7/28/2019 MFRD Kim

1/8

Differences between the formats of financial statements for different types of

business such as sole proprietor, partnership and limited company

There are different kind of business organization, such as sole proprietorship, partnership

and limited company. Therefore, the characteristic of each business organization is also

different; it will lead to difference about format of financial statements. Therefore, it is

necessary to understand about these business organizations, from that we can know

difference formats of financial statement that they use.

1A sole proprietorship also known as a sole trader, or simply proprietorship is a type

ofbusiness entity which is owned and run by one individual and where there is no legal

distinction between the owner and the business. All profits and all losses accrue to the

owner (subject to taxation). All assets of the business are owned by the proprietor and all

debts of the business are their debts and they must pay them from their personal

resources. This means that the owner has unlimited liability.

Partnership is a company that set up by more than two people, partners contributes their

money to run business, so that partners (owners) share with each other the profits or

losses of the business. Partnerships are often favored over corporations for taxation

purposes, as the partnership structure does not generally incur a tax on profits before it is

distributed to the partners.

Limited company is a corporation with shareholders whose liabilityis limited by shares

(Ltd), which is the most common form ofprivately held company. Setting up as a limited

company is an attractive option for many people as, unlike sole traders, personal assets

are completely distinct from company finances.

In order to make clear about difference formats of financial statements. below are some

example formats that is used by difference business organization.

1 http://en.wikipedia.org/wiki/Sole_proprietorship

1

http://en.wikipedia.org/wiki/Business_entityhttp://en.wikipedia.org/wiki/Corporationhttp://en.wikipedia.org/wiki/Corporationhttp://en.wikipedia.org/wiki/Limited_liabilityhttp://en.wikipedia.org/wiki/Limited_liabilityhttp://en.wikipedia.org/wiki/Private_company_limited_by_shareshttp://en.wikipedia.org/wiki/Privately_held_companyhttp://en.wikipedia.org/wiki/Business_entityhttp://en.wikipedia.org/wiki/Corporationhttp://en.wikipedia.org/wiki/Corporationhttp://en.wikipedia.org/wiki/Limited_liabilityhttp://en.wikipedia.org/wiki/Private_company_limited_by_shareshttp://en.wikipedia.org/wiki/Privately_held_company

7/28/2019 MFRD Kim

2/8

Sole proprietor

Income statement2

2 http://learnaccounting.wordpress.com/2007/12/21/three-most-common-types-of-small-businesses-%E2%80%93-sole-proprietorship-partnership-and-private-limited-company/sole-proprietor-example-of-income-statement-and-balance-sheet/

$

Sales 159,270Cost of sales -90,875Gross profit 68,395other income:

interest income 2,356Operating expenses:

Accountancy fee 800Depreciation of property 2,500Donation 500Electricity and water 3,340insurance premium 2,000

printing 1,697rental of premises 12,000salaries 35,579upkeep of office 3,547telephone charges 1,285traveling 2,648

65,896Net profit for the year 4,855Retained profits B/F 27,654Retained profits C/F 32,509

2

7/28/2019 MFRD Kim

3/8

Balance sheet3

3 http://learnaccounting.wordpress.com/2007/12/21/three-most-common-types-of-small-businesses-%E2%80%93-sole-proprietorship-partnership-and-private-limited-company/sole-proprietor-example-of-income-statement-and-balance-sheet/

3

7/28/2019 MFRD Kim

4/8

$Non current assets

Property, plant and equipment 15,000Current assets

Inventories 5,200

Trade receivable 6,000Other receivable 3,458Cash and bank balances 10,639

25,297

Current liabilitiesTrade payable 3,588Other payable 2,575

6,163

Net current assets 19,13434,134Finance by:

Capital 15,000Retained profit 32,509Net drawing 13,375

34,134

Partnership

4

7/28/2019 MFRD Kim

5/8

Income statement

Balance sheet

5

7/28/2019 MFRD Kim

6/8

Limited company

6

7/28/2019 MFRD Kim

7/8

Income Statement

2009 2008

$'000 $'000Sales 11,200 9,750

Cost of sales 8,460 6,825

Net profit before tax 465 320

This is after charging:

Depreciation 360 280

Loan note interest 80 60Interest on bank overdraft 15 9

Audit fees 12 10

Balance sheet

$'000 $'000 $'000 $'000

ASSETS

Non-current assets 1,850 1,430

Current assets

Inventory 640 490Receivables 1,230 1,080

Cash 80 1,950 120 1,690

TOTAL ASSETS 3,800 3,120

EQUITY AND LIABILITIES

Equity

Ordinary share capital 800 800

Retained earnings 1,310 2,110 930 1,730

Non-current liabilities

10% loan stock 800 600Curent liabilities

Bank overdraft 110 80

Payables 750 690

Taxes 30 890 20 790

TOTAL EQUITY AND LIABILITIES 3,800 3,120

2009 2008

The difference between the formats of The Income statement:

7

7/28/2019 MFRD Kim

8/8

Income statement of a company that includes profit and loss appropriate account that do

not has in income statement of partnership and sole proprietor. Besides, in a limited

company, its net profit for the year is used to pay tax; to pay dividends and for retention

within the business. This factor is different from sole proprietorship. With partnership,

the division of the net profit among the partners has to be shown; this element is not

showed in sole proprietorship, and limited company. Besides, partners' salaries and

interest on capital are not charges in the main part of the Income statement. They are

simply part of the process of dividing up the profit among the partners.

The differences between the formats of balance sheet

The balance sheet of partnership that is a separate capital account for each partner, but in

the balance sheet of sole proprietorship is not separate. As regards partnership, the capital

account is used to show the stake of the partner. For a sole trader, the profit or losses each

year are often transferred into capital account, so that the bottom of balance sheet would

simply have one line.

Example: Capital 15000

In company, the owners are shareholder, whose initial stake is shown as share capital and

subsequent profit earned showed as a balance on the profit and loss account.

8