INTI International College SubangACC 201 (a) 'The big disadvantage of a sole trader business is that the personal liability of the owner is unlimited - the owner could lose everything

Answer:

(1) As much as the sole proprietorship has big advantage on owning all the gains from business it also has a disadvantage that it should take full responsibility on all business liabilities extending to all its personal asset as long as the creditors are not yet paid. If the sole proprietor decided to covert its business to partnership, one advantage of it is the sharing of losses or liabilities to the other partners, all partners by default shall also share in the profit of business and have equal voice in management unless the partners designated otherwise in their Articles of Partnership. When the partnership unable to pay its liabilities and all partnership assets are exhausted the creditor can still run after the partners (the partner shall share equally to the liabilities with a right of reimbursement if there's a designated percentage for sharing losses, meaning the agreement of sharing losses shall not be valid to the creditor but can go after the partners for equal sharing of losses), still the partners can reduce the chance that their personal asset will all be used for payment due to equal sharing. 

(2) allowance for doubtful accounts (AFDA) can have a debit balance at the end of the period because of failure to adjust or late adjustment of doubtful accounts expense. If the AFDA has 100 credit beg balance and then there's high write off (debit AFDA) of receivable e.g. 110 during the year then end of year AFDA will be 10 without record of doubtful account expense (DAE) for the year. If the DAE is 60 (credit AFDA), adjusted AFDA will be 50 cr (60 cr - 10 dr) 

(3) external users of accounting information may be primary or secondary users

note: accounting information gives them the knowledge whether business is performing good or not)

primary

a. creditors- uses the accounting information in order for them to know whether to extend a credit to the business and get paid with interest

b. investors- whether they will invest to generate high returns

secondary (gov't/public)

- whether the business is paying proper taxes and follows legal requirement

internal users are all secondary users, it includes the management and the employees- management uses the accounting info in order for them to know whether their management is effective by showing good results in financial statements

employees- uses the info to assess whether the company is going concern in order for them to know if it can still continue to pay them with right salary and able to stay committed with it