Category: Commerce Notes PPT

The economy continually keeps changing, and so does the Demand in the current market. Every business and even the industries keep a record of how this Demand changes. The factors affecting it cause fluctuations in the market. For better analysis and understanding, usually, a Demand Curve is created. However, what is a Demand Curve, and how does it help? Is there any difference between the movement and Shift along the Demand Curve? Let us have a better insight into what it exactly is.

What is the Demand Curve?

It is defined as the graphical representation between the Demand and price of commodities and how the graph transforms with a change in their values. The Demand Curve comes as a result of the law of Demand and the law of supply. 

According to the law of Demand, with increases in prices, the Demand decreases. If put in mathematical terms, Demand is an inverse of prices. 

According to the law of supply, with an increase in prices, the quantity supply also increases. 

Both these laws help in understanding the interaction of market prices with the Demand for goods and their supply. It is not just the price and quantity that affect the Demand Curve but there are also several other impactful factors. 

Movement and Shift along the Demand Curve

For all the supplies that a company provides, there are changes in the Demand Curves; but based on what factors does this happen? You can expect the changes in the Demand Curve based on the following two factors.

This leads to the movement and Shift along the Demand Curve. What is the difference between the two? How does it affect the Curve?

Movement in the Demand Curve

Are you wondering what causes a movement along the Demand Curve?

Movement along the Demand Curve happens because of the change in the price of commodities. This further affects the quantity Demanded. All other factors remain unchanged. Under such a scenario, the graph moves along the Y-axis, as the price is plotted against it. At the same time, the other axis remains constant. 

So, in such a scenario, with an increase in price, the Demand decreases, and with a decrease in price, the Demand increases.

The movement happens in a contraction and expansion format. Consider the following example.

Contraction of the Curve: For instance, if the price increases from 10to12 for a commodity, then the supply decreases from 100 to 80. This is called a contraction of the Demand Curve. 

Expansion of the Curve: For instance, if the price decreases from 10to8 for a commodity, then the supply increases from 100 to 120. This is called an expansion of the Demand Curve.

There is no Shift in the position of the Curve, just an increase or decrease in the slope.

Then, what causes a Shift in the Demand Curve?

Shift in the Demand Curve

This happens when there is a change in any other factor apart from the price. It could be due to the quantity, consumer income, or several other factors on which the Demand Curve is based. Under this, even the price can vary. This leads to left or right Shift in the Demand Curve. 

The factors leading to a Shift in the Curve are as follows.

• Increase in Demand quantity of the products due to popularity

• Increase in the price of a competitive good

• A rise in the income of consumers

• Seasonal factors 

It leads to a Shift in the Demand Curve, depending on the factors. 

A movement and Shift can also occur in the same Curve over a longer time period. Initially, an increase in price for a certain commodity could lead to a movement in the Curve. However, with time, it could lead to a Shift in the same Curve, depending on other factors.

There are several means of communication that make communication effective in nature. The collection of means and methods utilized by the user to communicate his ideas is called a communication network. The communication network is the ergonomic list of methods and patterns deployed by the employees of an organization for passing information to other nodes.

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By the general meaning of a communication network, it is understandable that managers use them to create and track different flows of communication according to the ventures. Different needs require various networks of communication which are discussed below.

Types of Communication Network

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Amongst the various networks of communication, the most common ones are as follows.

Vertical Network

The vertical network is one of the formal types of communication networks in organizations. It is used in the exchange of ideas between different levels of employees, like between the lower-ranking officials and the higher-ranking officials.

Such a network allows two-way communication. The general practice in a vertical network is that most of the time, it calls for immediate feedback. Since it is a means of communication between various ranks in a company, the probability of miscommunication is low.

Circuit Network

Amongst the different networks of communications, the circuit network is mostly used for continuous communication between employees. The message is produced at one node, while the other node produces the feedback in response to the message. This process continues for some time, thus creating a loop or a circuit. This loop or circuit is called a circuit network. Generally, a circuit network is established between employees at the same hierarchical level. Therefore, it is different from the vertical network since it takes place in both directions.

