Lecturer Introductory

Dr. Nay Min Aye

B.A (Business Science), Master of Accounting (M.Act)
PhD (Commerce), Dip IFRs, ADCSM

Former Associate Professor and Head

Department of Commerce, Co-operative and Management University, Thanlyin

Freelance Lecturer in Business and Management

My Contact: Mobile: 09980801010, Viber: 095069254,

email: [email protected]
Facebook: https://www.facebook.com/dr.nayminaye
Youtube:
https://www.youtube.com/channel/UCxWXWiq2E7jK_EombRDNnNA
 Accounting Environment
Chapter 1
Types of Business Organizations
What is accounting
• Language of businesses
• System of recording, classifying, summarizing, and analyzing
financial transactions/activities of the businesses
• Providing accurate and comprehensive financial information to those
involved in making decisions
• Financial information users are owners, the company’s managers and
employees, banks, investors, government agencies, financial analysts
• Effectively communication of the financial information is key to the
success of every business
What is accounting? Cont’d
• The owners needs to know:
• Whether they are making a profit because this is a main reason for running a
business
• That they have enough money all of their commitments (debts) on time
• That they are making the best use of the funds they have invested in the
business
Financial Transactions/Activities
• Handling money
• Buying goods for resale/ for use in the operation
• Selling the goods
• Taking loans
• Paying expenditures
• Paying taxes
• Renting facilities
• Etc.
What is accounting? Cont’d
• To provide comprehensive information;
• All financial transactions need to be recorded in a systematic way so that the
users (owner and others) can make the right decisions. The record keeping
aspects of accounting is called bookkeeping.
• From the bookkeeping records, it is important to select, classify and
summarize information so that users (owner and others) can be given
appropriate information in the form of financial statements.
• The preparation of financial statements and providing some interpretation of
what the statements reveal is often called accounting.
 Who uses accounting information
• The owner: who has invested personal savings in setting up the business and who is dependent on
the business’s for their livelihood
• The customers: who depend on the business being successful in order that they have a reliable
source of goods to buy whey they need them
• Suppliers: who provide goods for the business to sell. They are concerned that they are paid on time
and that the business will be successful so that repeat orders, and perhaps increasingly large orders
• The banks: may have lent the business funds to get started or develop. They will be concerned
about the success of the business because this effects whether repayments with interest will be
made in accordance with the loan agreement
• Employees: are dependent on the success of the business for their wages/salaries and for continued
employment (job security)
• Government: checks the amount due to be paid in taxation.
• Interested parties (stakeholders): individuals and organizations who are effected by or concerned
about how a business perform.
 What is business
• Organizations that provide goods and services in order to make a profit.
• To be successful, business must meet the needs of the customers.
• Business organizations can be small (one or few owners) or large (with over
100 owners); they may be local or multinational.
• The structure of a business organization can have a big impact on its finance.
• Choosing the right business organization is vital to the success of the business
itself.
• Four different forms of business;
• Sloe trader, Partnership, Private sector organizations, public sector organizations
Activity
1 why do you think it is important to choose the correct business organizations?
2 Make a list of local businesses. Do you know what types of organizations they
are?
 Sole Traders
• The easiest form of business organization to set up
• A sole trader is an individual trading alone under his/her own name or
under a trading name
• Fully responsible for running the business
• Only financial beneficiary
• Financially responsible for the loss of the business
• unlimited liability (if the business is unable to meet its financial
obligations, the sole trader’s personal assets must be used to cover
these debts; full responsibility for the debts of the business)
• If the sole trader cannot cover all outstanding debts, he/she may be
forced to declare him or herself bankrupt.
 Sole Traders
• Bankruptcy: when someone is judged to be unable to pay their
liabilities by a court of law.
• No formal rules to follow when setting up as a sole trader
• Tend to be small organizations
• No legal obligations to publish their accounts
Advantages and Disadvantages of Sole Traders

Advantages Disadvantages
• Business is easy to set up • Sole trader may lack capital or equity
and find it difficult to raise more.
• Sole trader keep all profits
• Sole trader is personally liable for all
• Sole trader has complete control debts
• Easier to make decisions • Sole trader may lack appropriate skills
• Accounts do not have to be • Making all decisions can be stressful
published • No continuity, as business ceases
when sole trader dies.
Activity
1 How do you think an accountant can help a sole trader run their business?
2 What businesses in your local area may be sole traders? Make a list and
compare with your classmates.
 Partnership
• Business owned by between 2 and 20 people (partners)
• These Owners have unlimited liabilities
• Deep of partnership is to be drawn up by an accountant or solicitor
• to show how profits and losses are shared
• to avoid potential problems
• Obey the law of the country the business is in
 Deep of Partnership
• A contract between partners that can be either written or verbal
• No specific requirement by Law
• It can help to solve any arguments later
• It normally includes the following:
• The capital or equity contributed by each partner
• The ratio at which profits and losses are to be shared
• Salaries to be paid to partners
• Interest, if any, to be paid on capital or equity
• Interest, if any, to be charged on partners’ drawing
 Advantages and Disadvantages of Partnerships

