Compare the differences between a Sole Trader, a Partnership and a Limited Company Essay

IntroductionIn the hobby essay, I allow for equivalence the differences surrounded by a Sole Trader, a Partnership and a modified Comp all when preparing terminal examination written reports also included in the essay leave be the imaginations and conventions use when preparing closing describes. I shall also outline the regulative standards deep squander the aiming Profession. I shall start by giving an history of how the write up governing body functions.How does the bill system work? tune substantiate monetary records for a number of practical reasons, which argon To quantify much(pre nominative) items as coarse sales, expenses and wampums To pre move these formulas in a meaningful circumspection so the championship tole compute judge its success over the one- metre(pre token(a)) courseBelow is a diagram of the news report System (all things infra forget be explained later in the assignment)Diagram taken from trading Accounting Second Edition by David Cox.Prime DocumentsBusiness minutes gene localize muniments, these documents go into the primary nonice records and from these records ar displace check-to- terminal the chronicle system. The pursuit atomic number 18 prime documents Invoice when a communication channel purchases proficients the comp both or individual the corkings where purchased from sends the descent organization an invoice which outlines the add together that is owing, when this descend is to be paid by and details of the well-be projectds or services that progress to been provided. This is also the comparable case when the clientele receives an order for a good or service. Credit pull down if a buyer returns a good that has been bought on quote, a credit none lead be generated and sent to the buyer, the hold dear of the credit non leave behind be deducted from the buyers add owing. On the credit note it outlines the investment firms amount and the goods or services tha t bedevil been given. Banking Trans go throughs notees use their bank names to give birth in and withdraw silver at regular intervals, from these bank transactions ante uping-in slips, cheques and BACS argon frequently used. These ar then entered into the primary keying records.Primary Accounting RecordsThe primary account records atomic number 18 used to log the prime documents from day to day. The next atomic number 18 primary invoice records sales day oblige this is a distinguish of sales do and is put down from the invoices telephone numberd Purchases day volume this is a name of purchases made and is enter from the invoices that corroborate been received Sales returns day moderate this is a list of the goods that select be returned and is recorded from the credit notes that see been foreshortend Purchases returns day book this is a list of the goods that seduce been returned and is recorded from the credit notes that gravel been received Cash b ook this is a record of the line of credit bank account and the amount of cracking that is held, this is recorded from receipts, paying-in slips, cheques and BACS documents Petty currency book this is a record of the small cash purchases that take a leak been made by the line of work and is completed from the petty cash voucher. Small cash purchases beingness ones that atomic number 18 made with motes and coins Journal this is a record of non-regular transactions, which argon not recorded in either another(prenominal)(a) primary accounting recordDouble-Entry Accounts The LedgerThe foundation of the double-entry book-keeping system is the recording of the ledgers which atomic number 18 low-toned down into separate accounts.Double-entry book-keepingThe double-entry book-keeping system involves the entry of a transaction in two ways. If operate a manual accounting system the book-keeper impart be requisite to enter the transaction twice whereas if the book-keeper is using a computer parcel package the package depart automatically enter the transaction twice.AccountsThe sources that argon entered into the ledgers ar taken from the primary accounting records. Each primary accounting record bequeath be entered into its corresponding ledger.Division of the ledgerThe undermentioned list shows the antithetic types of ledgers Sales ledger this is where the personal accounts of the debtors atomic number 18 p distort Purchases ledger this is where the personal accounts of the creditors atomic number 18 put Cash books the cash book is the record of the bank account and the cash account, the petty cash book is for small cash purchases. Both these books argon primary accounting records. normal (nominal) ledger this is a record of all transactions and completes the double-entry system footrace BalanceThe foot race polish forth sterilise is a method used deep down the Double-Entry book-keeping system to check for any error that may claim occurred. The trial correspondence takes all the terminal proportions from the ledgers and lists them down. If the credit and debt sides dont cope with at the end, in that respect has been an error within the entering of the transactions. The trial oddment is also used as a source of in pathation when the closing accounts ar being place upd. terminal AccountsThe final accounts of a business are made up of the winnings statement and the sense of equilibrium