RECORDING BUSINESS TRANSACTIONS

Assessment 1 Part 1

a.Explain three advantages and disadvantages for-profit business structures.

Three advantages of profit business structure:

Earns Money for Owners: As an owner, a person can earn money for their selves. The profit business structure only works for the business that he has created and will take all the profits that are earned by the business organization. He is the sole owner of the profit. If they work under some organization then they will earn a specific amount of money but by creating a single business they will earn only for them.

Providing Freedom: The profit business organization’s owner feels the amount of freedom which was not possible as there are restrictions in working under other business organization. This freedom gives them the excitement to work in various fields.

He is the own boss: In the profit structure business, the owner is the own boss of the business. He does not have to work for others or do not have taken orders from another person. Also, this can create organizational opportunities for the employed person looking for jobs.

Three Disadvantages of profit business structure:

Must pay taxes: For owning a business organization, the owner has to pay taxes and bills in time both on the profit of the business as well as on the personal income of the owner. This is sometimes a burden for the owner to bear such a big amount of tax.

Decision making: For-profit business organization, it is very difficult for the owner to take instant decisions without the supervision of some expert people. So, sometimes the decision can have a diverse impact on the company.

Bearing Own Loss: As working under the other company, the person does not have to bear any losses or other liabilities. But on the other hand, the organization owner of the profit business organization has to bear the losses if there arise any losses. No one will bear the losses of the organization. So, it will be an overall risk for the owner in managing the risk.

Who are the main users of accounting information? Explain what use the users are making out of information.

For accounting information, there are two types of users. One is the internal users of the organization and another is external users of accounting information.

Internal users of Accounting Information System

Internal users of the accounting information systems are the people who are responsible for the organizational decision making. Internal users of the firms are the CEO, CFO or the advisor. They are responsible for the organizational development in the company. They are responsible for improving the profit and share price for the owners of the company. They use the accounting information system for the following reasons:

They have to make decisions whether to invest in any project of the company.

They have to take the necessary decisions to increase the productivity of the company.

Assessing how management has discharged its responsibility for protecting and managing the company’s resources

Shaping decisions about when to borrow or invest company resources

Shaping decisions about expansion or downsizing

External users of accounting information system

External users of the accounting information systems are the users outside the company. They are not directly responsible for the profit and loss of the company. They are looking for the organizational profit from the outside of the company. The followings are the external users of the accounting information system:

Shareowners: The shareowners are the people who hold the specific amount of share of the company. They are not assigned to work or manipulate the insiders of the organization. They use the accounting information of the company to know the possible profit and losses of the company. They cannot impose any laws or decisions on the company.

Creditors and lenders: It is very much important for the creditors and lenders to use the accounting of the organization. Before investing in the company, they want to know the future prospects of the company. If they invest in the company but they failed to provide the money to the lenders then it will be difficult for the lenders and creditors to learn the business.

Customers: Customers also need to know the accounting information that a company generates. They have to monitor the company so that they can feel benefits of using the products of that company.

Government: The government plays an important role in business for any industry. The government has to focus on the regular production and profit margin of the company so that they can ensure that the company is paying its taxes and incentives regularly.