Scribd
Upload
61 views25 pages

Orms of Usiness Rganization

The document discusses different forms of business organization including sole proprietorships, partnerships, and corporations. It also describes different types of business activities like merchandising, manufacturing, and services. Finally, it provides an overview of users of accounting information like external users, internal users, investors, employees, lenders, suppliers and creditors, customers, and government.

Uploaded by

Rosanna Albano
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPT, PDF, TXT or read online on Scribd
61 views25 pages

Orms of Usiness Rganization

The document discusses different forms of business organization including sole proprietorships, partnerships, and corporations. It also describes different types of business activities like merchandising, manufacturing, and services. Finally, it provides an overview of users of accounting information like external users, internal users, investors, employees, lenders, suppliers and creditors, customers, and government.

Uploaded by

Rosanna Albano
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPT, PDF, TXT or read online on Scribd
You are on page 1/ 25

Forms of Business Organization

 Sole Proprietorship
- This business organization
has a single owner called the
proprietor who generally is
also a manager.

- It tends to be small service-


type businesses and retail
establishments.

- The owner receives all


profits, absorbs all losses
and is solely responsible for
all debts of the business.
Forms of Business Organization
 Partnership
- It is a business owned
and operated by two
or more persons who
bind themselves to
contribute money,
property, or industry
to a common fund,
with the intention of
dividing the profits
among themselves.
Forms of Business Organization
 Corporation
- It is business owned by the
stockholders.

- It is an artificial being
created by operation of law,
having the rights of
succession and the powers,
attributes and properties
expressly authorized by law
or incident to its existence.

- The stockholders are not


personally liable for the
corporation’s debt.
Activities Performed by Business
Organizations
Merchandising
- Purchase goods that
are ready for sale and
then sell these to
customers.
Manufacturing
- Buy raw materials, convert
them into products and them
sell the products to other
companies or to final
consumers.
Services
- Perform services for a fee.
Classification of Users
of Accounting Information
External Users – individuals and
others that have current or
potential financial interest in the
reporting entity but are not involved
in the daily operations of the entity.

Internal Users – have different


specific goals that are designed to
help the entity attain its overall
strategies and mission.
Users of Financial
Statements
Investors – need information to
help them determine whether they
should buy, hold or sell.

Employees – interested in
information about the stability and
profitability of their employers.

Lenders – interested in information


that enables them to determine
whether their loans and the related
interest will paid when due.
Users of Financial
Statements
Suppliers and other creditors –
interested in information that enables
them to determine whether amounts
owing to them will be paid when due.

Customers – interest in information
about the continuance of an
enterprise, especially when they have
a long-term involvement with, or are
dependent on , the enterprise.
Users of Financial
Statements
Government – interested in the
allocation of resources and, therefore,
the activities of the enterprises.

Public
Underlying Assumptions
Accrual Basis – the effects of
transactions and other events are
recognized when they occur and not
as cash is received or paid.
Going Concern - The accounting is
viewed as continuing in operation
indefinitely in the absence of
evidence to the contrary.
>CASH BASIS – the accountant does not record a transaction
until cash is received.
QUALITATIVE
CHARCATERISTICS OF
FINANCIAL STATEMENTS
-the attributes that make the
information provided in financial
statement useful to others.

Threshold Quality (Material)


- One that needs to be considered
before considering the other
qualities of information.
PRIMARY QUALITATIVE CHARACTERICTISITIC
RELATING TO CONTENT
RELEVANCE
- information should influence the economic
decisions of users by helping them
evaluate past, present, or future events, or
confirming, or correcting, their past
evaluation.
◦ Confirmatory role
 Financial information used to confirm or correct
the decision-maker’s earlier expectations.
◦ Predictive role
 Financial information is used to make predictions
of, for instance, future cash flows or income.
PRIMARY QUALITATIVE CHARACTERICTISITIC
RELATING TO CONTENT
RELIABILITY

- Information must be from free from


material error and bias and can be
depended upon by users to represent
faithfully that which it either it purports
to represent or could reasonably be
expected to represent.
◦ Faithful representation
 Information must represent faithfully the
transactions and other events it purports to
represent or could reasonably be expected to
represent.
PRIMARY QUALITATIVE CHARACTERICTISITIC
RELATING TO CONTENT
◦ Substance over form
 It is necessary that transactions and other
events are accounted for and presented in
accordance with their substance and
economic reality, and not merely their legal
form.