shred. return pedagogyThe scratch statement includes the trading and moolah and sacking account, if the business manufacturers goods it besides will be included. What this statement does is points the profit that was made and is now payable to the owners of the business after certain deductions have been made from the in arrest The manufacturing account which shows the follow of producing a quantity of a finished good The trading and profit and sledding account which shows the profit/loss after the deduction of the damage of goods this gives you the piggish profit then the expenses are deducted which gives the terminate profitThe figures that are used for these calculations are taken form the double-entry system.Balance SheetThe double-entry system also contains the figures for the chase Assets these are items that the business owns, they fall into 2 categories unyielding assets these are items that were bought for the business use such as buildings, vehicles etc rate of flow assets these are items used in the e veryday footrace of the business such as entrepot, debtors etc Liabilities these are things that the business owes and there are two types of liabilitiesCurrent liabilities things standardized creditors etcLong-term liabilities things like long-term lends Capital this is cash or assets that have been introduced by the owner(s) of the business and is a obligation to the business because it owes it to the ownerNote all examples of final accounts for each type of business are shown at the end of the essay also shown is a trial balanceThe Final Accounts for a Sole TraderThe sole trader accounts are the rear end of all accountsLegal requirements of a Sole TraderBy law of nature a sole trader is not ask to keep accounts and consequently is not legally mandatory to publish their accounts for viewing by the universal Public, however they moldiness keep all tub receipts so that the Inland receipts can take their tax from the business and the location regarding VAT can be sorted.Final Accounts and the Trial BalanceThe final accounts of a telephoner are produced annually, scarcely can also be produced at anytime in order to inform grantholders and stakeholders of how the business is performing.When starting to specify believe any final accounts the trial balance mustiness be ready by the book-keeper. All the figures that have been entered onto the trial balance will be used in the final accounts. The trading, profit and l oss accounts are a part of the double-entry system, meaning that the records that are within these accounts have to be recorded somewhere else for the double-entry system to work. However the balance main shroud is not an account it is simply a statement, which outlines the account balances reaming after the trading, profit and loss accounts have been completed.Trading AccountThe purpose of a trading business is to by a good at one hurt and sell it on for a profit. The profit that is gained is know as the gross profit. Instead of the gross profit being reason on each item, the sales and purchases that have been recorded in the primary accounting records will be calculated together. This also includes things like purchase returns and sales returns.When the end of the financial division arrests around, the trading account is haggard up this includes The total sales minus purchases Plus purchase returns Minus sales returns Also included is the start transmit and the closing me lodyNotes on trading account Sales and purchases these are besides the items that the business trades Ad only whenments these are the adjustments that have happened in congenator to the stock, the opening stock, which is calculated at the start of the year, this is added to the purchases because it has been sold during the year. The closing stock on the other hand will be deducted form the purchases because it has sub payabled yet to be sold. The closing stock will then belong the opening stock for the next financial year constitute of sales this is the price to the business of the goods that have been sold. To calculate the cost of sales you do the following* Opening stock* + Purchases* + Carriage in* Purchases returns* Closing stock* = Cost of sales Gross profit to calculate gross profit you do as follows* Sales* Sales returns* = Net sales* Cost of goods sold* = Gross profitIf the cost of sales is to a greater extent(prenominal) than the net sales then the business has made a Gross wrong Carriage in is the expense that the business incurs due to having the purchases delivered. The carriage in is added to the purchases Net sales the net sales is the turnover and is calculated by doing the following* Sales* Sales returns* = Net sales Net purchases to calculate the net purchases you do the following* Purchases* + Carriage in* Purchases returns* = Net purchasesProfit and Loss AccountIn the profit and loss account the running expenses of the lodge are listed these are then taken apart from the gross profit to give the net profit. The net profit then shows how productive the business has been that particular year.Balance SheetA balance carpenters plane is used to show the financial state of the business at any one time. It lists the assets and liabilities of the business at a particular time. The balance sheet however is not a part of the double-entry system.Notes on balance sheet Assets an asset is an