Course Code: PCO- 01
Assignment Code: PCO-01/TMA/2016
1. What
do you mean by business? Explain various types of business activities. (10)
Answer:
The term ‘Business’ can be defined as production of goods and services that are
involved in flow of goods from the point of consumption or final use with a
view to earn profit.
So
we can say that any activity carried with profit motive is business.
The various types of business
activities are as follows:
1) Sole proprietorship
2) Partnership
3) Company
These are explained in brief as
follows:-
SOLE PROPRIETORSHIP:
The sole proprietorship is a
form of business that is owned, managed and controlled by an individual. He has
to arrange capital for the business and he alone is responsible for its
management. He is therefore, entitled to the profits and has to bear the loss
of business. This type of business organization is also called single ownership
or single proprietorship. If the business primarily consists of trade, the
organization is a sole trading organization. Small factories and shops are
often found to be sole proprietorship organizations.
Features of Sole Proprietorship:
The important features of a
sole-proprietary organization include the following:
(I)
Individual Initiative: One
person is the owner in sole proprietary forms of organization.
(ii)
Risk Bearing: The
proprietor is the sole beneficiary of profits in this form organization. If
there is a loss he alone has to bear it. Thus the risks of business are borne by
the proprietor himself.
(iii)
Management and control: Management
and control of this type of organization is the responsibility of the sole
proprietor. He may, however, employ a manager or other people for the purpose.
PARTNERSHIP
Partnership is an association of
persons who agree to combine their financial resources and managerial abilities
to run a business and share profits in an agreed ratio. Since the resources of
a sole proprietor to finance, and his capacity to manage a growing business are
limited, he feels the need for a partnership firm. Partnership business,
therefore, usually grows out of the need for expansion of business with more
capital, better supervision and control, division of work and spreading of
risks.
Features of Partnership:
The features of partnership are
as follows:
(i)
Existence of an agreement: Partnership
is formed on the basis of an agreement between two or more persons to carry on
business. The terms and conditions of partnership are laid down in a document
known as Partnership Deed.
(ii)
Engagement in business: A
partnership can be formed only on the basis of a business activity. Its
business may include any trade, industry or profession. Thus, a partnership can
engage in any occupation – production and/or distribution of goods and services
with a view to earning profits.
(iii)
Sharing of profits and losses: In
a partnership firm, partners are entitled to share in the profits and are also
to bear the losses, if any.
COMPANY
A company is defined as a
voluntary association of persons having separate legal existence, perpetual
succession and a common seal. As per the definition, there must be a group of
persons who voluntarily agree to form a company. Once formed the company
becomes a separate legal entity with a distinct name of its own. Its existence
is not affected by change of members. It must have a seal to be imprinted on documents
whenever required. The capital of a company consists of transferable shares,
and members have limited liability.
Features of a Company:
The following are the chief
characteristics of the company form of organization:
(i)
Registered body: A company
comes into existence only after its registration. For that purpose, necessary
legal formalities have to be completed as prescribed under the
Companies Act.
(ii)
Distinct legal entity: A
company is regarded as a legal entity separate from its members. Thus a company
can carry on business in its own name, enter into contracts, sue, and be sued.
(iii)
Artificial person: A
company is the creation of law and has a distinct entity. It is therefore,
regarded as an artificial person. The business is run in the name of the
company. But because it is an artificial person, its functions are performed by
the elected representatives of members, known as directors.
2. Define
Accounting. Explain its scope.(10)
Answer:
Accounting means
the systematic recording, reporting, and analysis of financial transactions of
a business. The person in charge of accounting is known as an accountant, and this
individual is typically required to follow a set of rules and regulations, such
as the Generally Accepted Accounting Principles.
The Committee on Terminology set up by the
American Institute of Certified Public Accountants formulated the following
definition of accounting in 1961:
“Accounting is the art of recording,
classifying, and summarizing in a significant manner and in terms of money,
transactions and events which are, in part at least, of a financial character,
and interpreting the result thereof.
Scope of Accounting:
Accounting has got a very wide scope and area of application. Its
use is not confined to the business world alone, but spread over in all the
spheres of the society and in all professions. Now-a-days, in any social
institution or professional activity, whether that is profit earning or not,
financial transactions must take place. So there arises the need for recording
and summarizing these transactions when they occur and the necessity of finding
out the net result of the same after the expiry of a certain fixed period.
Besides, this is also the need for interpretation and communication of that
information to the appropriate persons. Only accounting use can help overcome
these problems.
1. Business
Accounting
is widely applicable in the business sector. Today, in the modern world, most
of the people are engaged in business sector and all businessmen follow
Generally Accepted Accounting Principle (GAAP) to find out profit, loss and
financial position of business firm.
2. Government organizations
Though,
Government organizations do not follow Generally Accepted Accounting Principle
(GAAP), its keep systematic records of all transactions in order to find the
position of public fund.
3. Non-Government
organizations
Non-government
and service organizations such as NGOS, INGOs, Red Cross Society, SOS etc which
plays a vital role in the development of nation also uses accounting. The
accounting system used in these organizations is called fund accounting.
4. Individuals
Individuals
also perform economic activities to earn their livelihood. They also perform
some form of accounting to draw financial information for making personal
economic decision.
3. Solution: In the
Books of Sita Ram
Journal Entries Dr. Cr.
Date
|
Particulars
|
L/F
|
Amount(Rs.)
|
Amount(Rs.)
|
April-1
April-3
April-7
April-9
April-11
April-17
April-20
April-24
|
Cash A/c Dr.
To Capital A/c
(Being business started with cash
Rs. 5,00,000)
Purchase A/c Dr.
To Cash A/c
(Being goods purchased for cash Rs.
2,00,000)
Cash
A/c Dr.
To Sales A/c
(Being goods sold for cash Rs.
1,00,000)
Machinery A/c
Dr.
To Anil A/c
(Being machinery bought from Anil on
credit)
Cash A/c
Dr.
To Rent A/c
(Being rent paid for Rs. 5,000)
Cash A/c
Dr.
To Commission A/c
( Being commission received for Rs.
2,000)
Ram
A/c Dr.
To Cash A/c
( Being cash paid to Ram )
Cash A/c
Dr.
To Mahesh A/c
( Being cash received from Mahesh
for Rs. 10,000)
|
5,00,000
2,00,000
1,00,000
60,000
5,000
2,000
11,000
10,000
|
5,00,000
2,00,000
1,00,000
60,000
5,000
2,000
11,000
10,000
|
