• Sole Proprietorship: This is the simplest business entity. As the name implies, the establishment has just one owner. 
• Partnership: This formation type takes place when two or more individuals or businesses form a written agreement to operate a business together. 
• Corporation: Going through the process known as “incorporation” sets up the most flexible type of company. Corporations are state-chartered and have several legal rights. Its owners have limited liability because the corporation has separate legal standing. The owners are thereby protected from personal legal action, should the business be sued. 
• Limited Liability Company: These types of businesses have many of the same built-in advantages as corporations. Along with their limited liability, LLCs can be owned by a variety of entities, including individuals, trusts, other LLCs, and corporations. When it is set up under the proper guidelines, an LLC can be taxed like a partnership, which is an advantage. 

Definition of Cash Basis of Accounting:

• Revenues are reported on the income statement in the period in which the cash is received from customers.
• Expenses are reported on the income statement when the cash is paid out.

Definition of Accrual Basis of Accounting: The accrual basis of accounting provides a better picture of a company’s profits during an accounting period for the following reasons:

• Revenues are reported on the income statement when they are earned, which often occurs before the cash is received from the customers.
• Expenses are reported on the income statement in the period when they match up with the related revenues, occur, or expire, which is often in a period different from the period when the payment is made.

The accrual basis of accounting also provides a better picture of a company’s financial position at the end of the accounting year. The reason is that all assets that were earned are reported and all liabilities that were incurred will be reported on the balance sheet.

Small business owners pay themselves differently based on how their business is structured. Sole proprietors pay themselves on a draw, partnership owners pay themselves on guaranteed payment or distribution payments, and S and C corporations pay themselves on salary or distribution payments. All pay is generally taken from the business’s profits. 

International Financial Reporting Standards (IFRS) is a set of accounting standards developed by an independent, not-for-profit organization called the International Accounting Standards Board (IASB). The goal of IFRS is to provide a global framework for how public companies prepare and disclose their financial statements.

There are many types of business entities, each with its own pros and cons. Your choice can greatly affect the way you run your business, impacting everything from liability and taxes to control over the company. The key is to figure out which structure gives your business the most advantages to help you achieve your organizational and personal financial goals. 

Both methods have their advantages and disadvantages, and each only show part of the financial health of a company. Understanding both the accrual method and a company’s cash flow with the cash method is important when making an investment decision.

The generally accepted accounting principles, or GAAP for short, are the accounting rules used to prepare and standardize the reporting of financial statements, such as balance sheets, income statements and cashflow statements, for publicly traded companies and many private companies in the United States.

There are four main financial statements. They are: (1) balance sheets; (2) income statements; (3) cash flow statements; and (4) statements of shareholders’ equity. Balance sheets show what a company owns and what it owes at a fixed point in time. Income statements show how much money a company made and spent over a specific period. Cash flow statements show the exchange of money between a company and the outside world also over a specific period. The fourth financial statement, called a “statement of shareholders’ equity,” shows changes in the interests of the company’s shareholders over time.