Accounting principles

• The accounting equation is the foundation of financial statements.
• Assets = Liabilities + Owner's Equity
• What is Unlimited Liability 


  Unlimited liability refers to the liability of a person in terms of a business's debts. Sole traders and partners are liable for all debts incurred by their business, whether because of normal business dealings or legal matters. If debts of the business exceed in assets, many of the owner's personal assets can be seized to meet these debts. This contrasts with the situation in most companies, where a shareholder's liability is limited to the amount unpaid of their shares.
• The accounting entity 


  The accounting entity regards the business as a separate body/entity to the owner. As accountants, we record the transactions from the viewpoint of the business and treat owners as outsiders. Thus the business is the accounting entity
• Monetary principle


  This states that all transactions are recorded in the common monetary unit (dollars and cents). Thus transactions that cannot be quantified in financial terms are not recorded in financial reports.
• The Going Concern Principle

  This requires that the business is going to continue its operations indefinitely and is not likely to be liquidated in the foreseeable future. Hence the cost of purchase price is usually used in transactions rather than liquidation values.
• Sole trader - advantages

  • Simple to set up and operate
  • Fewer reporting requirements
  • Owner keeps all profits
  • Owner has full control of the assets and the management of the business
• Sole trader - disadvantages

  • Unlimited liability which means the owner's personal assets are at risk
  • Owner has to pay a lot more tax if the business makes a high income
  • Capital is limited by the owner's personal wealth
• Partnership - Advantages

  • Risks and costs shared
  • Fewer reporting requirements
  • easy to operate and set up
• Partnership - Disadvantages

  • Unlimited liability
  • Potential disagreements between partners. Partner dissolution can be complex and time-wasting
  • Share profits
  • Partner have to pay more tax if the business make a high income
• Company - Advantages

  • limited liability
  • Responsibility is shared. A bigger team can indicate an increased ability to raise capital
  • Pay less taxes compared to a sole trader and partnerships
• Company - Disadvantages

  • Owners have less of a 'say' in the business
  • Profits are shared
  • More expensive to set up
• Legal Entity 


  This states that a business is its own separate body and bares its own legal procedures as a body as the law recognises it being responsible for the debts and actions of the business
• Tax rates for sole trader

  37% for 120000-180000

  45% for over 180000
• Tax rate for company

  30%