Understanding Business Structures and Financial Fundamentals

Topic 1: Intro to FAB

Types of Businesses: Manufacturing (make & sell), Merchandising (buy & sell), Services (delivery etc.)

Business Structures: Sole Proprietorship -> owned and opened by 1 person; business is a separate entity from owner, owner is liable for debts. Partnership -> 2 to 20 partners; business is a separate entity from partners, partners are liable for debts.

Types of Partnerships: 1. General -> equal responsibility & unlimited liability. 2. Limited (Liability) -> 1 partner(s) not liable for debts beyond the agreed obligations. 3. Limited Liability Partnership (LLP) -> ≥2 partners are separate legal entities and are not liable for business debts. Business ceases if partner dies UNLESS have perpetual succession. Company -> owner=shareholder; ownership is limited by the number of shares; capital is from buying of shares; is a separate accounting and legal entity from its shareholders; when insolvent, shareholders' assets protected, money invested lost. Perpetual succession. Types of Companies: 1. Private -> formed through kinship/friendship; when selling shares, approval from board of directors/offering to existing shareholders is required. (max 50 SH). 2. Public -> shares are traded on stock exchanges; must comply with regulations of stock exchange; key decisions must be approved by BOD, shareholders, or regulators (in some cases)

Topic 2: FAB Fundamentals

Assets: Current: intended to be converted to cash/consumed within 1 FY. (Cash(equivalents), Marketable securities, Trade receivables/trade debtors, Inventories, Investments, Prepayments/prepaid expenses) Non-current: use for >1 year (Fixed Assets [plants & equipment, land, vehicles], Long-term investments, Intangible assets [goodwill, licenses, patent, franchises, trademarks])

Liabilities: Current: paid (Bank overdraft/line of credit, trade(accounts) PAYABLE, Notes PAYABLE, Accrued expenses, taxes PAYABLE Unearned Revenue) Non-current: paid > 1 FY (Long-term bank loan, Mortgage Loan, Bonds PAYABLE)

Equity: Share Capital: 1. Ordinary shares -> have voting rights, receive dividends when surplus profits after payment, dividends vary in amount, rank last in claims during liquidation. 2. Preference shares -> NO voting rights, receive fixed rate for dividends, may be repaid the principal amt invested, rank ahead of ordinary shareholder 4th point.

Retained Earnings: accumulated profits avail to distribute to shareholders as dividends. Retained earnings balance at start of accounting period + Net profit after tax for the year = Profit available for dividend distribution - Dividends paid = Retained earnings balance at the end of accounting period

Other Reserves: not to be distributed as dividends. include: accumulation from capital gains & revaluation reserves

Revenue: 1. Goods/services sold 2. Non-core business (KNOWN AS OTHER INCOME IN TABLE: interest income, dividend income, rental income)

Expenses: COGS/COST OF SALES Operating expenses -> 1. Selling & distribution (Advertising fee) 2. General & Administrative (office rental, utilities, maintenance, salaries) Non-operating -> Financial (interests [ mortgage loan interest, term loan interest, bank overdraft interest])

SCI : SFP: