chapter 1 & 2 principles of accounting I (2).doc - Lecture...

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Lecture Notes/Principles of Accounting-I (AcFn-1031)/2021Chapter-1 Accounting Principles and Practices1.1 Nature and Classification of Business Organizations1.Definition -A business organization is an economic entity which is engaged inconverting basic inputs into products for sale atprofitto customers. The basic inputsinclude raw materials (wood, metal, etc), labor (employee’s physical and intellectualefforts), capital (finance) and entrepreneur (owner/manager who combines raw materials,labor and capital to produce products). The products may include goods (tables andchairs) and services (banking, transportation, educational and health care services).2.Types of business organizations -based on the type of activities they perform or areengaged in to generate income, business organizations may be divided in to three:Service-an enterprise that renders professional and technical services. E.g.banks, telecommunication and transportation companies.Merchandising-an enterprise that buys and resells finished goods to customers.E.g. Stationery shops, retail and wholesale stores, supermarkets, etc.Manufacturing-an enterprise that buys and converts raw materials into finishedproducts for sale to other businesses (merchandising) or direct to consumers. E.g.textile and cement factories, wood- and metal-work shops, etc.3.Forms of business organizations -Three different legal forms of businesses:Sole proprietorship-an enterprise owned by one person and usually operated andmanaged by the same person. The sole proprietorship form of business is not aseparate legal entity from its owner. The life of a sole proprietorship usuallydepends up on the life of the owner.Partnership-an enterprise owned by two/more persons called partners and thepartners are usually engaged in operations and management of the organization.Like the sole proprietorship form of business, partnership is not legally separatefrom its owners. The life of a partnership usually depends up on the admission ofnew partner/s or withdrawal of existing partner/s.Corporation-an enterprise owned by two/more persons called shareholders orstockholders. The unique feature of a corporation is that it is a legal entity usuallyreferred to as an artificial person which is solely responsible for its act and debt.For it has an independent existence, its life does not depend on the admission orwithdrawal of shareholder/s.Note that Principles of Accounting-I deals with accounting and reporting for the financial affairsof sole proprietorship form of business organization engaged in service and merchandisingbusiness while Principles of Accounting-II deals with accounting and reporting for the financialaffairs of all forms of business organizations.

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Term
Fall
Professor
N/A
Tags
Balance Sheet, Accountant, Generally Accepted Accounting Principles

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