Advantages Disadvantages
• More capital or equity can be raised through • The partners have unlimited liability
additional partners • A partnership is dissolved on the death
• Losses can be shared between partners of a partner
• Additional partners can bring more skills and • It is difficult to liquidate or transfer
expertise to the business partnership
• The responsibility of management can be • A partnership may still find it difficult to
shared between partners raise capital or equity for expansion as
• Partnership are ideal organizations for increased unlimited liability could act as
professional practices such as medicine, law a deterrent
and accounting • Profits have to be shared between the
• Profit from a partnership are taxed as the partners
personal income of the partner
• There could be conflict between the
• Financial information is not published partners
 Limited Partnership
• Partnership may be unlimited or limited
• In a limited partnership, there must be at least one partner who is not
limited.
• Limited partners are not liable for the debts of the business; they can
only lose the capital or equity they have invested in the business
• All limited partners must be registered with the registrar of
companies
Case Study: Partnerships
1. Why do you think Hanif wants to expand his business?
2. What are the advantages for Hanif and Mzuzi of going into a
partnership together?
3. What are the disadvantages for Hanif and Mzuzi of going into a
partnership together?
 Private sector organizations
• All profit-making businesses that are not run or operated by the
government
• sole traders and partnerships are part of private sector
• Companies in the private sector that want to expand can go through
the process of incorporation (the official listing of a company by
meeting certain legal requirements that apply in a particular country
or state)
• Companies that are incorporated become corporations and get its
own legal identity/separate legal status. (the owners of the company
and the company are separate)
• Separate legal status allows the owner to have limited liability which
will make it easier for the business to raise finance
 Private sector organizations
• Limited liability means that the owners are not liable for the company’s
debts and can only lose the capital or equity that have invested in the
business.
• Separate legal status also allows for divorce of ownership; the owners do
not have to be involved in the day-to-day running of the business.
Managers are responsible for the running of the business and make the
decisions on behalf of the owners.
• The accounts of limited liability company need to be checked and approved
by the independent accountant (role of auditor).
• An auditor acts on behalf of the owners to check that the accounts are
accurate and show a true and fair view of how the business is doing
(auditing)
• Two types of limited companies: Private Limited and Public Limited
 Public sector organizations
• Organizations that are operated by the government and its main
purpose is to provide public service rather than making a profit
• Financed from the taxes paid by the companies and individuals
• Some of the services in UK are free (education, hospitals, libraries)
• Other services are paid (travelling by bus)
 The connection between Stakeholders and A
business
• A stakeholder is any person or business who is affected by the actions of that
business
Stakeholders
• The owners look at the overall profitability of the business. They monitor how the business traded over the
previous financial year. They compare the business performance with the previous year to judge how safe
their capital or equity is and whether they would get a return on their investment. The owners look at the
Income Statement to assess if they will receive any share of profit.
• Managers run the business on behalf of the owners. They monitor the accounts to see how the business is
performing. They make decisions based on the financial data available.
• Employees may want to look at the accounts to see how well the business is performing and whether they
have job security. The employees would look at the Income Statement to assess the overall profitability of
the business. They could also use the accounts to try to secure a pay rise.
• Customers may want to see how financially stable the company is. They can then assess whether the
supply of goods and services is secure, and whether they should trade with the company.
• Suppliers look at the company accounts to see how stable the business is. The supplier can then assess
what credit terms to give and how much interest to charge.
• Providers of external finance assess the company’s ability to pay back any money that they lend the
business, such as loans. They would look at the Statement of Financial Position to assess the liquidity
of the business.
• The government looks at the profits of the business to monitor whether the business is paying enough tax.
Income Statement: a statement of all income and expenses
recognized during a specified period (profit and loss Account)