Chain Network Communication

The chain network is mostly employed in communication between two or more nodes in an organization. It is mostly observed between the leader and its subordinates. In this network, a chain of command is generated. It generally starts from a higher rank like the CEO, and it trickles down the hierarchy. The message is transmitted in the form of a chain, and therefore the network is called a chain network.

One important thing to be kept in mind is that, since it involves several nodes, there are chances of miscommunication and errors getting incorporated in the network. It is a time-consuming process, and some nodes might not understand the message that is being transmitted.

Wheel and Spoke Network

The wheel and spoke network is another form of a communication network in an organization. It is a form of vertical network, but the communication takes place in many directions with a central person, generally the manager or the leader. The single head radiates information and instructions to different sectors, which are generally subordinate in the hierarchy.

 

Such a network has proved to be better than the chain communication since it establishes direct contact between the central head and all the employees. However, due to its nature, it can form an aspect of micro-management, which might make the process very taxing. Moreover, owing to its micromanaging nature, it is suited for small organizations. Large businesses will require a lot of resources to use this network.

However, the advantage of a wheel and spoke network is direct communication between the highest rank to all the subordinates. There are no inclusions of middle parties that can disrupt the communication process. Therefore, the chances of miscommunication are minimal in this network.

Star Network

Amongst the various networks of communication, the star network can accommodate multiple participants. It can enable two-way network communication, which means such networks will exist between two nodes of the entire lot that are enrolled in the participation. It fits into the communication network meaning, since it can be regarded as a wheel and spoke network without a central focal point. The communicating members can easily exchange thoughts, ideas, and information without any restrictions being imposed on them.

The nature of the project and the size of the organization determine the types of communication networks required in the business. Loyalty, information reception, and sincerity in transmission are the basis of a good communication process. Many businesses have set several policies and processes for good communication.

Importance of Network in Communication

A network has a major role to play in communication. A network that is proper ensures that the employees of an organization have a system of passing information on among themselves. The network ensures that there are no misunderstandings between people and that they are on the same page as others. Network in any communication assists the organization in reaching its goals. Once the goals are achieved, any organization will value the importance of a strong network. Managers use these to create a system of information that’s needed by them to handle. Any proper network will depend upon the firm’s employees and the integrity that they have.

How to make Notes on Network in Communication using ?

Read up Network in Communication – Definition and Types that’s on and then prepare notes accordingly. This page has all the relevant information that’s needed by the students. They need to go through this page so that they understand the relevance of the network in matters of communication. They can go through this thoroughly and then write down everything that they have picked up in their own language. They must not copy everything that’s on the page. They must stick to concise and to the point sentences so that it gets easier for them to go over these notes later on. They can also highlight all the key areas using some colour. Once they are through with these, they can revise from this page and then sit for tests.

Only learning the language does not make you good at communicating your thoughts and ideas, you need to learn communication, you need to learn how to communicate with others so that your ideas get clear to others as well. There are types of communication, such as everyday communication and official communication. In our day-to-day life, we communicate simple things all the time with others, and this communication is, for the most part, formal, and it can be regarded as everyday communication. But then there is one other important type of communication, which is formal, and official, and hence, regarded as the official communication.

So, for the students of commerce, learning the official communication is very important, because good and effective communication is at the core of every good corporation. And hence, provides a complete explanation on the topic of Official Communication, its types, and examples as well.

What is Communication?

In the simplest terms communication means the exchange of thought and ideas between two or more people. And almost all living beings do it in one way or the other. While the communication of animals and birds is limited to very few things, the communication of human beings is kind of endless. That is to say, a human can literally think about anything, and also, they can communicate the same with others. And all this communication is possible because humans have language, it is one of the most powerful tools.

What is Official Communication?