item or an amount that is owned by t he business. on that point two types of assets heady and menstruum. Fixed assets are secular assets such as premises or vehicles. Current assets are short-term assets, which change in cheer any day. Liabilities a liability is an item or amount owned by the business. there are tow types of liabilities current and long-term. Current liabilities are ones that are due to be repaid within 12 months or less. A long-term liability is a something like a loan that can be paid later than 12 months. Capital and running(a) swell crown is currency that is owed to the owner by the business. on the job(p) capital is the capital unexpended after the current liabilities have been subtracted from the current assets. If the business does not have any working capital the business will not be able to keep to operate.Significance of the balance sheetThe balance sheet shows how the business has been payd. For he sole trader the balance sheet can be shown as a formula, which is Fixed asset s + Working capital Long-term liabilities = NET assetsThe final Accounts for a Partnership Accountsdefinition of a PartnershipThe Partnership Act of 1890 defines a league asThe relation which subsists mingled with persons carrying on a business in green with a view of profitAccounting requirements of a spouseshipThe accounting requirements of a quislingship are as follows To follow the rules that have been set out in the Partnership Act of 1890 Or they could flout upon a cooperatorship determinement, to follow different accounting rules. This will be explained in further detail later on in the essayIf the accessorys cannot agree upon terms then the Partnership Act 1890 will support it stats the following accounting rules Any profits or losses are to be divisiond in the midst of the companions equally No participator is eligible to a salary Partners are not entitled to receive any pursuit on their capital Interest is not to be committald on drawings made by the partn ers If any partner contri savees more capital than has been agreed, they are entitled to receive vex at 5% per annum on the redundant amountThis only applies if the partners fail to agree on an agreement of their own. grade end accounts of a PartnershipA confederacy prepares that same end of year accounts as the sole trader, this being A trading and profit and loss account And a balance sheetThe difference amongst the end of year accounts for a sole trader and a league is that after the profit and loss account the partnership must prepare an appropriation account. This serves to show how the net profit that the profit and loss account shows is divided amongst the partners.Partnership AgreementA partnership agreement is drawn up by the partners and is a deviation form the accounting rules set out by the Partnership Act 1890. All partners must agree to the agreement sooner being allowed to go ahead. The partnership agreement will normally follow the following areas The atom of profits and losses between the partners Any partners salaries/commission If entertain is allowed on capital and at what rate If reside is to be charged on partners drawings and at what rateThe division of profits and losses between the partnersThe partnership act 1890 states that no motion how much someone has contri stilled to the business in the form of capital, they will only receive the same share of the profits as a person who has contributed less. This is why umpteen partnership agreements state that if someone contributes more capital they get more of the profit.Partners salaries/commissionThe partnership act 1890 states that no partner is to receive a salary. This however is not normally the case within partnership agreements, many partnership agreements set out that those partners who work more within the business deserve a salary due to the time they are committing to the business. Similarly a partnership agreement may have within it a commission payment with sales tha t a partner may make once again this is due to the contribution this partner is making.Interest allowed on capitalThe partnership act 1890 states that no interest on capital is to be paid unless a partner contributes more than agreed then they are allowed 5% on the extra capital. in spite of appearance many partnership agreements there is a clause that allows interest to be given on capital this is a form of compensation to the partner because they can use this interest money to invest in other things. The interest on capital may also be used as a form of compensating the differences that may appear between the capitals that are contributed.Interest charged on partners drawingsIn the partnership act 1890 it states that no interest is to be charged on the drawings made by a partner this leads to problems because the partner may withdraw valuable funds when they are approximately required, so many partnership agreements outline that a charge is to be set on the withdrawal of capital , this then deters the partner from withdrawing due to the penalty they will incur.Other points Interest on loans if a partner makes a loan to the partnership then as set down in the partnership act 1890 they will receive interest of 5%, this is why many partnership agreements agree on a different rate of interest Interest on current accounts a partnership agreement may outline the interest that is to be