accounting_chapter1notes

accounting_chapter1notes - Chapter 1: The Role of...

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Chapter 1: The Role of Accounting in Starting a Business Business Types and Organizational Forms Business Types Most businesses earn their profits by selling goods or services to customers for more than the cost of producing them Service companies – provide a service to customers or clients Manufacturers – make products from raw inputs Merchandisers – sell the goods that manufacturers produced o Wholesalers – merchandisers that sell exclusively to other businesses o Retailers – merchandisers that sell to customers Organizational Forms Three major ways that businesses can be organized: 1. sole proprietorship – owned by one individual who often manages the business as well Relatively inexpensive to form Because they are not legally separate from their owners, all of their profits (or losses) become part of the proprietor’s taxable income Proprietor is also personally liable for all of the business’s debts 2. Partnership – has two or more owners A partnership agreement outlines how the profits (or losses) are to be shared and how the ownership of the business can change As sole proprietors attempt to expand their businesses, they often add partners to obtain the resources the business needs to grow 3. Corporation – a separate legal entity having its own privileges, and liabilities distinct from those of its members Ownership is divided into shares of stock o privately held company – relatively small number of individuals own the stock o public company – sell stock on the stock market to reach many more individuals o At any time, stockholders can sell all or part of their shares to someone else Page | 1
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Make it easier for a corporation to raise large amounts of money to finance its growth A major disadvantage is the higher cost of its creation, primarily due to higher legal fees Accounting and Business Decisions Accounting – an information system designed by an organization to capture (analyze, record, and summarize) the activities affecting its financial condition and performance and then communicate the results to decision makers, both inside and outside the organization (known as the “language of business”) Page | 2
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Accounting Professionals Private accounting – a field of accounting in which accountants who are employed by a single business or nonprofit organization public accounting – a field of accounting in which accountants charge a fee for their services to businesses and nonprofit organizations certified public accountant (CPA) – an accountant who has passed certain examinations and met all other statutory and licensing requirements as dictated by the state in which they work Users of Financial Information All businesspeople need accounting information to understand the financial condition and performance of a business The accounting system produces two kinds of reports o Managerial accounting reports – include detailed financial plans and continually updated reports about the financial performance of the business
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This note was uploaded on 03/26/2011 for the course ACC 160 taught by Professor Logorda during the Spring '11 term at Lehigh Carbon CC.

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accounting_chapter1notes - Chapter 1: The Role of...

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