Official communication or formal communication is the name given to the type of exchange of information. It takes place within a formal or official place between colleagues or with higher-ranked officials. Official Communication helps to maintain a professional, healthy workplace environment, as required and directed by the organization. Official communication follows definite communication rules. It is controlled by the chain of command that follows all the rules of the organization. There are various ways in which the information and orders are passed on based on the hierarchy of the company. It is essential to maintain the hierarchy in official communication without being disrespectful to anyone.

 

As said earlier, communication, in general, means the process of exchange of thoughts and ideas between two or more people, and when the same thing happens at the official level then it becomes official communication. That is to say, the communication which takes place in the official or the corporate or the business sphere is regarded as the official communication. In an even simpler manner, we can say that the exchange of thoughts and ideas between the officials and its subordinate, between the business partners is regarded as the official communication.

While having this type of communication, that is to say, while having official communication, there is a set of rules which you have to follow. Like how to address your superior or your subordinate etc. Also, many organizations prepare their own set of communication rules which one has to always follow. And also, official communication takes a different form according to the hierarchy of the organization, and it is necessary for everyone to maintain this hierarchy.

Types of Official Communication

According to the direction of the flow of information within the workplace or organization, official communication can be categorized into different types. 

1. Downward Communication

Downward Communication is a type of official communication where information is passed down from the management level or the highest level of hierarchy to the subordinate levels or the lower levels of the official system. 

The information that flows down through downward communication includes mostly orders, instructions, and circulars. This type of information may either be verbal or may be transferred through reports, emails, letters, manuals, or directives.

2. Upward Communication

Upward Communication, as the name suggests, is the opposite of downward communication which is used when information has to be sent from the lower levels or the subordinate level to the higher or the management level of an organization. The information transferred through this method mostly includes reports, requests, grievances, complaints, suggestions, etc.

3. Horizontal or Lateral Communication 

Horizontal or lateral communication methods are the types of official communication techniques used when the flow of information is within or between co-workers or colleagues. The information remains within the same level of the official hierarchy.

4. Diagonal or Crosswise Communication

This type of communication takes place when the employees of different levels of the official hierarchy communicate with different departments of the same office or organization. This type of communication is not limited to any department. It is inclusive of all levels.

Solved Examples

1. What is the Official Communication Network?

Ans: To understand the process or pattern in which official or formal communication takes place, we must understand what the official communication network is. The official communication network is the pattern of how people of a formal community interact with each other.

There Are Several Types of Official Communication Networks. They Can Be Classified Into the Following Categories.

This is a centralized form of official communication where all the information flows from one central person like the leader to the subordinate members. The other members, except the leader, have little to no input in the flow of information.

In this type of official communication, the information either flow up or down the official hierarchy. Here, a person gets information and passes it on to the immediate superior or junior, and the chain follows.

It is a decentralized form of communication where the information is shared equally among the members present. Here, each person receives and gives information equally, and all have an equal chance to participate.

In this type of official communication, everyone is connected and information can flow freely without any order. It is the most decentralized form of official communication. Everyone is connected and can freely communicate without any inhibition.

The Inverted V Communication or Y communication is a pattern of official communication where the subordinate is allowed to speak to their immediate superior and the superior of their superior, simultaneously. 

Hence, there are several types and patterns of ‘Official Communication’ existing in the official hierarchy. It is essential to learn about them to strive in the official community.

Did You Know?

It is suggested not to use Whatsapp or any such social media to transfer official information. It is best to send official documents over mail unless specifically asked not to.

 

Whatsapp is not considered as an official application over which you can send important official documents and data. You should send only relevant information over the mail. Be polite and respectful of whoever you are sending it to. It is also preferable not to share bad news over email. Always do it in person or over the phone. 

A partnership is a form of business which enables two or more persons to co-own an organization, and they agree to share the profits and losses of the company. Each member of such a business is called a Partner, and collectively they are known as a partnership firm. 

In a partnership, every owner contributes something to the welfare of the firm. These can be in the form of ideas, property, money and sometimes a combination of all these. Owners of a Partnership share profits and losses in proportion to their respective investments. 

