy goods and services. Businesses provide for both of these needs. Most businesses provide people with jobs. If I open a restaurant, I will need to hire cooks, wait staff, dishwashers, and other people. My business is providing jobs for many people. Now imagine how many people get their jobs from large companies. A large company can provide thousands of jobs. This is incredibly important to an economy.

These businesses also provide the things that people need to buy. If you need a cell phone, you have to buy it from a business because you certainly cannot make your own. Most people cannot make their own clothes and must buy them from a business. Most people do not cut their own hair and must pay a business for their haircuts. Without businesses, people would not have goods and services that they could buy.

Economies can exist without businesses, but they are not nearly as strong. Imagine an economy where every person works only for themselves. No one starts a business and hires other people. This economy would be very primitive as people would only buy and sell things they could make themselves. Alternatively, imagine an economy where there are no businesses because the government is in charge of the economy. The government will provide jobs and goods and services, but it will not do so efficiently. The government might not provide the things that people want. It might run its factories and other operations poorly because they could not go broke if they failed to satisfy their customers. This would be an inefficient economy.

Business, then, plays a central role in any market economy. It is the engine that allows an economy to run because it provides jobs as well as goods and services.

2.

Accounting is a great course to study for a number of reasons. Accounting provides you with skills and knowledge that can be applied to a number of industries. In fact, so long as there are businesses in the world, accountants will always be needed.

A qualification in accounting is the best way kick-start your career, however, before you decide to start studying, it’s worth noting the key benefits a career in accounting can give you.

What do accountants do?

There are many qualifications and jobs that deal with money, so how exactly does accounting differ from other types of finance-related roles? Perhaps the easiest way to describe it is that accounting involves dealing with real revenues, actual transactions and observable finance.

Accountants deal in the reality. They don’t (or shouldn’t) speculate. Accountants know the rules and follow them, and are good at keeping track of figures. They might make assessments based on information in front of them, but they deal less with the unknown than say, a finance-related position.

The primary role of accountants is to prepare and examine financial records. Accountants ensure the accuracy of a person’s or business’s financial records, and that bills and taxes are paid properly and on time. A job as an accountant may also involve the following:

• Organise financial records
• Review statements for accuracy
• Make certain that records and statements comply with the law
• Compute taxes owed, prepare tax returns, ensure prompt payment
• Inspect account books and accounting systems to keep up to date
• Suggest ways to reduce overheads and increase revenues and profits
• Provide auditing services

3.

A skilled accountant will save you time by communicating your company’s financial state to you jargon-free while anticipating your financial needs.

They can also provide you with knowledge and insight that is simply inaccessible to non-accountants. Things like tax deductions you didn’t even know you qualified for, tax rules you didn’t know you were breaking, and best practices picked up while working for other companies in your industry.

If those are things your business can benefit from right now, it might be time to hire an accountant.

4.

Why Is Accounting Important?

Accounting plays a vital role in running a business because it helps you track income and expenditures, ensure statutory compliance, and provide investors, management, and government with quantitative financial information which can be used in making business decisions.

There are three key financial statements generated by your records.

• The income statement provides you with information about the profit and loss
• The balance sheet gives you a clear picture on the financial position of your business on a particular date.
• The cash flow statement is a bridge between the income statement and balance sheet and reports the cash generated and spent during a specific period of time.

It is critical you keep your financial records clean and up to date if you want to keep your business afloat. Here are just a few of the reasons why it is important for your business, big or small!

It Helps in Evaluating the Performance of Business

Your financial records reflect the results of operations as well as the financial position of your small business or corporation. In other words, they help you understand what’s going on with your business financially. Not only will clean and up to date records help you keep track of expenses, gross margin, and possible debt, but it will help you compare your current data with the previous accounting records and allocate your budget appropriately.

It Ensures Statutory Compliance

Laws and regulations vary from state to state, but proper accounting systems and processes will help you ensure statutory compliance when it comes to your business.

The accounting function will ensure that liabilities such as sales tax, VAT, income tax, and pension funds, to name a few, are appropriately addressed.

It Helps to Create Budget and Future Projections

Budgeting and future projections can make or break a business, and your financial records will play a crucial role when it comes to it.

Business trends and projections are based on historical financial data to keep your operations profitable. This financial data is most appropriate when provided by well-structured accounting processes.

It Helps in Filing Financial Statements

Businesses are required to file their financial statements with the Registrar of Companies. Listed entities are required to file them with stock exchanges, as well as for direct and indirect tax filing purposes. Needless to say, accounting plays a critical role in all these scenarios.