9706 · 1.1.1
Types of business entity flashcards
Revision flashcards for Cambridge 9706 Types of business entity (syllabus 1.1.1). Flip, recall, then mark a real past-paper question.
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Sole trader accounts?
Trading account, SPL, SOFP — no published accounts required.
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Partnership extra account?
Appropriation account after net profit on SPL.
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Ltd separate personality?
Company owns assets; shareholders not liable beyond investment.
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Share premium?
Amount received above nominal value on share issue (1.5.4).
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Drawings vs dividend?
Drawings reduce sole trader/partner capital; dividend reduces company retained earnings.
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Link to 9609 1.2.2?
Same ownership forms — 9706 focuses on accounting treatment.
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What is meant by 'unlimited liability'?
The owner(s) of the business are personally responsible for all of its debts. If the business cannot pay its liabilities, creditors can claim the owners' personal assets.
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What is the primary advantage of limited liability for a shareholder?
A shareholder's personal assets are protected. Their maximum potential loss is limited to the amount invested in their shares, making it a less risky form of investment.
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What does 'separate legal entity' mean in the context of a limited company?
It means the law regards the company as a distinct 'person' separate from its owners. The company can own property, enter contracts, sue, and be sued in its own name.
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How does a public limited company (Plc) typically raise large amounts of finance?
By issuing shares to the general public through a stock exchange. This is known as an Initial Public Offering (IPO) for new issues.
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What is the purpose of a Partnership Appropriation Account?
To show how the profit for the year is distributed amongst the partners, after accounting for any interest on capital, interest on drawings, and partners' salaries.
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What is the formula for the closing capital of a sole trader?
Opening Capital + Net Profit - Drawings = Closing Capital. Any additional capital introduced by the owner is also added.
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What is the difference between a fixed and fluctuating capital account in a partnership?
In a fixed system, the capital account is unchanged unless capital is introduced/withdrawn. All appropriations (profit share, salaries, interest) go through a separate Current Account. In a fluctuating system, all items go through a single Capital Account, causing its balance to change regularly.
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What are the main components of the 'Equity' section in a limited company's SOFP?
Issued Share Capital (Ordinary and Preference), Share Premium, Revaluation Reserve, and Retained Earnings.
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What is a debenture?
A long-term loan made to a company, carrying a fixed rate of interest. Debenture holders are creditors, not owners, and interest must be paid before profits are calculated for shareholders.