Partnership businesses in India are regulated by Section 4 of the Indian Parliament Act of 1932.

Characteristic of a Partnership Firm

A few distinct characteristics of partnerships  are mentioned below:

• Agreement- Partners, who decide to start this business, have to make a formal mutual contract between them. This agreement is usually written following the norms of government act. 

• Number of Partners- According to section 11 of Indian Parliament Act 1932, the maximum number would be 10 for a banking Partnership business. Furthermore, this number rises to 20 for other Partnership businesses. 

• Share of Profit- One of the primary features of Partnership is to make and share the profit among the partners as per agreed ratios. However, the income will be distributed equally if there’s no clause mentioned in the agreement about the same.  

• Liabilities- In general partnerships, all the partners are subjected to liabilities. It means all of them are collectively responsible for recovering all debts of the firm, even if they have to liquidate their personal assets. 

• Non-Transferability of Interest- By any means, a partner cannot shift his/her interest from existing firm to others. There is a strict restriction upon inclusion and retirement of the partners. Even a minor change in the ownership of a business has to make with the consent of the other members involved in Partnership. 

Types of Partnership

1. General Partnership- In this Partnership, the partners equally participate in the day-to-day activities and decision-making prospects of a firm. At the same time, they are equally responsible for all profits, liabilities and debts of the company. If one partner is found guilty for any discrepancy in business, the others will be held accountable for the same. 

2. Limited Partnership- A Limited Partnership includes one or more than one partners whose liabilities are limited. A limited partner usually takes his/her share of profit without involving in daily managerial activities and decision making. Because of the limited liabilities, they don’t have to bear the loss incurred upon business. 

3. Limited Liability Partnership- In LLP, liabilities on partners are limited. They are not responsible for any legal and financial crisis of a firm. An LLP partner is somewhat similar to a Limited partner although they are not the same. 

4. Partnership at Will- Such Partnership solely depends on the will of a partner. He/she can break the bond anytime they wish. This type of Partnership is usually created for lawful business which usually lasts for an indefinite time.  

You can research more on this topic to gain knowledge about the other kinds of Partnership prevalent in India.   

Advantages of Partnership Firm

• Easy to Start- A simple agreement, verbal or written, is enough to initiate a Partnership firm. 

• Flexible Operations- There is a considerable scope for making changes in the business operations and strategies if the partners think these are needed for overall growth of the firm.  

• Greater Resources- Since partnership comprises financial contribution from all partners, it infuses large capital to business. As a result, it increases a firm’s borrowing capacity. 

• Reduced Risk Factor- As all the incomes and losses are divided among the partners, the risk for the losing money or defaulting can be narrowed down substantially. 

• Combined Skills- Another great advantage of partnership has to be the conglomeration of unique ideas, knowledge and skills from different partners with expertise in their respective fields. 

Different Kinds of Partners

1. Active Partner- A working or active partner takes part in daily operations and activities that take place within the business. Sometimes they draw remuneration as salary for their hard work.

2. Dormant Partners- Dormant partners only contribute capital to the firm and enjoy his/her share of profit without participating in business affairs. However, like other partners, they have liabilities to business.

3. Partner in Profit Only- This kind of partners venture into Partnership on the condition that they shall only get a portion of the profit of the firm but they will not be entitled to compensate for any loss of it. Mostly, these partners contribute their goodwill and reputation to the company.

4. Limited Partner- Unlike an Active partner, this partner’s endowment is limited to the sum of his/her investment. 

5. Secret Partner- As the name suggests, this partner does not want to reveal himself/herself. However, the rights of these partners are equal to any other partner of Partnership. 

The possibilities and opportunities are, therefore, immense for partnership firms to expand its horizon with the best bunch of professional partners associated. 

What do you think plays the most crucial factor in establishing a Partnership Business?

For more insights about the partnership which will be beneficial for commerce students, visit ’s website.