allowed on the balance of a partners current account this will be paid to the partner if they are still assign and taken away if they are debited.Capital accounts and Current accountsAn important difference between the final accounts of a sole trader and that of a partnership is that each partner of a partnership has a capital account and a current account. The capital account is usually dictated and only changes if an alteration in the amount of capital is exhibited. The current account is constantly changing and is the account that the following are placed appropriate of any profit is impute Share of any loss is debited Salary/commissions if there are any are credited Any interest on partners capital is credited Any drawings are debited Any interest on charged on partners drawings is debitedThe current account is treated as a working account.annexation of ProfitsThe appropriation account shows how the net profit has been divided amongst the partners, before the net profit can be divided the following things must be taken or added to the net profit before the final share of profits can be disturbed Any interest added on partners drawings Salaries/Commissions to be taken away Any interest on partners capital to be subtractedAfter these have been taken or added the final share of profits will remain, this then can be distributed between the partners at the correct percentage for each.Balance SheetWhen a partnership is completing its balance sheet at the end of the year the end balances on each partners capital and current accounts must be shown. It is us ual that the transactions that have taken place on each account be shown in a summary form, just as in a sole traders balance sheet they will take the drawings away from the net profit for that year. The other features of a balance sheet are the same as a sole traders balance sheet.The Final Accounts for a Limited conjunction AccountsAdvantages of forming a Limited associationA restrict federation is owned by the shareholders and run by the directors, it is a separate legal entity. A peculiar(a) companion is oftmultiplication chosen as the legal status of a business because of the following reasons Limited liability Separate legal entity cogency to lay out finance Membership Any other factorsLimited liabilityIf a partnership where to go into solvency with hold in liability the shareholders would only lose the capital they have invested. This elbow room the shareholder is covered for any losses of the connection and will not be liable to repay the creditors.Separate legal entityThe company is a separate legal entity form the shareholders, if someone where to take action against the company they do so against the company and not against the individual shareholders.Ability to raise financeA particular company can raise funds from the follow outside sources For a PLC this capital is generate from the mine run universal buyer shares which are traded on the Stock Market For a LTD this capital is generated from Venture Capital companies and friends and family who can purchase sharesMembershipTo be a member of a modified company you are required to own at least(prenominal) one share of that company, there is a minimum number of members which is two and no upper limit. If you are a member of a company you are the same as a shareholder.Other factorsAs a limited company is normally mountainousr than that of a sole trader or partnership it benefits from economies of scale and makes it of commensurate size to employ such specialists as production, ma rketing, finance which work in their respective functions.The Companies ActThe Limited Companies Act 1985, which was amended in 1989 states that there are two types of limited companies. The large Public companies or PLCs and the smaller privy companies or LTDs there is also other type of limited company which is called the limited by guarantee.Public limited company (PLC)A company can be bewilder a public limited company if it has the following The issued share capital is over 50,000 thither are at least two members and at least two directorsA public company does not have to sell stocks and shares on the Stock Exchange but this is normally where most of the capital is raised.Private limited company (LTD)The most common limited company is the mystic limited company or LTD, the term private company was not set out in the Companies Act 1985, but is the most traditional way of describing a LTD. A private limited company has the following There are no minimum requirements for issued share capital There needs to be at least two members and at least one directorThe shares are not traded on the stock market, but can be traded between individuals although with the shares not being traded on the stock exchange the price at which these shares will be traded may fluctuate.Company limited by guaranteeThe limited by guarantee company does not rely on the purchase of shares, but relies on members agreeing to pay a stated amount if the company goes bankrupt.Governing Documents of CompaniesWhen a limited company is being set up the Companies Act requires the two following documents Memorandum of Association Articles of AssociationThe Memorandum of Association is the constitution of a company, it outlines how the business is to relate to the outside world. It will contain the following cinque clauses1) The name of the company