FINANCE AND ACCOUNTING

Group Members
1. VU-BCS-2307-0200-EVE MUGISHA JAMES
2. VU-BCS-2307-0987-EVE MUGIZI ADRIAN
3. VU-DRE-2307-0771-EVE NAJJENGO GRACE
4. VU-BHR-2307-1045-EVE NABASUMBA JOVIA
5. VU-BPL-3207-0330-EVE NAYEBARE SYLIVIA
6. VU-BHR-2307-0859-EVE WASWA EMMANUEL
7. VU-BCS-2307-0392-EVE ISABIRYE GERALD
8. VU-BCS-2307-0210-EVE KAMUNANWIRE ELVIS
9. VU-DHR-2307-0263-DAY OBIA SHADIA
10. VU-DTH-2307-0585-EVE NAMIREMBE JACQUELINE
11. VU-BCS-2307-0555-EVE NASASIRA BRITON
12. VU-DIT-2307-0883-EVE LUYANZI DENIS
13. VU-BHR-2307-0502-EVE MARIAM ABUBAKER
14. VU-DIT-2307-0079-EVE OKELLO MOSES MOON
15. VU-BRE-2307-0324-EVE. Kasakya Jafari Junior.
 Qn. 1 Define the term partnerships
In Accounting and finance, A partnership refers to a business structure where two or more individuals or
entities join together to operate a business and share its profits, losses, and management responsibilities.
For example if David and Adrian, both experienced accountants, decide to combine their expertise and
resources to start an accounting firm. They agree to form a general partnership called “Adrian and David
Accounting Services." Here's how their partnership is explained,
•Ownership and Structure: John and Sarah are the partners in this accounting firm. They each contribute
an equal amount of initial capital to start the business. They outline the terms of their partnership, including
their respective ownership percentages and responsibilities, in a written partnership agreement.
•Profit and Loss Sharing: According to their partnership agreement, John and Sarah agree to share the
profits and losses of the accounting firm equally, as they both have a 50% ownership stake.
•Management: Both John and Sarah actively participate in the management of the firm. They make
decisions together on client matters, hiring staff, and the day-to-day operations of the business.
•Liability: As a general partnership, both John and Sarah have unlimited personal liability for the firm's
debts and obligations. This means that their personal assets could be at risk if the business faces financial
difficulties.
•Taxation: Smith and Johnson Accounting Services is a pass-through entity for tax purposes. This means
that the firm itself does not pay income taxes. Instead, John and Sarah report their respective shares of the
firm's profits and losses on their individual tax returns.
Qn1. cont
• Financial Reporting: The accounting firm maintains financial records and prepares financial
statements, including income statements and balance sheets, to track the financial performance
of the business. These statements are used for both internal management purposes and for
compliance with accounting and tax regulations.
• Capital Accounts: John and Sarah each have capital accounts that track their initial
contributions, their share of profits or losses, and any additional investments or withdrawals
they make from the business.
• Distribution of Profits: At the end of the year, after calculating the firm's profits and losses,
John and Sarah distribute the profits equally, with each partner receiving 50% of the net income.
• Admission and Withdrawal of Partners: Their partnership agreement outlines the procedures
for admitting new partners, should they decide to expand in the future, as well as the process for
handling the withdrawal of a partner.
In this example, the partnership between David and Adrian allows them to combine their
accounting expertise and resources to run their accounting firm. They share both the
responsibilities and financial outcomes of the business, following the principles of a general
partnership in finance and accounting. However, they also assume the associated risks, such as
unlimited personal liability.
Qn. 2 How are the financial statements of a sole proprietor different from a partnership and a company?
The financial statements of a sole proprietorship, a partnership, and a company
differ in several ways due to their different business structures and legal
frameworks as explained below using the different aspects,
Ownership Structure: when we compare using the ownership structure,

A sole proprietorship is owned and operated by a single individual,

A partnership is owned by two or more individuals or entities who share profits

and losses based on the partnership agreement.

Companies have a distinct legal identity separate from their owners. Shareholders
own corporations, while members own limited liability companies (LLCs).
Qn2. cont
When we use financial statements,
1. Income Statement:
For a sole proprietorship This statement summarizes the revenues, expenses, and
net income (or loss) of the business. It may be called a "Statement of Profit and
Loss" or "Statement of Income." The net income flows directly to the owner's
personal tax return,
For a partnership, Similar to a sole proprietorship, the income statement
summarizes the partnership's revenues, expenses, and net income (or loss). Each
partner's share of the net income or loss is reported in their individual income tax
returns
For companies, the income statement summarizes the company's revenues,
expenses, and net income (or loss). This net income belongs to the company and is
not directly reported on the owners' personal tax returns.
Qn2. cont
2. Balance Sheet:
For a sole proprietorship, this statement presents the assets, liabilities, and
owner's equity of the business at a specific point in time. Owner's equity typically
includes the owner's initial investment and accumulated profits.

