The Role of Business in the Economy - Dissertation Example

of Owners Type of Liability Advantages Disadvantages 1. Sole Proprietorship One Unlimited in the form of personal liability in relation to business debt 1. Total profit generated is retained by the owner 2. Formation and dissolution are easy tasks 3. Owners are characterized by having flexibilities 1. The financial liability is unlimited in nature 2. Limited opportunity of financing 3. Deficiencies in management 4. Lacks continuity 2. Partnership More than one The business creditors are a threat to the personal assets held by any of the partners 1.

Formation is easy 2. Can be benefited from partners having management skills which are complementary in nature 3. Financial capacity is expanded 1. Financial liability is unlimited in nature 2. Interpersonal conflicts between partners 3. Lacks continuity 4. Difficulty in dissolution 3. Corporation The no. of shareholders is unlimited. For the S Corporations it can have a maximum of 75 shareholders Limited 1. Financial liability is limited in nature 2. Management having specialized skills 3. Financial capacity is expanded 4.

Large scale economic operations 1. Formation and dissolution are costly and difficult in nature. 2. Disadvantages because of taxation 3. Legal restrictions Question 2 Define the entrepreneurship and the nature and importance in the economy of small business Entrepreneurship can be defined as the ability to develop and create something new. Entrepreneurship has been defined by different authors in various ways. For example, according to A. H. Cole, entrepreneurship is defined as an activity which is done purposefully by any individual to initiate or generate profit through the manufacture and distribution of services and goods having economic value.

Similarly, it is defined by Peter Drucker as a practice and not a kind of art or science. It is actually a base of knowledge, and entrepreneurship is not only a means of earning money but also a medium of creativity, imagination, flexibility, ability to undertake risks, and the ability to utilize change as a means of new opportunity (Mohanty, 2005, p.10-11). Entrepreneurship can be very advantageous for the economy of small businesses. Most of the small businesses in an economy are initiated through the efforts of a single person, who is known as the entrepreneur.

They are successful in setting up the business successfully through the effective utilization of business opportunities in the market. The entrepreneurs are characterized by having the ability to take considerable amount of risks and are self motivated (NCSEE, n.d.). The small businesses set up by the entrepreneurs help to boost the economic growth and also serve for the purpose of meeting the various needs of the people locally. Question 3 Describe the basic accountability process and financial statements used in business Accounting can be defined as the process of recording and reporting of financial transactions after proper analysis of the collected information about the business transactions.

These financial transactions are required to be recorded and represented in an orderly manner so as to facilitate useful information required for the decision making process of its users. The proper interpretation of information represented in the financial statements also forms a part of the basic accounting process of any business entity. The information about the financial transac