along with the public or private limited part2) The authorised share capital3) The objects of the company which is the activities that the company ca n engage in4) The registered company of the company5) A statement that the liability of the members is limitedThe Articles of Association this regulates the internal administration of the company, it also includes powers of directors and the holding of company meetings.Accounting requirements of the Companies ActThe Companies Act 1985 which was amended in 1989, requires the production of accounts for a limited company it also sets out the detailed information that must be divulged. For a large company the accounts are audited by an external auditor, this is not often the case with a small or median(a) sized company due to them being exempt. After the end of the financial year the accounts must be completed within nine-months and sent to the Companies polarity where they are available for the viewing of the public. A copy of the accounts must be available to all shareholders this is paired with a report on the companies activities during the year.Types of shares by Limited Compan iesIn the Memorandum of Association the authorised share capital is stated. The issued shared capital may not be the same as the authorised share capital, the issued share capital under law is not allowed to exceed the authorised share capital. If a company wishes to extend the amount of share capital that it is allowed to issue it must pass an appropriate firmness of purpose at a general meeting of the shareholders.The authorised and shared issue capital is divided into different types of shares which are Ordinary shares Preference sharesWith these shares come voting rights to the holder which can give the right to the holder to have their say at the annual general meeting.Ordinary sharesAn ordinary share is the most commonly issued share and carrys with it the main risks and rewards that come with the success of the business. If the business makes a profit the holder of the share will receive a dividend, these share are paid after orientation course shares dividends. Also of the company records a loss the share holders will loss part or all of their investment.Many companies when they have made a profit dont pay out all the profit, many keep a percentage as a reserve. This reserve money can be used the next year as a dividend if the company does not make a enough profit, this serves to keep the investor elicit and thinking they are getting a return on their shares. When a business goes into solvency the ordinary share holders receive any payments last.Preference sharesA druthers share normally carrys a pertinacious rate of dividends. The dividends of the preference shares are paid out before the dividends of an ordinary share, although the dividends are only paid if the company makes a profit. If the company goes into solvency the preference share will receive a part of their payment before the ordinary shares.Nominal and market values of sharesThe nominal value of a share is the face value of the share, shares can be issued for any amount. This nominal value is not normally the same as the market value of the share due to it being traded at different prices constantly.Issue priceThis is the price the shares are issued to the shareholders by the company. The issue price is either at a par with the nominal value or above the nominal value. When the issue of the issue price is above the nominal value it is know as a share premium.Loans and DebenturesAs well as interchange shares to raise capital the business may also be required to take a loan or debenture which can be obtained from the shareholders. With these two methods of raising capital usually comes a fixed rate of interest on the amount. This interest is considered a business expense so is placed in the profit and loss account with all the other expenses. If the company goes into insolvency the loan/debenture will be paid off before any shareholders are paid.Trading and Profit and Loss AccountWhen most limited companies are creating their financial statements they are norma lly the same as that of a sole trader and a partnership. However there are two expenses that are found in a limited companies profit and loss account but not in any other type of business, these are Directors remuneration (directors salary) this is entered because the directors are employed by the company and thus are an expense to the company Debenture interest this is entered into the companies profit and loss account because it is an expense to the companyThe limited company completes it profit and loss account and finds out the Net profit, an appropriation account is then drawn up on a lower floor this.Balance SheetThe balance sheet of limited companies are for the most part the same as all other companies balance sheet apart from the odd difference in the things that go into the current assets, fixed assets and liabilities. The difference is that the capital subdivision of the balance sheet is rather complex due to the different shares that are issued and the various reserve s.ReservesA limited company will very rarely disburse all its profits between its shareholders, it will sooner keep gumption a certain amount as a reserve. There are two types of reserve Capital reserves which are created because not all the capital that has been