Case Study

Starting Your Own Business

The objective of this study case on Starting Your Own Business allows the readers to:

To discuss the revenue and expenses of a small service business.

To explain how investments made by a business owner affect the accounting equation.
To apply the basic accounting equation.
To discuss the type of organization on starting and expanding the business.

OVERVIEW
Niyaz Arshad is a recently qualified CA from Institute of Chartered Accountants of Pakistan who
has earlier worked in the auditing, taxation and consultancy side of a reputable professional
accounting firm.
Niyaz started a public accounting and audit firm, a sole proprietorship called Niyaz & Co which
provides accounting and auditing services.
He has invested on the relevant items to start his business. Besides, he has also bought a car to
travel and meet to clients instead of earlier using public conveyance.
Niyaz employed one staff. He and his staff cater to small business owners by keeping their books
of accounts using ERP based computerized accounting systems. On a periodical basis, he
forwarded financial reports to his clients and advise them accordingly. He also looks into his
clients system and offer services like establishing proper costing system and other important
management accounting services. Every time he completes a certain project/assignment, he
would bill his clients on an adhoc project basis. However, when the proposed assignment/project
takes a period longer than three months, his firm would bill the clients on a progressive basis.
As a registered chartered accountant, he also performs routine audits like interim and final audits
to ensure that his firm, Niyaz & Co. can give an opinion on the clients financial statements.

After completion of audits, the clients firm would bill for reimbursements for expenses incurred
and part of the agreed audit fee.

Required:
1. Niyaz Arshad started his consultancy company, what do you think are some investments he made
and how would each affect the basic accounting equation?

2. What can be the assets and liabilities of Niyazs sole proprietorship?

3. Identify and classify the accounts affected if Niyaz Arshad receives cash payment from his clients
for monthly billings, periodical/progressive billings and reimbursement of expenses, etc.?

4. Identify and classify the accounts affected if Niyaz were to issue a cheque to pay for fixed assets
5.

like photocopying machine and furniture and fittings to be used in his company?
What kinds of revenues does Niyaz Arhsads company receive?

6. What kinds of expenses might Niyaz Arhsads company incur?

7. Which type/form of business organization has Niyaz Arhsad chosen for his business?
8. Do you think that this form he selected is suitable for him? Why.
9. What are the benefits of this form of organization?
10. If Niyaz took some monies from petty cash and used it for his personal use. So how you will record
it.

11. What type of business do you think Niyaz Arshads business relates to- service, trading or
manufacturing business?

12. What is the basic accounting equation?

13. If he had bought fixed assets like photocopying machines, furniture and fixtures, computers on
cash. How are these items being reflected in the basic accounting equation?

14. Expenses and revenues how are they being reflected in the basic accounting equation?
15. Is sole proprietorship the easiest type/form of organization to start? If yes, please justify.