Accounting Principles-Chapter 1

Accounting Principles-Chapter 1 - Chapter 1-Introduction to...

Info iconThis preview shows pages 1–5. Sign up to view the full content.

View Full Document Right Arrow Icon
Chapter 1-Introduction to Financial Statements Forms of Business Organization Types of Organizational Form of Businesses 1. Sole Proprietorship 2. Partnership 3. Corporation Sole Proprietorship -A business owned by one person -Simple to set up -Gives you control of your business -Example-small retail stores, law offices, auto repair shops -Difficult to sell a sole proprietorship -Receive tax advantages -Personally liable for all debts of the business -Simple to establish -Owner controlled
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Partnership -A business owned by two or more persons associated as partners -Formed because one individual does not have economic resources to initiate or expand the business -Sometimes partners bring unique skills or resources to the partnership -Partners should formalize your duties and contributions in a written partnership agreement -Ex. Retail and service type businesses, professional practices (doctors, lawyers, etc.) -Difficult to sell a partnership -Personally liable for all debts of the business -Receive tax advantages Corporation -A business organized as a separate legal entity owned by stockholders -An investor in a corporation receives shares of stock to indicate ownership claim -Buying stock is more attractive than investing in partnership because shares of stock are easy to sell (transfer ownership) -Easy to transfer ownership -Easy to raise funds because individuals can become stockholders by investing small amounts of money
Background image of page 2
-Tax advantages are not as favorable as the ones given to sole proprietorships or partnerships -Corporate stockholders are not liable for personally liable for the debts of the business -They must pay higher taxes but have no personal liability General Info on Forms of Business Organization -Combined number of proprietorships and partnerships in the US is more than 5 times the number of corporations -Revenue produced by corporations is 8 times greater than proprietorships and partnerships Users and Uses of Financial Information -Purpose of financial information provide inputs for decision making -Accounting -information system that identifies, records, and communicates the economic events of an organization to interested users - Users -people interested in knowing about the ongoing activities of the business -Users are either internal or external users Internal users -Managers who plan, organize, and run a business -Includes marketing managers, production supervisors, finance directors, and company officers -Managers need detailed information on a timely basis to run a business
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
-For internal users accounting provides internal reports such as financial comparisons of operating alternatives, projections of income from new sales campaigns, and forecasts of cash needs for the next year -Also companies present summarized financial information in the form of financial statements External Users *Investors -Owners that use accounting information to make decisions to buy, hold, or sell stock *Creditors -Such as suppliers and bankers use accounting information to evaluate the risks of granting credit
Background image of page 4
Image of page 5
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 04/21/2011 for the course ACCOUNTING 10 taught by Professor Eastman during the Spring '11 term at Rutgers.

Page1 / 15

Accounting Principles-Chapter 1 - Chapter 1-Introduction to...

This preview shows document pages 1 - 5. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online