◦ Neutrality
 Free from bias.
PRIMARY QUALITATIVE CHARACTERICTISITIC
RELATING TO CONTENT
◦ Prudence/Conservatism
 It is the inclusion of a degree of caution in
the exercise of judgments needed in making
the estimates required under conditions of
uncertainty, such as assets or income are
not overstated and liabilities or expenses
are not understated. (to anticipate no profits and
provide for all probable and estimable losses)
◦ Completeness

 Information must be complete within the


bounds of materiality and cost.
PRIMARY QUALITATIVE CHARCTERISTICS
RELATING TO PRESENTATION
COMPARABILITY

- Users must be able to compare the


financial statements of an enterprise
over time in order to identify trends in
its financial position and performance.
- Users must be able to compare the
financial statements of different
enterprises in order to evaluate their
relative financial position, performance
and financial adaptability.
PRIMARY QUALITATIVE CHARACTERISTICS
RELATING TO PRESENTATION
UNDERSTANDABILITY
- Users are assumed to have a
reasonable knowledge of
accounting, business and
economic activities.
CONSTRAINTS ON RELEVANT
AND RELIABLE INFORMATION
Timeliness

- Accounting information is
communicated early enough to be
used for the economic decisions that
it might influence.

Balance between benefit and cost


- The benefits derived from
information should exceed the cost
of providing it.
CONSTRAINTS ON RELEVANT
AND RELIABLE INFORMATION
Balance between Qualitative
Characteristics
- A balancing or trade-off between
qualitative characteristics is often
necessary in order to meet the
objective of financial statements
ELEMENTS OF FINANCIAL
STATEMENTS
◦ Measurement of financial position
 Assets
 Liabilities
 Equity

◦ Measurement of financial
performance
 Income
 Expenses
RECOGNITION OF THE
ELEMENTS OF FINANCIAL
STATEMENTS
Recognition is the process of
incorporating in the balance sheet
or income statement that meets
the definition of an element and
satisfies the criteria of recognition.
 It is probable that any future economic
benefit associated with the item will flow
to or from the enterprise.
 The item has a cost or value that can be
measured with reliability.
MEASUREMENT OF THE
ELEMENTS OF FINANCIAL
STATEMENTS
Measurement is the process of
determining the monetary amounts
at which the elements of the financial
statements are to be recognized and
carried in the balance sheet and
income statement.
◦ Historical cost
 Assets are recorded at the amount or cash
equivalents paid or the fair value of the
consideration given to acquire them at the
time of acquisition.
MEASUREMENT OF THE
ELEMENTS OF FINANCIAL
STATEMENTS
 Liabilities are recorded at the amount of
proceeds received in exchange for the
obligation, or in some circumstances, at the
amount of cash or cash equivalents expected to
be paid to satisfy the liability in the normal
course of business.

◦ Current cost
 Assets are carried at the amount of cash or cash
equivalents that would have to be paid if the
same or an equivalent asset was acquired
currently. Liabilities are carried at the
undiscounted amount of cash or cash
equivalents that would be required to settle the
obligation.
MEASUREMENT OF THE
ELEMENTS OF FINANCIAL
STATEMENTS
◦ Realizable Value
 Assets are carried at the amount of cash
or cash equivalents that could currently
be obtained by selling an asset in orderly
disposal.

◦ Settlement Value
 Liabilities are carried at the undiscounted
amounts of cash or cash equivalents
expected t be paid to satisfy the liabilities
in the normal course of business.
MEASUREMENT OF THE
ELEMENTS OF FINANCIAL
STATEMENTS
◦ Present Value
 Assets (Liabilities) are carried at the
present discounted value of the future
net cash inflows (outflows) that the item
is expected to generate (to be required to
settle the liabilities) in the normal course
business.
CONCEPTS OF CAPITAL AND
CAPITAL MAINTENANCE
Financial concept of capital
◦ Capital is synonymous with the net
assets or equity of the enterprise.

Physical concept of capital


◦ Capital is regarded as the productive
capacity of the enterprise.

You might also like