How the Books of Accounts of a Sole trader differ from the Books of Accounts of a partnership

By:
Sam Thunga
BCOM-BIS/20/01/014

Submitted to:
Thomson Mjiku

In Partial Fulfilment of Requirement for

Financial Accounting
Course Code: CCC 1093
Assignment 2

Lilongwe
Malawi Assemblies of God University
(MAGU)
10TH July, 2020

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 Partnership is an agreement between two or more persons to carry a legal business with
profit motive carried on by all or any one of them acting for all (Hynes, 2001.), while a sole
proprietorship is a form of business organization that is owned by one person. The owner is
referred to as a sole proprietor (Moye, 1999.). This essay will talk about how the Books of
Accounts of a Sole trader differ from the Books of Accounts of a partnership.

Sole proprietorship is a form of business organisation in which an individual introduces his

own capital, uses his own skill and intelligence in the management of its affairs and is solely
responsible for the results of its operations (Moye, 1999.). It is also possible for the individual to
run the business alone or may obtain the assistance of employees. It is the first stage in the
evolution of the forms of organisation and is, thus, the oldest among them. Decision-making rests
with the proprietor only, hence full freedom to operate.

Partnership is a voluntary association of persons who have come together to carry on

business with the vision to earn profits (Gow, 2000). Individually each person is known as partner,
relationship between or among them is known as partnership and name given to such a relationship
is known as partnership firm. (Gow, 2000).
Each partner has a right to share in the profits of the partnership. Unless the partnership agreeme
nt states otherwise, partners share profits equally. Moreover, partners must contribute equally to
partnership losses unless a partnership agreement provides for another arrangement. In some juri
sdictions a partner is entitled to the return of her or his capital contributions. Generally, each part
ner is jointly liable with the partnership for the obligations of the partnership. In many states eac
h partner is jointly and severally liable for the wrongful acts or omissions of a copartner. Althoug
h a partner may be sued individually for all the damages associated with a wrongful act, partners
hip agreements generally provide for indemnification of the partner for the portion of damages in
excess of her or his own proportional share.
Under certain circumstances a partner has a right to demand an accounting of the partnership's af
fairs. The partnership agreement, if any, usually sets forth a partner's right to a predissolution acc
ounting. State law also generally allows for an accounting if copartners exclude a partner from th
e partnership business or if copartners wrongfully possess partnership property. In a court action
for an accounting, the partners must provide a report of the partnership business and detail any tr
ansactions dealing with partnership property. In addition, the partners who bring a court action fo

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r an accounting may examine whether any partners have breached their duties to copartners or th
e partnership (Gow, 2000).

Understanding the difference between a partnership and sole proprietorship form of

business is useful for an aspiring entrepreneur to select the right form of business. Some of the
differences include membership, formation, management, duration and quickness in decision-
Making.
In membership, Partnership is owned by two or more persons subject to the limit of ten in
banking business and fifty in case of other business. Sole proprietorship is owned by one and only
one person (Moye, 1999.).
Partnership is formed through an agreement which may be oral or in writing. A legal
partnership business is governed by rules or regulations indicated under the Companies Act 2013
(Gow, 2000). Conversely, sole proprietorship can be formed easily as it is the outcome of a single
person’s decision without any legal administrative approval.
Every partner has the right to take active part in managing the affairs of the business. Each
partner also enjoys the authority to bind the firm and other partners for his acts in the ordinary
course of business. Alternatively, the sole proprietorship is self-managed, one and few employees
may support him. However, the decision of the proprietor is final and binding (Hynes, 2001.).
Duration of partnership continues as long as the partners’ desire. Even though legally it
comes to an end on the death, insolvency or retirement of any of the partners, the business shall
continue with the remaining partners. Conversely, the sole- proprietorship business comes to an
end with the death, insolvency incapacity of the proprietor. Thus, there is uncertainty of duration
of sole-proprietorship (Gow, 2000).
Decision-making in partnership is corporately delayed as the partners arrive at decision
after the consultation with one another; while the decision of the sole-proprietor is prompt as he
need not consult anyone (Gow, 2000).
Therefore, illustrated above are the differences between books of accounts of a sole trader
and the books of accounts of a partnership.

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 REFERENCES

Gow, Niel. 2000. A Practical Treatise on the Law of Partnership. Buffalo, N.Y.: W.S. He
in.
Gregory, William A. 2001. The Law of Agency and Partnership. 3d ed. St. Paul, Minn.:
West Group.
Hamilton, Robert W., and Jonathan R. Macey. 2003. Cases and Materials on Corporatio
ns, Including Partnerships and Limited Liability Companies. 8th ed. St. Paul, Minn.: West Group
.
Hynes, J. Dennis. 2001. Agency, Partnership, and the LLC in a Nutshell. 2d ed. St. Paul,
Minn.: West Group.
Moye, John E., ed. 1999. The Law of Business Organizations. 5th ed. Albany, N.Y.: West
Legal Studies.