A. What are the forms of business organization?

Discuss thoroughly the advantages and

disadvantages of each.

1. Sole Proprietorship - only owned by one person and is easy to establish. Sole
proprietorships tend to be small service type business and retail establishments.
● There are a lot of advantages in sole proprietorship. First is it's easy to form, if you have
enough capital then you're ready to open a business without any further effort. The
second is an effort reward relationship. You can enjoy and receive the reward that you
work for without minding others and you have full control on how you want to manage
your own business because you are your own boss.
Moreover, you can quickly make decisions since you are the sole owner of the
business and you don't need anyone to give you advice on what to do.
● However, we also have disadvantages, number one on the list is it's small in size,
usually sole proprietors don't really go that big for the reason that they only have
Limited Capital to be able to run the business, and because of that this will their
business into limited life they tend to stop their business because they need more funds
to run their business. Next on the list is Lack of professional skills and talent because
they don't have any partners, they only have one brain working in the business. Also, the
Liability is unlimited while the capital also has limitations that may lead you to risk
making wrong decisions.

2. Partnership - is a business owned and operated by two or more persons who bind
themselves to contribute money, property, or industry to a common fund, with the
intention of dividing the profits among themselves. Partnership is a contract that is
entered by two or more persons.

● Advantages of partnership are bridging the gap in expertise and knowledge. If you're
not that knowledgeable about this business then at least you have your partner who is
knowledgeable about the things you both want to build. It's a give and take situation
where you can provide money or property while your partner will provide his knowledge
and expertise about the business. Also, there are a lot of cash, properties and more
business opportunities that will be able to fund your business.
● There is also a list of disadvantages in Partnership. First is, there might be emotional
issues to consider in a partnership most especially with your relationship with your
partners and also just like in sole proprietorship you can also encounter unlimited
liability that may lead you both to use your personal assets to pay all the liabilities.

3. Corporation - is a business owned by its stockholders. The stockholders are not

personally liable for the corporation's debts. This is a separate legal entity.

● Advantages of a corporation are limited liability, you cannot go after the personal
assets of the shareholders to answer the liabilities of the corporation. Next is you have a
big source of Capital. Once you sell shares you can get money, and lastly is
ownership transfer, if you no longer want to become a shareholder then you can just
 easily sell your shares to others and get the money. • However, one of the
disadvantages of a corporation is it has double taxation. The profits of a corporation are
being taxed already but when it's being distributed to the stockholders it will be taxed for
the second time. Also, forming a corporation costs more because you will be dealing
with many government requirements in order
for you to set up a corporation.

4. Cooperatives - cooperatives are being built because there is only one common goal.

● The advantages of a cooperative have lower costs, and you can have further marketing
reach for that because you have many members of the cooperative you can work with.
And it is a democratic organization because the goal is to enjoy the benefits of the
cooperative. However it's disadvantage is that big investors don't get much attracted
because one member can have one vote only. Lastly, there is a lack of membership
and participation.

B. What are the three types or nature of business activities? Differentiate and give examples of
each type.

1. Service - companies perform service for a fee.

Examples: Law firms, accounting and Audit firms and beauty salons

2. Merchandising - companies purchase goods that are already for sale and then sell
these to customers.
Examples: car dealers, clothing stores, and supermarkets

3. Manufacturing- companies buy raw materials, convert them into products and then sell
the products to other companies.
Examples: paper mills, car manufacturers and drug manufacturers

C. What are the five basic financial statements?

1. Income Statement - Possibly the most crucial. A financial statement provides the actual
reason for enabling a business to retain a close eye on revenue and profit. An income
statement, often referred to as a profit and loss statement, illustrates the revenue and
expenses for your company throughout a specific period of time. The income statement
accounts for revenue, losses, and expenses to evaluate whether your business is
profitable or fallen short of expectations.

2. Cash flow statement - The cash flow statement depicts how money enters and exits
your company, enabling you to understand how often working capital is accessible
anytime time. Since it excludes items like raw materials and expenditures made on credit
 which have not yet been paid for, a cash flow statement is crucial for proving how swiftly
you could find cash if you needed it.

3. Balance Sheet - Three essential parts can be seen on the balance sheet: your assets,
liabilities, and equity. For the time frame it represents, the balance sheet can show the
current profitability of a firm. You can tell if you are able to meet your financial obligations
by looking at your balance sheet.

4. Note to Financial Statements - It provides more context for the information in your
other financial statement documents and is a requirement of the IFRS (International
Financial Reporting Standards). Your note to the financial statements document is where
you will describe in detail the assets you have, even though they may be stated in the
balance sheet. In order to make sure that you adhere to standards and rules, you must
use the information in this page.

5. Statement of change in equity - This report highlights the adjustments made to the
share capital, retained earnings, and accumulated reserves of your business. It displays
improvements to the owner's equity for a sole proprietor. It indicates changes in the
equity of both partners in a partnership. The statement of change in equity for a
corporation illustrates how equity shares have changed among all the owners.