Partnership and Sole Proprietorship

The two terms do have a close business relationship. In partnership, one agrees to contribute in terms of money, ideas and share the profit in a business. While sole proprietorship does have a difference from a partnership. Since all of the tasks and handling of business are done by a single person. And there will be no second person involved enough to be responsible for his/her business. And many times people prefer to go for the sole proprietorship as partners can go in disagreement in the long term business works leading to a deterioration of the business flow. 

Starting A Partnership Firm 

By the year 2020, people have been taking initiation towards their business ideas. Since most of the businesses have taken online platforms for attention, it got good monetary support for marketing decreasing the investment we need to an affordable one. 

Below are the seven steps that we must follow:

1. Partnership firm’s name choosing.

2. Drafting the deeds of partnership.

3. Deeds formatted to finalization.

4. Registration of partnership deeds with relevant documents.

5. Initiating and completing the registration.

6. Get authenticated registration with the registrar.

7. Getting certificate issued from the registrar.

The firm name that we choose must be unique. It should not be looking the same as any other firm’s names. And accordingly with the law adding words like an empire, crown, empress, and so on are not allowed. Drafting the deeds of partners are a good way to communicate further. Dividing the tasks will be easier this way for smooth functioning. For drafting, it needs to be done within the proper format for sending it to legalizing. Generally, PAN card and address proof are needed of the partners to submit for register legally. And the same is needed of the firm too.

However, for the firm, there are requirements for additional documents such as GST registration and details of a current bank account. And the registration is completed that way for getting the certificate from the registrar. It is not mandatory to get a certificate for starting a business. Even though the certificate will be delivered to you within two weeks after registration. 

Disadvantages Of Partnership

Just like the coin has a flip side, there are also demerits for partnership. A few of them are mentioned below:

• Disagreement from partners on the ideas and discussions can cause losing growth opportunities.

• The vision of the firm may be entitled just to the founder. However, a partner will not be following the same.

• Having no co-operation.

• Exiting the firm environment work culture after taking away the profit obtained so far. 

Place simply does not mean the physical movement of product from the manufacturers to the customers but this also means the ease of access to the products, the way the products are displayed, and in which environment that they are presented. The marketer then needs to adopt different channels of intermediaries to reach their end-user. The marketer then uses the choice of distribution channel which is affected by several factors.

We will further take notice of the distribution channel which suits the place mix of the marketing management. 

Channel of Distribution

The channel of distribution means the intermediaries that are involved in the process of how a product passes from the manufacturer to the end-users that are the consumers. This is quite important for the producers to engage the middlemen to reach the consumers. Foremostly, the middlemen reduce the problems of both the producers and the consumers. Then they help in distributing the products over a specific large area.

Different Channels of Distribution are as Follows:

Channel 0

This is called a direct marketing channel with no intermediary level. The producers sell the products directly to the consumers thus, this is called direct marketing. Apart from this, the remaining channels are indirect marketing channels.

Channel 1 

This channel includes only one intermediary which is generally a retailer. The retailers buy the products which come directly from the manufacturer and then sold to the consumers. Generally, electronic goods like televisions and computers are sold through this channel 1 level.

Channel 2 

Channel 2 contains two intermediary levels of a – wholesaler and a retailer. A wholesaler is one who typically buys and stores the large quantities of these several producers’ goods and then breaks them into bulk deliveries to supply to the retailers in smaller lots. 

Channel 3

This channel contains three middlemen levels. The jobbers usually come between the wholesalers and the retailers. Then they buy from the wholesalers, sell to the small retailers who are generally not served by the wholesalers. There can be even more levels in the distribution channel but from a producers’ point of view. 

Elements of Place and Place mix

Transportation:

Transportation is an important component of the physical distribution that is very essential for the firm as this increases the market length for the product. The decisions which relate to the transportation here include the choice of mode of transport that is to be used, whether to own the vehicles or to hire them, how the deliveries are scheduled, who will bear this transport cost and then the manufacturer to wholesaler and them to the retailer.