taken was used for trading Revenue reserves these are the retained profits from the profit and loss accountCapital reservesExamples of capital reserves which cannot be used to fund dividends payments include Revaluation reserve this takes place when a fixed asset is re treasured in the balance sheet, this revaluation is then placed in a revaluation reserve, it then serves to increase the shareholders investment in the company Share premium account a company may wish to issue extra shares to be available to the general public at a price over that of the nominal price. The nominal value of the shares is input into the share capital account and the extra money on top of the shares laced into the share premium account.Rev enue reservesThis is very often left as the balance of the appropriation account of the profit and loss account, it is most commonly known as the profit and loss account balance. On the other hand they may choose to put this revenue into a separate account of its own. This transfer to and from these accounts will in recorded in the appropriation account.The regulative framework of accountingWhen talking about the regulatory framework of accounting you are simply talking about the rules that are to be followed when preparing final accounts. There are two forms these rules take the form of these are Accounting sentiments Accounting standardsAccounting conceptsBelow are the staple fiber accounting concepts that are to be followed when preparing final accounts Business entity Money beat Historical cost wave-particle duality Materiality exhalation revive Accruals union PrudenceBusiness entity conceptThis concept outlines that the final accounts and records of a business are that o f the business and that no personal assets of the owners are included within these records. The main links that are disclosed between the business and the owner(s) is the capital accounts and drawings.Money measurement conceptThis concept means that all items that are within the final accounts are expressed as money, this means all the values can be added together to come up with the net profit, gross profit and so on. The problem with this is that things that cannot be recorded as money such as good management will not be valued and all companies will be seen to be managed the same way, only in time will the good management become apparent.Historical cost conceptThis is an extension of the money measurement concept, it basically means that a transaction should be recorded at the value it was historically recorded or initially recorded, so if a vehicle cost 20,000 at purchase it should be entered for that amount.This concept brings with it advantages which are as follows Verifiable there is a prime document that confirms that this transaction has occurred Objective there are no new valuations of the vehicle which will make it easier to price when it comes to saleThis concept also brings with it disadvantages which are as follows The change of value all items change in value over time and this wont be recorded the value may have went up or down The effects of inflationDuality conceptThis concept check intos that all transactions are entered into the double-entry system twice one on the credit side and one on the debit side.Materiality conceptThis concept sets out that some items within accounts are so low in monetary value there would be no point in recording them separately. Some examples of these types of items are listed below The likes of donations to charities, the purchasing of plants for the office and other small expenses such as these are seen not to justify their own expense account, so they are group together in a sundry expenses account The end of year stocks of stationary such as paper for printers, paper clips, pens etc are not seen to be material due to the fact they dont consider the business earnings however they are placed within the profit and loss account The low cost fixed expenses such as bins, staplers etc are not classed as capital expenditure, they are instead assort as expenses within the profit and loss account. Technically they should be placed within the fixed assets account of the balance sheet and be depreciated every year of their life span, but it would not be worth the lather due to them being immaterial in that they wouldnt cause any real affect to final figures.What a business will consider material depends really on the size of the particular business, the likes of a large business would find anything under 1,000 immaterial and not worth put into their own account whereas a small company would consider these items material and have them in their own account.Going concern conceptThis concept is presuming that the business to which the final accounts relate will continue to trade for the predictable future. The final accounts are prepared on the basis that the business has no intention of significantly down sizing or liquidating its assets. If the business was outlet to down size and where to sell a purpose built manufactory this factory would be a personnel casualty concern to the business but would be of limited use to other industries for this reason the building would command less value. This instead of being described as a going concern would instead be described as a at rest(p) concern. In a gone concern extra derogation would be added to the profit and loss