Introduction to Preparation of Final Accounts of Sole Proprietors Video Lecture | Principles and Practice of Accounting - CA Foundation

sole proprietorship definition of a sole
proprietor Jael Hansen a type of
business unit where one person is solely
responsible for providing the capital
and bearing the risk of the enterprise
and for the management of the business
features of a sole-proprietorship a
single ownership the sole proprietorship
form of business organization has a
single owner who himself starts the
business by bringing together all the
resources be no separation of ownership
and management the owner himself manages
the business as per his own skill and
intelligence there is no separation of
ownership and management as is the case
with company form of business
organization see less legal formalities
the formation and operation of a sole
proprietorship form of business
organization does not involve any legal
formalities thus its formation is quite
easy and simple d no separate entity the
business unit does not have an entity
separate from that of the owner the
businessman and the business enterprise
are one and the same and the businessman
is responsible for everything that
happens in his business unit E no
sharing of profit and loss the sole
proprietor enjoys the profits from the
business all by himself
similarly in event of a loss it is
entirely borne by him thus he alone
bears the risks and reaps the profits F
unlimited liability
the liability of the sole proprietor is
unlimited in event of a loss if his
business assets are not enough to pay
the business liabilities his personal
property can also be utilized to pay off
the liabilities of the business one man
control the controlling power of the
sole proprietorship business always
remains with the owner merits of sole
proprietor form of organization a easy
to form and wind up it is very easy and
simple to form a sole proprietorship
form of business organization no legal
formalities are required to be observed
similarly the business can be wound up
any time if the proprietor so decides be
quick decision and prompt action
decisions related to business can be
promptly executed as no further approval
is required see direct motivation
in sole proprietorship form of business
organization the entire profit of the
business belongs to the owner this
motivates the proprietor to work hard
and run the business efficiently d
flexibility in operation there is
maximum flexibility in operation in this
form of business organization this is
due to the fact the decisions related to
business are solely dependent on the
proprietor
thus expansion or curtailment in any
areas of business could be implemented
immediately II maintenance of business
secrets the proprietor is not required
to disclose any information to others
unless and until he himself so decides
he is also not bound to publish his
business accounts F personal touch since
the proprietor himself handles all the
activities related to his business it is
easy to maintain a good personal contact
with the customers as well as his
employees thus he knows the pulse of the
market in and out which could be
utilized to the advantage of the
business similarly direct touch with the
employees helps in understanding their
feelings and requirements to the maximum
demerits of sole proprietor form of
organization a limited resources the
resources available with the sole
proprietor are limited comparatively
being a single owner it may not always
be possible to arrange additional funds
for expansion when the business may
require so be lack of continuity the
continuty of a business is directly
linked to the well-being of a proprietor
illness or insolvency of a proprietor
immediately affects the health of a
business in event of death of a
proprietor it results in closure of a
business unit see unlimited liability in
the eyes of the law the proprietor and
the business are one and the same
thus personal property of the owner can
also be used to meet the business
obligations and debts D not suitable for
large-scale operations since the
resources and the managerial ability is
limited sole proprietorship form of
business organization is not suitable
for large-scale business limited
managerial expertise
an individual may not possess the skill
sets in all areas at the same time for
example purchase sales finance to name a
few also it may not be possible to hire
experts in each area if there is a need
for the same due to finance limitation
suitability of sole proprietorship the
sole proprietorship is suitable where
the market is limited or localized the
customers give importance to personal
attention the capital requirement is
small the risk involved is limited for
the production of goods and services
which involve manual skill example
handicrafts filigree work jewelry
tailoring haircutting etc a quick look
at some of the famous sole
proprietorships Walmart
Sam Walton purchased a Ben Franklin
store that later grew into Walmart
you