The different modes of transport are – Roadways, Railways, Waterways, Airways, and also Pipelines. Normally this combination of these modes is to be chosen by a business organization. This is important to note here that the choice of a particular mode of transport affects the condition of the goods and the pricing which ultimately affects the customer’s satisfaction.

Warehousing:

Warehousing provides the function of storage to the firm and thereby creates time utility. The long-time gap that is between the production and distribution, the seasonal production of certain commodities, and the continuous demand for the products, and such other factors have made it necessary for the firm to store their own products. The warehousing decisions include decisions that relate to the choice of public or private warehouse or the cold storages, and the number of places where the goods have to be stored which is to be released quickly when it is demanded.

Inventory Level:

This is very necessary for a firm to carry quite enough stock of goods to meet the demand as and when this is required, which involves the decisions as to how much the stock, who long to stock, and at how many places to stock the products.

Channel Level and Intermediaries:

The marketing channels are characterized by the variety of other channel levels, this depends upon the number of intermediaries, which can be of different channel levels – the direct marketing where the manufacturers sell directly to the consumers, one level channel where the goods that are sold through one intermediary and so on. The firm has even to decide the number and the type of intermediaries that are to be employed.

The sole proprietorship balance sheet depends on the bookkeeping condition that expresses that assets equal liabilities in addition to shareholder’s equity. In this manner, a balance sheet contains an organization’s assets, liabilities and shareholder’s equity, which is alluded to as proprietors’ equity on account of a sole proprietorship. An organization’s balance sheet should consistently adjust, which means assets will consistently rise to liabilities in addition to owners’ equity, as clarified by Marianne M. Huey of Ohio State University. Business assets are found on the left half of the balance sheet while liabilities and shareholders’ equity show up on the correct side of the sole proprietorship balance sheet.

 

How to Prepare a Balance Sheet?

• Compose a heading at the head of the balance sheet. Show the lawful name of the business. Compose the words “Balance sheet” underneath the lawful name of the business. Convey the specific date of the balance sheet. For instance, most organization’s use December 31st as the date of the balance sheet since it is the latest day of the year.

• Rundown every current asset. Start with current assets such as money, debt claims and stock. Assets ought to show up on the asset report in the request that they will be changed over into money. Include the absolute of every single current asset.

• Record all long-term assets. Long-term assets are things that will be changed over into money in over one year. Long-term assets incorporate various items, for example, building, land, equipment and notes etc. Include all of the organization’s drawn-out assets.

• Include long-term assets with current assets. The outcome delivers the organization’s complete assets.

• Impart the current liabilities. Rundown the current liabilities on the correct side of the balance sheet. Current liabilities comprise things that will be expected inside a one-year time frame. Instances of current liabilities incorporate accounts payable, wages payable, taxes payable and unearned revenue. Include every single current liabilities.

• Rundown the long-term liabilities. Long-term liabilities are commitments that will get due in over one year. Long term liabilities comprise of notes payable, mortgage payable and leases. Compute the complete long-term liabilities.

• Include all your long-term liabilities with current liabilities. The result yields complete liabilities.

• Show the measure of proprietors’ equity. Proprietors’ equity shows the measure of capital accounting for sole proprietor business. Compose held income underneath proprietors’ equity. Held profit shows the measure of net gain reinvested in the business, which did not get issued. Include held profit with proprietors’ equity to discover absolute proprietors’ equity.

• Include all out liabilities with all-out proprietors’ equity. The organizations’ all-out liabilities and total proprietors’ equity must rise to the total assets. Accordingly, the left side or assets side of the balance sheet should approach the correct side or proprietors’ equity and liabilities side of the balance sheet. 

 

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Final Accounts of Sole Proprietorship

The final accounts for a sole dealer business are the Income Statement (Trading and Profit and Loss Account) and the Balance Sheet. The final accounts give an image of the money-related situation of the business. It shows whether or not your business has made a benefit or loss during the bookkeeping time frame and whether debts can be paid as they become due. 

