Accounting - The Role of Accounting in Business Survey of...

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The Role of Accounting in Business Survey of Accounting A200
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Accounting and its role in Business Accounting is an information system, also called “The language of business”. Accounting provides data to stakeholders so they can evaluate the health and future prospects of the business. Financial Accounting provides information to external stakeholders. We will study financial accounting in Chapters 1-8. Managerial Accounting provides information to internal stakeholders. We will study managerial accounting in Chapters 10-14. Purposes of a Finanical Accounting system: To report changes in the business’ financial condition over a period of time. To report the business’ financial condition at a single point in time (end of period).
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Types of Business Manufacturer : Buys basic inputs (Materials, Labor, and Overhead) from suppliers. Converts them into a finished product (“goods”) for sale to merchandisers. Merchandiser : Also called “middlemen”. Buys finished goods from manufacturers and sells them to customers. Service : Does not sell goods. Provides services to customers (human knowledge, talent, or strength).
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4 Forms of Businesses Proprietorship : Owned by one individual. Advantages : Easy and inexpensive to organize. 70% are this type. Disadvantages : Financial resources are limited to what the owner has or can individually raise. Owner is 100% liable for all business debt. Business income is taxed 100% to the owner. Proprietorship terminates when owner dies. Partnership : Owned by two or more individuals or other entities. 10% Advantages : Easy and can be inexpensive to organize. Generally, more financial resources are available to partnerships than to proprietorships. Disadvantages : Each partner is legally liable for the actions of other partners. Partnership income is taxed to the partners. Partnership terminates when partner dies.
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Forms of Businesses Corporation : Legal entity separate from its owners (stockholders) . 20% Advantage s: Can generate large amounts of capital through sale of stock (ownership shares.) Stockholders are at risk for only the amount they invested (limited liability.) Corporation continues even if stockholders die. Disadvantages : Stockholders may not have the control they desire over the affairs of the corporation because they may not manage the corporation. Limited Liability Company (LLC) : Organized as a corporation (Legal entity separate from its owners (members), but can be taxed as a partnership. Advantage s: Members are at risk for only the amount they invested (limited liability.) LLCs can generally raise more financial resources than proprietorships and partnerships because there is no limit to the number or types of members. Avoids double taxation of corporation.
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This note was uploaded on 02/09/2011 for the course ACCT 200 taught by Professor Valades during the Spring '11 term at University of Tennessee.

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Accounting - The Role of Accounting in Business Survey of...

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