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Accounting Information in Sole Proprietorship
Aspiring Entrepreneur
An aspiring entrepreneur can choose between different business organizations, including sole proprietorship, partnership, or corporation. This paper intends to deal with different business organizations, including their benefits and weaknesses. Moreover, it is also concerned with keeping accounting information and specific business accounts inherent in a sole proprietorship. It also focuses on whether a sole proprietor needs to own a separate bank account or use their personal property to advance their business. The paper concludes that an aspiring entrepreneur ought to choose the sole proprietorship organization type when starting out owing to its overwhelming advantages over the others.
Business Decisions
Natalies idea of starting a cookie-making school will pose several challenges regarding the type of business organization she might want to adopt. She has to choose from many options, including partnership, sole proprietorship, or a corporation. Her decision to adopt any one of them will largely depend on various factors. Each type of business organization poses advantages and disadvantages depending on its situation. Therefore, she must choose the most appropriate type of business to improve her chances of succeeding in her new undertaking.
Business Organizations
As a new entrepreneur, Natalie should choose among the different business organizations depending on her situation. I would advise her to choose proprietorship over the others because it is simple to operate and does not require a large capital outlay as a small business owner. Natalie must choose the sole proprietorship business organization because it is not a legal entity different from hers. It makes it easy, simple, and less costly to form and operate (Kimmel et al., 2019). Moreover, she will have total control of her business without paying separate taxes. However, Natalie would incur personal liability in the event of business debt.
On the contrary, a partnership involves partners engaging in business for profit. Even though a partnership would offer Natalie some form of protection from liability, she might have unlimited personal liability for acts and omissions committed by her partner, except if its a limited partnership. Additionally, she might run the risk of facing frequent legal and costly disputes with her partner if the organization fails to have a well-written agreement. On the other hand, a corporation is a formal business entity different from the owner. It consists of shareholders and an elected Board of Directors who operate the business. This type of business organization is unsuitable for Natalie as a starting entrepreneur because it does not give her total control. Even though she cannot incur personal liability on business debt, she is not involved in the businesss day-to-day operations. Therefore, she is best suited to operate a sole proprietorship that will give her business total control.
Accounting Information
Natalie needs to maintain some records for her business activities to ascertain whether her business is making a profit. Her kind of business tends to make minimal revenue and has lower expenses. In effect, she needs to have minimal accounting record-keeping involving cash flows of her bank account. She should keep separate cash disbursement journals and cash receipts as her accounting information. A single accounting system or income statement cannot generate a balance sheet. In this system, cash received is recorded as revenue, and payments are treated as expenses. She will only need this information to ascertain whether she has made a profit or loss.
Specific Business Accounts
Cookie Creations will need a balance sheet to record its business transactions, capturing its assets, liabilities, revenue, and expenses. The business will also need a drawing account which is a temporary account that consists of its capital account. Its income statement will only capture its net income, which does not incorporate its expenses. Therefore, the company only needs a balance sheet to record all its business transactions since its a sole proprietorship that does not have a complex accounting system.
Bank Account
Natalie need not open a separate bank account for her business because she operates a business entity that cannot be distinguished from her. It is a type of business organization that is not legally separate from her. However, she can have a separate bank account if she registers her business as a limited liability company. In that case, she can limit her liability, allowing her to open a separate bank account.
Personal Assets
As a sole proprietor, Natalie can use her car to conduct her business because she is not different from her business. It means that she can use her assets to conduct her business since she would always incur personal liability in business debt. Therefore, as a sole proprietor, her assets and liabilities are tied to her business.
Reference
Kimmel, P. D., Weygandt, J. J., & Kieso, D. E. (2019). Accounting: Tools for Business Decision Making (7th ed.). Wiley.
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