 

After the trial balance gets completed, final accounts of the sole proprietorship are prepared. The last account of sole proprietorship business incorporates the Income Statement (Exchanging and Profit and Loss account) and the balance sheet. The trial balance is the synopsis of the parties in the entirety of all accounts of the sole proprietorship. A portion of these parities (those from the nominal accounts) influence the profit and are moved to the Income Statement; the real and personal accounts are moved to the Balance Sheet. The Income Statement and the Balance Sheet are set up toward the finish of each financial period to record how well the business worked during that budgetary period.

 

Sole Proprietorship

A sole proprietorship, also known as a sole trader, is an unincorporated business with a single owner who pays personal income tax on the profits of the company. Due to a lack of government regulation, a sole proprietorship is the simplest form of business to start or dissolve. Many single owners do business under their own names since it is not essential to register a distinct business or trade name. A single proprietorship, unlike a corporation, a limited liability company (LLC), or a limited liability partnership (LLP), does not have its own legal entity. 

 

Advantages and Disadvantages of Sole Proprietorship

Advantages – The key advantages of a sole proprietorship are the pass-through tax benefit, the simplicity of creation, and the inexpensive creation and maintenance expenses. You don’t have to fill out a lot of paperwork in sole proprietorships, such as registering with your state. Depending on your state and type of company, you may need to get a license or permission. Because you do not need to obtain an employer identification number (EIN) from the IRS, the tax procedure is simplified. You will not be charged any fees for renewing your registration or any other fees involved with the procedure since you are not obliged to register with your state. A sole proprietorship does not require a business checking account, which is required by other business types. All of your funds may be handled through your own personal checking account.

 

Disadvantages – The disadvantages of a sole proprietorship include the owner’s unlimited responsibility outside of the business and the difficulty in acquiring capital investment, particularly issuing shares and receiving bank loans or lines of credit. Banks like to do business with businesses that have a proven track record. Being a beginner with a modest balance sheet might make it difficult for banks to lend money to you. It might be challenging to attract equity from major investors since they favour more refined businesses. When a business is registered, it obtains various state protections. Because it is not registered, a sole proprietorship has no protection when it comes to responsibility. 

 

Start a Sole Proprietorship

To begin a single proprietorship, you just launch your company. It is not necessary to register with your state. It’s best to come up with a business name first and then apply for a permit or license with your city and state if necessary. If you want to hire employees, you’ll need an employee identification number (EIN), and if you want to sell taxable goods, you’ll need to register with your state.

 

Income Statement

The Income Statement is one of the most essential financial statements for any company. It’s used to figure out the following:

1. What is the profit margin of a company?

2. Comparing the outcomes received to the expected results.

 

The trading account and the profit and loss account are the two components of the income statement. The Trading account and the Profit and Loss account are the two components of the income statement. The trading account calculates the gross profit, which is the amount of profit before expenditures are deducted. The trading account is used to calculate the gross profit from sales. So, all accounts directly associated with buying and selling (trading) will be shifted to the trading account. The following accounts are directly related to trading:

• Sales

• Purchase

• Wages

• Sales Return

• Purchases Return

• Carriage Inwards

• Opening & Closing stock

• Power & Fuel

 

The gross profit is determined as follows:

Gross Profit = Net Sales – Cost of Goods Sold (COGS)

The trading account additionally calculates net sales, cost of goods sold (COGS), and cost of goods available for sale (COGAFS) in addition to gross profit:

Net Sales = Sales – Sales Return (Return Inwards)

The total sales amount after adjustments for sales returned to the business is known as net sales. The profit and loss account calculates your company’s net profit. The balance of profit after income and costs are deducted is known as net profit. It’s calculated as follows:

Net Profit = Gross profit + Revenue – expenses

The revenue and expenses charged to the Profit & loss account are those that are not primarily linked to trading and have more to do with the day-to-day operations of the firm. Some of these accounts include:

• Rent

• Telephone

• Carriage outwards

• Discount allowed

• Discount received

• Commission received

• Commission paid

• Salary