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Lecture Notes 2.pdf - Types of business entities Chapter 2...

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1 Chapter 2 Financial statements for decision making Lecture 2 Learning objectives 2.1 identify the common types of business entities 2.2 discuss the functions carried out by managers 2.3 outline the basic financial statements used in business to report to users for decision-making purposes 2.4 explain the main assumptions made and the characteristics of information to be used in the preparation of financial statements 2.5 analyse the effects of business transactions on the accounting equation and on financial statements. Types of business entities Single proprietorship or sole trader: owned by one person simple to set up common form of business structure separate accounting entity. Partnership: owned by two or more partners simple to set up separate accounting entity, not separate legal entity. Types of business entities Company or corporation: owned by shareholders separate accounting entity separate legal entity known as limited liability . Management functions An organisation is defined as a group of people who share common goals with a well-defined division of labour. All decision-making responsibilities for such functions as purchasing, selling, performing services, accounting and financing rest with the individual owner-manager. Consequently, the role of management becomes increasingly important. Management functions Role of managers: Every business entity is to achieve satisfactory performance. Developing a good reputation ultimately attracts strong customer support for the business’s products and services.
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2 Management functions Role of managers: Management decision process: planning organising directing controlling. Management functions Role of managers: Management functions: Basic financial statements What information do users want/need? Financial performance: The ability of the entity to utilise its assets effectively and efficiently. What are the business goals (i.e. profit/nor for profit)? Basic financial statements What information do users want/need? Financial position: The financial resources controlled by the entity. Financial structure. Measure of liquidity and solvency.
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