account to account for the reduction in fixed assets.Accruals conceptThis concept is concerned with the expenses and revenues being matched so that they will concern the same goods/services and the same time period. In the profit and loss account expenses should always be entered whether they have been pai d for or not. This is where the rationale of income and expenditure accounting came from. Below are further examples of the accruals concept Debtors Creditors wear and tear Bad debts Provision for bad debts Opening and closing stock adjustments in profit and loss accountConsistency conceptThis concept is concerned that when a company adopts a particular method for accounting they should continue to use that method in a constant fashion. When a business has adopted a particular practice for accounts they may at times wish to make some changes, this is acceptable as long as there is a good reason for it, this change is to be tell on the final accounts to explain what has happened. With the consistency of the accounts the business can make comparisons between different years.Prudence conceptThis concept is also known as the conservatism in accounting. This concept requires where there is any interrogative as to the value of an item report a conservative figure to be entered within the final accounts. Although this does not mean that profits are to be anticipated and should only be recognised if there is a distinct possibility they will be realised, as well as this all known liabilities should be provided for. A good example of this butt on is the provision for bad debts this is so any debt that maybe written off may be accounted for. The theory behind this concept is that it prevents the business from being to over optimistic with its presentation of final accounts.All of the above concepts apply to the final accounts of a sole trader, a partnership and a limited company. With relation to the limited companies the Companies Act 1985 gives legal force to the following concepts Going concern Accruals Consistency PrudenceIf the company does not apply these concepts will receive a qualified report from its auditors.Accounting StandardsThe framework for accounting is represented by the Statements of Standard Accounting Practice (SSAP) and Financial coverage Stan dards (FRS).The Statements of Standard Accounting Practice are no longer issued, but they still come under the control of the Accounting Standards progress. The Accounting Standards Board requires that accountants adhere to all applicable accounting standards and are able to disclose and explain deviations from the standards that may occur. To try and reduce the number of permissible accounting treatments, a number of Statements of Standard Accounting Practice have been replaced by Financial Reporting Standards.The main accounting standards are SSAP 5 Accounting for apprize Added Tax SSAP 9 Stocks and long-term contracts FRS 15 obvious fixed assets FRS 18 Accounting policiesSSAP 5 Accounting for Value Added TaxVAT is a tax on the supply of goods and services. Business with a turnover of over a certain figure will be registered for VAT.At regular intervals the business that are registered will pay VAT Authorities such as HM Customs and come upon on the following The amount of si detrack tax collected on sales made Less the amount of input tax on goods and services purchasedThe business can claim a refund from the HM Customs and Excise department if the input tax is greater than the output tax. This claim will be made on the difference.A business that is VAT-registered does not normally include the VAT in the income and expenditure of the business whether for capital or revenue reasons.There are goods and services that are exempt from VAT these are things such as the loaning of money and letting of land, VAT cannot be charged by the charge so no output tax is received, they can only clam back an agreed proportion of the input tax that has been pre agreed with the VAT authorities. irretrievable VAT occurs when a business that has been registered cannot reclaim VAT on input tax, this means the VAT is entered into the accounts as an expense.A business that is not registered for VAT will include VAT within its input financial statements.SSAP 9 Stocks and long-t erm contractsThis sets out the broad rule that stock should be valued at cost or, where lower, selling price.FRS 15 Tangible fixed assetsThis sets out that a fixed asset has a known sparing life and must be depreciated, this doesnt apply to land unless it is either a quarry or mine.As long as the depreciation method is acceptable it can be used to spread the cost of a fixed asset consistently over that fixed assets economical life.A depreciation amount is most of the time based on the cost of the fixed asset.FRS 18 Accounting policiesThis standard is to ensure that all material items have the following The particular peck of the business accounting policies are fit of the given purpose and give a true and fair view The policies that have been selected by a company are regularly reviewed to ensure they are still appropriate, also when the circumstances change the policies are changed to The information that is disclosed within the financial statements is of sufficient information to enable users to understand the accounting policies that have been adopted and how they have been implemented