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CHAPTER 1 : INTRODUCTION TO ACCOUNTING AND BUSINESS - Coggle Diagram
CHAPTER 1 : INTRODUCTION TO ACCOUNTING AND BUSINESS
DIFFERENCE BETWEEN FORMS OF BUSINESS ORRGANIZATIONS
PARTNERSHIP
ADVANTAGES
Shared resources provides more capital for the business
Each partner shares the total profits of the company
Similar flexibility and simple design of a proprietorship
Inexpensive to establish a business partnership, formal or informal
DISADVANTAGES
Each partner is 100% responsible for debts and losses
Selling the business is difficult—requires finding new partner
Partnership ends when any partner decides to end it
CORPORATION
ADVANTAGES
Limits liability of the owner to debts or losses
Profits and losses belong to the corporation
Can be transferred to new owners fairly easily
Personal assets cannot be seized to pay for business debt
DISADVANTAGES
Corporate operations are costly
Establishing a corporation is costly
Start a corporate business requires complex paperwork
With some exceptions, corporate income is taxed twice
SOLE PROPRIETORSHIP
ADVANTAGES
All profits are subject to the owner
There is very little regulation for proprietorships
Owners have total flexibility when running the business
Very few requirements for starting—often only a business license
DISADVANTAGES
Owner is 100% liable for business debts
Equity is limited to the owner’s personal resources
Ownership of proprietorship is difficult to transfer
No distinction between personal and business income
LIMITED LIABILITY COMPANY (LLC)
ADVANTAGES
Limits liability to the company owners for debts or losses
The profits of the LLC are shared by the owners without double-taxation
DISADVANTAGES
Ownership is limited by certain state laws
Agreements must be comprehensive and complex
Beginning an LLC has high costs due to legal and filing fee
THE ACCOUNTING PRINCIPLES
THE EXPENSE PRINCIPLE
THE MATCHING PINCIPLE
THE REVENUE PRINCIPLE
THE OBJECTIVITY PRINCIPLE
THE COST PRINCIPLE
MEANING OF ACCOUNTING
THE PROCESS OF RECORDING FINANCIAL TRANSACTIONS PERTAINING TO BUSINESS WHICH INCLUDES SUMMARIZING, ANALYZING,AND REPORTING
THE USERS OF ACCOUNTING INFORMATION
INTERNAL USERS
OWNERS AND MANAGERS INVOLVED IN THE DAY-TO-DAY OPERATIONS OF THE BUSINESS AND IN LONG-TERM STRATEGIC PLANNING - MAKING DECISIONS SUCH AS WHETHER TO LEASE/BUY EQUIPMENT/ TO KEEP THE OLD EQUIPMENT & SIMPLY KEEP REPAIRING IT - DECIDE WHAT PRODUCTS/SERVICES TO PRODUCE & HOW MUCH OF EACH TO SUPPLY - DECIDE ON THE PRICE TO CAHRGE TO CUSTOMERS& WANT TO KNOW HOW MUCH IT COSTS TO MAKE A PRODUCT
EXTERNAL USERS
PROSPECTIVE AND CURRENT BOARD MEMBERS/INVESTORS - CREDITORS & LENDERS - EMPLOYEES & THEIR UNIONS - CUSTOMERS - GENERAL PUBLIC
GOVERNMENT
COLLECTING THE PROPER AMOUNT OF TAX BUT ALSO FOR OTHER REGULATORY PURPOSES
THE ACCOUNTING PROCESS
PREPARING WORKSHEETS
PREPARING ADJUSTING ENTRIES
GENERATING UNADJUSTED TRIAL BALANCE REPORT
GENERATING FINANCIAL STATEMENTS
POSTING TO THE GENERAL LEDGER
CLOSING THE BOOKS
PREPARING JOURNAL ENTRIES
IDENTIFYING & RECORDING TRANSACTIONS
DISTINCTION BETWEEN ACCOUNTING AND BOOKKEEPING
TAKING A FEW ACCOUNTING COURSES AND DEVELOPING A BASIC UNDERSTANDING OF ACCOUNTING WILL QUALIFY FOR A JOB IN BOOKKEEPING. TO WORK IN ACCOUNTING, ONE MUST HAVE ATLEAST A BACHELOR'S DEGREE TO BECOME AN ACCOUNTANT OR, FOR A HIGHER LEVEL OF EXPERTISE, CAN BECOME A CERTIFIED PUBLIC ACCOUNTANT
ACCOUNTANT ARE QUALIFIED TO HANDLE THE ENTIRE ACCOUNTING PROCESS ,WHILE BOOKKEEPERS ARE QUALIFIED TO HANDLE RECORDING FINANCIAL TRANSACTIONS.TO ENSURE ACCURACY, ACCOUNTANTS OFFER SERVE AS ADVISERS FOR BOOKKEEPERS AND REVIEW THEIR WORK. BOOKKEEPERS RECORD AND CLASSIFY FINANCIAL TRANSACTIONS,LAYING THE GROUNDWORK FOR ACCOUNTANTS TO ANALYZE THE FINANCIAL DATA.