Separation of Investing and Financing Decisions
We have already seen that there are a lot of differences that arise between what we have learned in accounting and how we use it in corporate finance. The separation of financing and investing decisions is one such important concept. It is important because we have to make a very important adjustment based on this […]
Compounding Intervals and Interest Rate
Theoretically there are two types of interest rates, simple and compounding. However, in finance the word interest usually refers to compound interest. Simple interest almost never factors in financial calculations. In all calculations related to present values and future values, compound interest is used. However, as a student of corporate finance, it is essential to […]
Advantages and Disadvantages of Currency Pegs
Advantages of Currency Pegs Currency pegs have become extremely popular in the post Bretton Woods monetary world. About one fourth of all countries in the world today have pegged their currencies to some other major currency like the dollar or the euro. This strategy has bankrupted certain nations like Argentina whereas it has caused other […]
The Role of the Finance Function in Organizational Processes
The Finance Function and the Project Office Contemporary organizations need to practice cost control if they are to survive the recessionary times. Given the fact that many top tier companies are currently mired in low growth and less activity situations, it is imperative that they control their costs as much as possible. This can happen […]
Stress Testing in Money Market Funds
From the previous articles, we already know that money markets form an integral part of the overall financial system. Also because of their large volumes and high ratio of demand deposits, the money market funds are always at the risk of a run. It is for this reason that the Securities and Exchange Commission has […]
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
