Prime Brokers in Investment Banking
Investment banks all over the world have deep relationships with hedge funds. This is because investment banks often become the source of funds for the highly leveraged investments which are made by hedge funds. These funds are often made available through an organization called a prime broker. It needs to be understood that most prime […]
Behavioral Portfolios
There is a fundamental difference in the way portfolios are viewed in traditional financial theories and the way in which they are viewed in behavioral finance. At the technical level, a portfolio is nothing but a collection of investment instruments such as stocks, bonds, real estate, etc. However, the purchase of these instruments and the […]
Limitations of Ratio Analysis
Ratio analysis, without a doubt, is amongst the most powerful tools of financial analysis. Any investor, who wants to be more efficient at their job, must devote more time towards understanding ratios and ratio analysis. However, this does not mean that it is free of limitations. Like all techniques, financial ratios have their limitations too. […]
Debits and Credits – Building Blocks of Double Entry Accounting System
Debits and credits are the building blocks of the double entry accounting system. Many accounting students find the usage of these words confusing. Many try to understand them by trying to draw an analogy with something they already know like plus and minus. However, debits and credits are distinctly different from plus and minus. Sometimes […]
Indicators That Help in Predicting Stock Market Crashes
The stock market tends to run in cycles. For a couple of years, the market maintains a bullish stance. Then some catalyst incident happens, and it seems like the market has suddenly taken a plunge. However, this is usually not the case in reality. Markets neither rise nor fall overnight. The catalyst incident merely sparks […]
Businesses may all look the same when you look at the building in which they operate, the employees they hire and the product they sell. However, they can be very different when it comes to their legal structure. The legal structure determines the type of entity they are which in turn determines the rules that will be applied to them. Here is a list of the types of entities and their relevance to accounting.
Sole Proprietorship is when there is one owner of the business. The owner does not need to register his firm with the government. The proprietor has unlimited liability. The proprietor can withdraw funds from the organization at will. This is called drawings. The proprietor need not seek anybody’s permission before making such withdrawals.
Partnership is when there are multiple owners of a business. The partners may have a equal share of profit or loss or as decided amongst them. Partners in profits only are also legally allowed. The partners too have joint unlimited liability. Their withdrawals from the firm are however controlled. They can withdraw money only to the extent decided in the partnership agreement. If they require more than the above amount, they may be required to attain explicit consent of the other partners.
Hindu Undivided Family (HUF) is a type of entity which exists in India only. It has a head of the business called the “karta” who has decision making powers and unlimited liability. In a HUF, the rules for the functioning of the organization are laid down by the “Karta”. These rules include rules on drawings.
Joint Venture is when two organizations come together for a specific purpose. It is like a partnership, except for the fact that it is meant to achieve a common purpose after which the parties to the joint venture proceed their own way.
The most common type of organizations today is corporations. This is because corporations have limited liability. This feature helps their owners separate the ownership and management of the business. There are two types of corporations:
Apart from the following there are co-operative organizations, not for profit organizations etc. They too are different types of entities. The type of entity has a profound effect on the accounting system of the organization.
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An Overview of Contracts and Why They are Important to Business and Society
February 12, 2025