Statement of financial position: shows a value of a business on a

specific date, including the assets, liabilities and capital or equity
(Balance Sheet)
Liquidity: the ability of a business to pay its debts
Case study: Dyson Ltd
1. What are the advantages for Dyson Ltd of being a private sector
organization.
2. Why do you think Dyson Ltd is not a public sector organization?
3. Which is the most important stakeholder in a company like Dyson
Ltd?
 Activity
1 why do you think it is important to choose the correct business
organizations?
Choice of the correct business organization is important because the
structure of the business organizations can affect on the ways of doing
business, financing, objectives. For example, sole trader is easy to set up but
limited companies have to meet legal requirement; sole trader has difficulty
to raise more finance but limited company is more easier to finance; sole
trader has full responsibility for the loss of the business but it can be shared
in partnership. Correct business organization would help to be easy in doing
business activities.
 Case Study: Partnerships
1. Why do you think Hanif wants to expand his business?
Hanif wants to expand his business to increase its sales, market shares and business
growth and success.
2. What are the advantages for Hanif and Mzuzi of going into a partnership
together?
They can share the responsibility of running the business. They can raise more capital
to expand their businesses; new skills and expertise can be brought to the business.
The loss can be shared between them.
3. What are the disadvantages for Hanif and Mzuzi of going into a
partnership together?
There could be conflict and arguments on some decisions between Hanif and Mzuzi.
Profits must be shared between them. Both have unlimited liability, they have to take
full responsibility of the business debts, if one of the partners steal money from the
business, another partner will have to cover these debts.
Case study: Dyson Ltd
1. What are the advantages for Dyson Ltd of being a private sector organization.
Private sector organizations are businesses that are owned privately by individual or group
of individuals. They are not controlled by government so they are free to do their business
in their own ways. They can raise more finance to expand their business since the owners
have limited liability status. They can make profit for their owners.
2. Why do you think Dyson Ltd is not a public sector organization?
Dyson Ltd is not a public sector organization since it is not owned and operated by
government. Dyson is found by individual, Sir James Dyson.
3. Which is the most important stakeholder in a company like Dyson Ltd?
The shareholders are the most important stakeholder in a company like Dyson Ltd since
they provide share capital to set up and run the business. Without them, the business
cannot exist.
 End of Chapter Questions
(1) Explain the meaning of the term “unlimited liability”.
• Unlimited liability means the owners have full responsibility of the debts of the
business. When business fails to meet its debts, the owner’s personal assets must be
used to meet these debts.
(2) Explain briefly what is meant by the phrase “divorce of ownership”
• “divorce of ownership” means that the owners do not have to be involved in the day-
to-day running of the business.
(3) Give two examples of businesses that would typically be sole traders.
• Hair-dresser, plumber
 End of Chapter Questions
(4) What are the two types of partnership
• Limited Partnership and Unlimited Partnership
(5) Explain the role of an auditor in producing financial statements
• The role of an auditor is to check the accounts are accurate and show the true and
fair view of the business
(6) Briefly explain what is meant by a Public Sector Organization.
• Public sector organizations are owned and operated by government. Its main aim is
to provide public services. It provides goods and services that are not fully provided
by private sector organizations. Its main finances come from the tax paid by
individuals and businesses.
End of Chapter Questions

(7) Identify five stakeholders and explain how they are effected by the business?
• Owners invest their money in the business and their wealth is effected by the profit and loss of the
business.
• Managers help run he business and their salaries, power and status are affected by the success of the
business.
• Customers buy the goods and services from the business and the quality of the product and price may
affect the customers.
• Suppliers provide the goods and services to the business and prompt payment and repeated order can
be affected by the success of the business.
• Government receives tax if the business shows the profit.
(8) State two differences between sole trader business and partnership business.
• No. of owners (sole trader business is owned by one individual and partnership business is owned by
between 2 and 20 people)
• Not controlled by legislation in case of sole traders while the partnership must obey the law (Partnership
Act)
• Profit and loss are not to be shared in sole trader while profit and loss are to be shared between
partners
• Agreement is not required in sole trader while deep of partnership is required in case of partnership
 End of Chapter Questions
(9) Two partners decide to form a Limited Liability Company. Evaluate their
decisions.
By forming a limited liability company, they would have some advantages;
they can gain the status of unlimited liability in which they are not fully
responsible for the debts of the business; it is more easier to finance to
expand their business; the business can have indefinite life span.
However, they need a process of incorporation to be a limited company;
they need to fulfill the legal requirements of the country in which their
business operate
Past Papers
1) State two advantages of operating business as a sole trader. (2 Marks)
2) State two stakeholders who may be interested in a business’s financial
statements.
3) State one difference between a public sector organization and a private
sector organization.
4) State one difference between the objectives of private sector
organizations and public sector organizations.
5) Identify three stakeholders that may have an interest in the financial
statements of a private sector organization.