For a partnership, the balance sheet includes the partnership's assets, liabilities,
and the partners' equity. Each partner's equity usually reflects their initial
investment, share of profits, and withdrawals.

For companies, the balance sheet includes the company's assets, liabilities, and
shareholders' equity (for corporations) or members' equity (for LLCs). Shareholders'
or members' equity represents their ownership stake in the company
Qn2. cont

3. Statement of Owner's Equity:

For a sole proprietorship this statement shows the changes in the owner's equity
over time, considering investments, withdrawals, and profits/losses
For a partnership this is called Statement of Partners' Capital and this statement
shows the changes in each partner's capital account, including investments,
withdrawals, and the allocation of profits/losses
For companies this is called Statement of Retained Earnings for Corporations and
Statement of Members' Equity for Limited Liability Companies and these
statements contain the following respectively.
i) Statement of Retained Earnings(for corporations) This statement shows
changes in retained earnings, reflecting profits or losses retained in the
company after dividends have been paid to shareholders
ii) Statement of Members' Equity(for Limited Liability Earnings) Similar to the
statement of retained earnings, this statement shows changes in members'
equity, including allocations of profits/losses.
Qtn. 2 cont

In summary, the main differences in financial statements among sole

proprietorships, partnerships, and companies relate to ownership structure,
reporting of profits/losses, and the treatment of owner's equity or capital. Sole
proprietors and partners directly report business income on their individual tax
returns, while companies have separate legal identities, and income is retained or
distributed according to their respective structures and regulations.
1. How are financial statements of a nonprofit making organization different from
a profit making organization?

Financial statements of nonprofit organizations and for-profit organizations differ

in several key ways in accounting and finance due to their distinct purposes and
objectives. Here are some of the primary differences in different categories:
1. Objective:
Nonprofit Organization: The primary objective of a nonprofit organization is to
achieve a social or charitable mission rather than generating profits for owners or
shareholders. Nonprofits aim to provide services or benefits to the community or
address specific societal needs.
For-profit Organization: For-profit organizations exist to generate profits for their
owners or shareholders. Their primary goal is to maximize profitability and
shareholder value
Qn3. cont
2. Ownership and Equity:
Nonprofit Organization: Nonprofits do not have owners or shareholders in the
traditional sense. Instead, they have members or stakeholders who have a vested
interest in the organization's mission but do not hold equity or shares
For-profit Organization: For-profit organizations have owners or shareholders who
have equity in the company, and their ownership stake represents a claim on the
company's assets and profits.

3. Revenue Sources:
Nonprofit Organization: Nonprofits typically rely on a mix of funding sources,
including donations, grants, membership fees, and fundraising activities. Revenue is
often generated to support the organization's mission and cover operational expenses
For-profit Organization: For-profits primarily generate revenue from the sale of goods
or services to customers. Their income is intended to cover expenses and produce a
profit for shareholders
Qn3. cont
4. Financial Reporting:
Nonprofit Organization: Nonprofits use financial statements such as the Statement of
Financial Position (similar to a balance sheet), Statement of Activities (similar to an income
statement), and Statement of Cash Flows to report their financial activities. These statements
emphasize the organization's financial position and its ability to carry out its mission.
For-profit Organization: For-profit organizations also use financial statements like the balance
sheet and income statement, but their primary focus is on profitability and generating returns
for shareholders.

5. Taxation:
Nonprofit Organization: Nonprofits often enjoy tax-exempt status, meaning they are not
subject to federal and state income taxes on their income. However, they may still be subject
to other taxes, such as property taxes, and must adhere to strict regulations to maintain their
tax-exempt status.
For-profit Organization: For-profits are subject to income taxes on their profits at the federal
and state levels. They do not have tax-exempt status and are subject to various tax regulations
Qn3. cont
6. Surplus or Profit Distribution:
Nonprofit Organization: Nonprofits may generate surpluses, but these surpluses
are typically reinvested in the organization to further its mission, rather than
distributed to owners or shareholders.
For-profit Organization: For-profits distribute profits to their owners or
shareholders in the form of dividends or retained earnings.

In summary, nonprofit organizations and for-profit organizations have distinct

purposes, funding sources, financial reporting requirements, and taxation status,
which result in significant differences in their financial statements and accounting
practices.
Nonprofits focus on their mission and community benefit, while for-profits
prioritize profitability and shareholder returns.