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Compare and Contrast a set of Final Accounts for a Sole Trader and a Non-Profit Organisation

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Introduction

E5 and A2 - Compare and Contrast a set of Final Accounts for a Sole Trader and a Non-Profit Organisation A sole trader, otherwise known as a sole proprietor exists where as a single person owns and runs a business. This is a very common form or organisation in the UK. Sole traders have grown substantially over the years. There are several reasons for this trend including more opportunities for firms on consultancy basis and government support for self-employed. Most sole traders work on their own. This need not be the case though, there is no theoretical reason why a sole trader couldn't employ a hundred staff and own up to nine factories, and however, in practice this is unlikely that a single person could raise that amount of capital needed for an organisation as big as that. A sole trader holds full responsibility for the financial control over his or her business, for meeting capital requirements and running costs, and her full personal liability in the case of debt. He or she does not have the protection of Limited liability like a limited company. Sole traders are easy to set up, the sole trader has: > Responsibility for providing capital either as savings or loans > Direct personal involvement > Unlimited liability > Independence to run the business, however, they see fit > Entitlement to all profits but responsible for all debts A non-profit organisation collects remaining profits from trading activities. There main objective would not be to make a profit but just to cover costs and break even. ...read more.

Middle

From comparing these accounts they differ a lot, that it obvious that the companies have different objectives and financial targets to meet. Much of the primary objectives of a non-profit organisation are to provide a service and facilities to members, many organisations still carry out activities with the intention to make a profit. These activities can either be: > A bar for the use of members > Provision of catering facilities for members > The purchase of goods to sell to members on favourable terms The treasurer of the non-profit organisation account prepares accounts to cater such activities, to show either the profit or the loss. The layout of this account is exactly the same as that for a trading account of the sole trader with: > Opening stock > Closing stock > Purchases > Sales If any direct costs associated with the trade such as bar wages, such as bar wages will be included in the profit or loss on trading activities, it is then taken to the income and expenditure account. This is very similar to that of a sole trader, except it is much smaller as a non-profit organisation does not operate on a large scale and therefore has fewer expenses. For example: Seer Green Golf Club Trading Account for year ending 31.3.04 � � Bar Takings 49670 Opening Stock 4930 Purchases 35052 39982 Less Closing Stock 5230 Cost of Goods 34752 Gross Profit 14918 Less Expenses: Bar Steward Wages 11880 Net Loss -3038 It must be noted that: > The profit on the bar has been calculated separately. ...read more.

Conclusion

In the case of assets other than money they have to be recorded in the same way as a sole trader, and that is under fixed assets on the balance sheet, these could be premises or equipment. Depreciation: As in the final accounts of a sole trader, fixed assets should be depreciated in a non-profit organisation, and both the same principals apply. Depreciation for the year is charged as an expense in the income and expenditure account. Both organisations show the asset in the balance sheet at a cost for less provision, to give the book value. Like sole traders, clubs simply value their fixed assets at the end of the financial year. They fall in value subject to technological changes etc, is depreciated in the same way as a sole trader. It is charged as an expense on the profit and loss account and charged in the income and expenditure account for a non-profit organisation. A non-profit organisation is responsible for maintaining proper accounting records like a sole trader. Authority to spend: Before making payments, a treasurer of the non- profit organisation must ensure that he or she has authority to spend the clubs money. For one-off transactions, the minutes of a relevant committee meeting will show that the purchase was agreed. In a sole trader the owner will be responsible for all purchases. Documentary evidence: like a sole trader a club must ensure that there is evidence for every transaction. Payment should be made against invoices etc. In this way an audit trail is created. All documents are able to be retained for the use of an auditor who will check the accounting records after the end of each financial year. ...read more.

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