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Small Business Idea Paper

1334 words - 6 pages

Small Business Idea Paper
Accounting
ACC/561

Small Business Idea Paper
Running a company can be very demanding and stressful. For the most part, it can be very rewarding. There are a lot of benefits of running a company. One of the most important aspects is being your own boss. Being your own boss is very rewarding but the reasonability is very high as well. They tend to work very long hours and will have to manage everything that runs a company. Some of these would be taxes, legal aspects, accounting, employee management, and the list can go on. In this paper, lets trim it down to legal, taxes, and accounting. There will be discussions about financial statements and the types of ...view middle of the document...

The different types of business organizations are sole proprietorship, partnership, and corporate. The corporate structure is not going to be an option in this small business idea, so that leaves sole proprietorship and partnership. In the beginning, I believe the sole proprietorship would be the right choice. As mentioned in the reading, (Kimmel, P. D., Weygandt, J. J., & Kieso, D. E. 2009), “It is simple to set up and gives you control over the business.” The fall back will be a partnership, if the funding cannot be obtained. This was also stated in the reading, (Kimmel, P. D., Weygandt, J. J., & Kieso, D. E. 2009), “Partnerships often are formed because one individual does not have enough economic resources to initiate or expand the business”. If an individual is able to run a company on his/her own, then all decisions will be from that individual, including all accomplishments and failures. This is good, but when there is not enough money to create a company, the next best thing is a partner. The side effect of that is all decisions will have to go through both parties instead on just one. There have been cases where there are silent partners.
This brings us to financial statements, first let’s discuss how many financial statements there are. There are four statements, balance sheet, income, retain earnings, and cash flow. The income statement shows the success and failure of the company. Investors will be very interested in the income statements. This will provide information to the investors and management, if the company will be successful and if they should invest into the company. Banks for loans will also request this statement, since the bank wants to make sure the company can repay the loan. (Kimmel, P. D., Weygandt, J. J., & Kieso, D. E. 2009), “Creditors also use the income statement to predict future earnings.”
The next financial statement that we will be discussing is, retaining earnings statements. This statement shows the amounts and causes in retained earnings in a period of time. For example, (Kimmel, P. D., Weygandt, J. J., & Kieso, D. E. 2009), “the company adds net income and deducts dividends to determine the retained earnings at the end of the period. If a company has a net loss, it deducts (rather than adds) that amount in the retained earnings statement.” It’s a very simple statement but it is still needed and informational.
The balance sheet is one of the most important financial statements a company can have. A balance sheet shows the assets costs and claims to assets with a specific point in time. The claim to assets is subdivided into liabilities and stockholders equity. The stockholders equity is encompassed of common stock and retained earnings. This statement is important for creditors as well, as stated by these authors. (Kimmel, P. D., Weygandt, J. J., & Kieso, D. E. 2009), “Creditors analyze a company’s balance sheet to determine the likelihood that they will be repaid. They...

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