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Case Study

Starting Your Own BusinessThe objective of this study case on Starting Your Own Business allows the readers to:

To discuss the revenue and expenses of a small service business.

To explain how investments made by a business owner affect the accounting euation.

To apply the basic accounting euation.

To discuss the type of organi!ation on starting and expanding the business.

OVERVIEW

Niyaz Arshad is a recently qualified CA from Institute of Chartered Accountants of Pakistan who

has earlier worked in the auditing, taxation and consultancy side of a reputable professional

accounting firm

Niyaz started a public accounting and audit firm, a sole proprietorship called Niyaz ! Co which

pro"ides accounting and auditing ser"ices

#e has in"ested on the rele"ant items to start his business $esides, he has also bought a car to

tra"el and meet to clients instead of earlier using public con"eyance

Niyaz employed one staff #e and his staff cater to small business owners by keeping their books

of accounts using %&P based computerized accounting systems 'n a periodical basis, he

forwarded financial reports to his clients and ad"ise them accordingly #e also looks into his

clients( system and offer ser"ices like establishing proper costing system and other important

management accounting ser"ices %"ery time he completes a certain pro)ect*assignment, he

would bill his clients on an adhoc pro)ect basis #owe"er, when the proposed assignment*pro)ecttakes a period longer than three months, his firm would bill the clients on a progressi"e basis

As a registered chartered accountant, he also performs routine audits like interim and final audits

to ensure that his firm, Niyaz ! Co can gi"e an opinion on the clients( financial statements

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After completion of audits, the client(s firm would bill for reimbursements for expenses incurred

and part of the agreed audit fee

Required:

+ "iya! #rshad started his consultancy company$ what do you thin% are some investments he madeand how would each affect the basic accounting euation&

'hat can be the assets and liabilities of "iya!(s sole proprietorship&

- )dentify and classify the accounts affected if "iya! #rshad receives cash payment from his clientsfor monthly billings$ periodical*progressive billings and reimbursement of expenses$ etc.&

. )dentify and classify the accounts affected if "iya! were to issue a cheue to pay for fixed assets

li%e photocopying machine and furniture and fittings to be used in his company&/ 'hat %inds of revenues does "iya! #rhsad(s company receive&

0 'hat %inds of expenses might "iya! #rhsad(s company incur&

1 'hich type*form of business organi!ation has "iya! #rhsad chosen for his business&

2 +o you thin% that this form he selected is suitable for him& 'hy.

3 'hat are the benefits of this form of organi!ation&

+4 )f "iya! too% some monies from petty cash and used it for his personal use. So how you will recordit.

++ 'hat type of business do you thin% "iya! #rshad(s business relates to, service$ trading ormanufacturing business&

+ 'hat is the basic accounting euation&

+- )f he had bought fixed assets li%e photocopying machines$ furniture and fixtures$ computers oncash. -ow are these items being reflected in the basic accounting euation&

+. xpenses and revenues / how are they being reflected in the basic accounting euation&

+/ )s sole proprietorship the easiest type*form of organi!ation to start& )f yes$ please justify.

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