Accounting In The Information Age Chapter Outlines:
- Nature and forms of different business organizations
- Accounting- an integral part of business
- What is accounting
- Evolution of accounting
- Development of accounting standards – different standards setting
- Purpose of accounting
- Nature and characteristics of accounting
- Accounting as a language of business
- Distinction between bookkeeping and accounting
- Financial accounting vs. management accounting
- Accounting information – users and uses
- Accounting as an information system
- Technology in accounting
- E-commerce and accounting
- Accounting as a profession/opportunities in the accounting field – accounting: success story
- Accounting ethics – case study
- Misconceptions about accounting
- Accounting practice in United States
- understanding of accounting
- Exploring further: Cross-functional team – an integrated business approach
- The bottom line
– Self-test questions
– Descriptive questions
Nature and forms of different business organizations:
Business is an economic unit (utilization of scare resources) to earn profit. this is why a business is often called a profit-oriented organization. Accounting recognizes business as an economic until a separate business entity. One of the basic accounting principles is economic entity principle, which states that the business and the entity of a business is separate from that of another business of the same owner.
The Term ‘Profit’ is a narrow concept. Hence, we redefine business as an economic unit to attain the stated objectives. This very definition of business encompasses both non-profit and government organizations.
Business take three basic legal forms as follows:
A sole ownership is simply a business owned by one person. The business does not follow any special legal formalities. while it is a separate entity from accounting view, This means that a separate accounting set of books are to be maintained for the business, Under legal view a court order maybe issued to sell personal properties to meet the debts of the business. The owner’s liability unlimited.
A Partnership is a business owned by two or three people, called partners, Link a sole ownership, no special legal formalities are to be followed by the partnership business. All that is required is an agreement among partners to start business together. A written agreement is preferred as it can help partners to avoid or resolve disputes Like a sole ownership, it is not legally separate from its owners.
A corporation is a business legally separate from its owners. This means that the corporation is responsible for its own activities and its own debts. It can enter into its own contracts and it can buy, own and sell property. It has to meet legal formalities. that’s why, a corporation is both a accounting entity as well as a legal entity. The owners of the business are called shareholders. management is separated from the owners.
|1) Owners(s)||Only One Owner||Two or More Partners||Many Shareholders|
|2) Business Life||Limited by owner’s life or choice||Limited by owner’s life or choice||Unlimited life|
|3)Owner Personally liable for Business debts||Yes||Yes||No|
|4) Business records separate from owners(s)||Yes||Yes||Yes|
Fig: Characteristics of Business
Non Profit corporation:
They plan and operate for goals other than profit. Examples may be NGO like Clinton Foundation, United Nation, CARE United state etc and state-owned organizations like Save the children, World Health Organization and so on. The goals include security, health, education, transportation, religious services, cultural and social activities, For instance, public sector schools, meet the needs of citizen. Non-profit organization lack an identifiable owner. Still the demand for accounting information in non-profit profit organizations is high because they are accountable to their sponsors, Government need to taxpayer, donors, lenders legislators, regulators & so on, accounting for these organizations usually follow as fund-based system, but the basic principles are similar to accounting for business organizations.
Business can also be categorized in the light of their nature of operations:
Perform services for a fee. They include transport service, telecommunication service, accounting firms, engineering service and so on. For example, premium bus service, Metro Rail, Mobile Operator like ATNT Mobile etc.
Purchase goods that are ready for sale and then sell them to customers. This group includes auto dealership, clothing stores and supermarkets, For example, amazon, Walmart, etc
Buy materials, concert them into products and then sell the products to other companies or to final customers. This group includes steel mills, textiles and pharmaceuticals and so on, for example, Unilever, Haden Drysys etc.