What is a Business Type – Leigh Barker Tangible Assets

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There are numerous business formats available and the type that is selected may be dependent upon a business owner’s business objectives, finances or interests. Common business types be categorised as

  • Home Based Business
  • Family Business
  • Online Business
  • Franchise Business
  • Contractor

A home based business is a small business that operates from a home office. Indicatively there are few employees. Flexibility, convenience, lower overheads, income tax savings and no commuting are just some of the advantages of this form of business.

A family business can be of any size and are found in almost every business sector. Family members exercise control over the business by way of ownership, policy direction and management when employed in key positions. The succession of a family business transfers to the next generation.

An on-line business is any form of business that is conducted over the internet which acts as the conduit for all business activities. Business activities can comprise the buying and selling of products, supplies or services in almost every business sector. Anyone can start an on-line business.

A franchise is a business relationship where on party grants another party the right to distribute goods or services and to use the business name for a fixed period of time in exchange for a franchise fee which may be an upfront payment or an ongoing fee or a combination of both.

A contractor is the owner of a business that hires out their services to other businesses. Contractors negotiate their fees and working arrangements. Contractors generally apply their own process, tools and methods to perform their work.

Please note: Prepared by Leigh Barker Tangible Assets, Accountant at MWC Group, Portfolio Finance, Gordon and West Pennant Hills. Note that all content of this blog is general in nature and anyone intending to apply the information to practical circumstances should seek professional advice to independently verify their interpretation and the information’s applicability to their particular circumstance

What is a Business Structure – Leigh Barker Tangible Assets

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When starting out in business one of the most important decisions to be made is identifying what type of business structure is most relevant to your needs. Thus it is important to review the advantages and disadvantaged of each different business structure the most common being

  • Sole Trader
  • Partnership
  • Company
  • Trust

A sole trader is an individual who is legally responsible for all facets of the business. This is the simplest and least expensive business structure for those commencing business in Australia.

A partnership is two or more people or entities running a business together. A partnership is relatively easy to establish and requires its own tax file number.

A company is a separate legal entity that has the same rights as a natural person. A company is owned by shareholders who can limit their personal liability and are generally not liable for debts.

A trust is an entity that holds property or assets for the benefit of others called beneficiaries.

When making the decision as to which business structure is most suitable for your needs investigate each option carefully in order to understand what licenses are required, what tax is payable, what control do you have over the assets, what are the ongoing costs & what is your status within the entity.

As a business grows and expands it may be necessary to change the business structure. Obtaining professional assistance is important so speak to your accountant or business advisor when deciding upon a business structure.

Please note: Prepared by Leigh Barker Tangible Assets, Accountant at MWC Group, Portfolio Finance, Gordon and West Pennant Hills. Note that all content of this blog is general in nature and anyone intending to apply the information to practical circumstances should seek professional advice to independently verify their interpretation and the information’s applicability to their particular circumstance.

What is a Debit & Credit

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Within the accounting system the concept of double entry bookkeeping whereby every accounting transaction affects at least two accounts.

The entry recorded on the left is known as the “debit” and the entry recorded on the right is known as the “credit”.

The debit entry can increase an asset or expense and decrease an income or liability account whereas a credit can decrease an asset or expense account and increase an income or liability account.

Within the accounting process there are rules that govern to use of debits and credits

  • Accounts with a debit balance increase when a debit is entry is added
  • Accounts with a credit balance increase when a credit is entry is added
  • The total dollar value of all debits must equal the total dollar value of all credits

The most common accounts where debits and credits are applied are as follows

  • Sales – debit accounts receivable & credit sales
  • Sales Invoice Paid – debit bank & credit accounts receivable
  • Cash Sales – debit bank & credit sales
  • Cash Purchase – debit expense account & credit bank
  • Bank Loan – debit bank & credit loan payable
  • Repay a Loan – debit loan payable & credit bank
  • Pay Employees – debit wage expense & credit bank
  • Bank Interest – debit interest expense & credit bank

Thus all accounting transactions are tracked as either a debit or credit in the accounting ledger.

Please note: Prepared by Leigh Barker Tangible Assets, Accountant at MWC Group, Portfolio Finance, Gordon and West Pennant Hills. Note that all content of this blog is general in nature and anyone intending to apply the information to practical circumstances should seek professional advice to independently verify their interpretation and the information’s applicability to their particular circumstance.

What are Retained Earnings

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Retained earnings are that portion of profit not paid out as dividends.

Retained earnings are cumulative and represent both past & present earnings of an entity that have been reinvested. Thus it is important to realise that retained earnings does not represent surplus or leftover cash after the payment of dividends. Instead, retained earnings represent what an entity has reinvested in itself since inception. Retained earnings will be applied to either the purchase of an asset or the reduction of a liability.

Thus retained earnings are often used by an entity to reinvest in such matters as plant & equipment, for research & development or to retire debt.

Retained earnings are accounted for at the end of a financial year and can be either positive or negative earnings. Thus an increase or decrease in retained earnings during an accounting period is directly related to the amount of net income or net loss plus dividend payments for that accounting period.

When accounting for retained earnings, the closing balance at the end of an accounting period becomes the opening balance of retained earnings in next accounting period to which is added the net income or net loss for that accounting period against which is deducted any dividends paid in that accounting period.

Retained earnings are reported in the shareholders equity section of a balance sheet.

For an entity, when retained earnings increase so does shareholders equity which in turn increases the value of the individual shareholdings.

Please note: Prepared by Leigh Barker Tangible Assets, Accountant at MWC Group, Portfolio Finance, Gordon and West Pennant Hills. Note that all content of this blog is general in nature and anyone intending to apply the information to practical circumstances should seek professional advice to independently verify their interpretation and the information’s applicability to their particular circumstance.