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Chapter_1_Notes-1 - Chapter 1 Objectives 1.Describe the...

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Chapter 1 Objectives 1. Describe the Primary Forms of Business Organizations . 2. Identify who the Users are and what are the Uses of Financial Information. 3. Describe the Content and Purpose of Each of the Four Types of Financial Statements . 4. Explain the Three Principle Types of Financial Activity.
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Sole Proprietorship Definition : A business owned by one person for the purpose of earning a profit. Advantages of the Sole Proprietorship 1. Easy to Set Up 2. Control rests with the Owner 3. No separate taxation – The profits from the business are combined with the other taxable income of the owner and taxed just one time. Disadvantages of the Sole Proprietorship 1. Unlimited legal liability – The owner can be sued beyond his/her investment in the business 2. Lack of the same financial and human resources that are present in Corporations and Partnerships.
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Partnerships Definition : An unincorporated business owned by two or more persons for the purpose of making a profit. Profits and Losses are split according to the allocations set out in a Partnership Agreement. A Partnership Agreement should be a written document but can be an unwritten understanding. Advantages of the Partnership Form 1. There is usually a greater source of Financial and Human (Skill Based) resources than Sole Proprietorships. 2. There is no Separate Taxation of the Partnership Income. Each Partner reports his/her individual share of the partnership income on his/her individual tax return which is then combined with the Partner’s other income .
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Disadvantages of the Partnership Form 1. Unlimited Legal Liability – Any Partner can be found liable for amounts beyond the Partner’s amount invested in the Partnership.
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