Which of the following areas have a major difference in accounting treatment by sole traders and partnerships and accounting treatment by companies?
I. Accounting for GST
II. Accounting for equity
III. Distributions to owners
IV. Accumulation of profits
V. Accounting for inventory
VI. Accounting for income tax
A) I, IV and V
B) I, II and III
C) II, III, IV and VI
D) III, V and VI

Question

Quizplus · Accepted Answer

The major differences in accounting treatment between sole traders/partnerships and companies are in accounting for equity (II), distributions to owners (III), accumulation of profits (IV), and accounting for income tax (VI). Sole traders and partnerships do not have equity in the same way as companies, which issue shares. Distributions to owners (dividends for companies) are treated differently. Accumulation of profits within a company can affect retained earnings and dividends, whereas for sole traders and partnerships, profits directly affect the owners' capital accounts. Lastly, the accounting for income tax differs significantly, as companies are separate legal entities and are taxed separately from their owners, while sole traders and partnerships are taxed through their owners' personal income taxes.

Which of the Following Areas Have a Major Difference in Accounting