1. Final Accounts – Lesson 1 Business Organisations & The Accounting Framework

2. Introduction to the Module
Business organisations.
Preparing financial statements.
Incomplete records.
Mark up and margin and cost of sales.
Sole trader financial statements.
Partnership financial statements.
Introduction to company financial statements.

3. Aims of the Lesson Different types of businesses. Terminology
Regulations
Users of financial statements
Accounting principles
Accounting policies
Accounting characteristics
Ethical principles when preparing financial statements.

4. Different Types of Business Organisations
Business organisations can be:
For Profit
Not for Profit
Sole trader
Partnership
Limited liability partnership (LLP)
Limited company
Charity

5. Sole Traders People who run their own businesses.
Generally small as limited capital.
Often referred to as ‘self-employed’.
Often will have small profits after drawings and these are ploughed back into the business.
Advantages
Disadvantages
Independence no need to consult others
Unlimited liability for debts
All profits belong to the owner
Losses are owner’s responsibility
Supervision by owner due to amount of employees
Limited expansion due to lack of capital
Easy to establish
Owner has to work long hours

6. Financial Statements of Sole Traders
Statement of profit or loss.
Statement of financial position.
There is no:
Definite format
Specific legislation
Accounting rules in the form of accounting standards
No annual returns to Companies House
Sole trader is responsible for:
Annual tax returns, stating the business’ profit.
VAT if applicable.

7. Partnerships
People who run their own businesses, but larger than sole traders.
May be ‘next step’ after being a sole trader
Rules set out in Partnership Act 1890 or a Partnership Agreement (written or oral)
Advantages
Disadvantages
Possibility of increased capital.
Decisions may take longer.
Individual partners may be able to specialise.
May be disagreement between partners.
Cover for illness and holidays.
Each partner is liable in law for the dealings and business debts.
Retirement or death of a partner may adversely affect the business.

8. Financial Statements of Partnerships
Statement of profit or loss.
Statement of financial position.
There is no:
Definite format
Specific legislation
Accounting rules in the form of accounting standards
No annual returns to Companies House
The partnership is responsible for:
Annual tax returns, stating the business’ profit.
VAT if applicable.
Same as sole traders, each partner is responsible to HMRC for their own tax return, stating the share of the partnership.

9. Incorporated Status Limited liability partnerships or
Limited companies.
Advantages
Disadvantages
Limited liability for members and shareholders to the amount of their investments.
Complex requirements for setting up the business.
Business is a separate legal entity.
Higher costs due to record keeping and annual returns.
Enhances the credibility of the business
Information is public.
Finance may be easier to access
Business finances are completely separate
Transfer of ownership may be easier
Often preferred for professional partnerships because of the limited liability protection.
Must have 2 or more designated members responsible for all legal and accounting requirements.
Set up through legal incorporation, requires submissions to Companies House and advisable to have a Members Agreement either written or oral setting out rights, duties and obligations of members (NOT called partners).

10. Financial Statements of LLPs
Statement of profit or loss.
Statement of financial position.
Supporting notes.
Audit report depending on size of LLP.
There is:
Definite format – FRS 102.
Accounting rules in the form of accounting standards.
Legislation in Limited Liability Partnership Act, 2000.
Annual returns to Companies House.
The LLP is responsible for:
Annual tax returns, stating the business’ profit.
VAT if applicable.

11. Financial Statements of Limited Companies
Statement of profit or loss.
Statement of financial position.
Director’s report.
Supporting notes.
Audit report depending on size of LLP.
There is:
Definite format – FRS 102
Accounting rules set out in Companies Act 2006
Annual returns to Companies House

12. Charities Rules governing them are in:
Charities Act 2011.
Charities Commission, which regulates them.
Statement of Recommended Practise (SORP).
Restrictive environment governed by:
Charity law.
Purpose must be for public benefit.
Governed by a Trust Deed.
Run by Trustees.
Independent of other organisations.
Most must register with Charities Commission.

13. Financial Statements of Charities
Statement of profit or loss.
Statement of financial position.
Cash flow statement.
Supporting notes.
Trustees’ Annual Report.
Auditors’ Report.
Filed by trustees with the Charity Commission.

14. Ethical Principles Integrity Confidentiality Professional behaviour
Objectivity
Professional competence and due care
Doesn’t matter what sector you’re working in you need to be professionally competence and act with due care – even if it’s an unpaid role.

15. Lesson Recap Businesses can be grouped into different ‘types’.
All businesses will want to have financial statements.
Organisations must file financial statements to deadlines.

16. Questions
How is a limited liability partnership different from an ordinary partnership?
Who owns a limited company?
Who is responsible for the day to day running of a limited company.
Define a charity.
What rules govern a charity?
A friend of yours is thinking of setting up a small business, list some advantages and disadvantages of being a sole trader.
LLP differs from an ordinary partnership:
a. Legislation of LLP 2000
b. Separate legal entity to owners
c. Limit liabilities from debts
d. Two or more designated owners
e. Annual returns to Companies House.
The shareholders and the directors.
An organisation which uses it resources to fund charitable activities under its control.
Charities Act 2011, follow SORP or FRS 102, purpose must be for public benefit, governed by Trust Deed, run by Trustees, independent from other organisations.
Owner has independence, profits belong to the owner, personal service and supervision, business is easy to establish legally.
Unlimited liability, losses are owner’s responsibility, expansion is limited, limited finance, long hours – no sick cover.