September 9, 2013

Accounting is the information system which records, summarizes, and reports the underlying economic conditions of an entity. Financial accounting is used to report this information to external parties [managerial accounting is to use this information internally]. Financial statements are management’s report to owners.

3 profit-seeking entities: Sole proprietorship simple to establish, owner controlled Unlimited liability (no legal separation). All profits and losses belong to owner, report income on tax returns. Business ends if owner dies, can sell it. Easy and inexpensive to operate. No reporting requirements. Partnership simple to establish, shared control, broader skills and resources Two or more owner-managers. Want a formal agreement covering $ contributions, workload, withdrawals, decision-making. Each partner’s net income reported on his or her personal tax form. No tax advantage. General Partners: have unlimited liability (person A and B legally connected). Limited Partners: limited involvement, limited liability (LLP at the end of the name). Ends if the partners die or dissolve it, can try to sell your portion. Corporation Easier to transfer ownership, easier to attract investors, no personal liability, tax advantages possible. Separate legal entity from owners. Owners called shareholders. Limited liability. Can only lose investment, not personal assets. Taxed separately from owners: corporate income tax. Tax deferral if income not paid out but double taxation. Indefinite life: owners can sell their shares, doesn’t affect operations. Most complex (and expensive) to operate: More regulations, but easier to raise additional capital.
Corporate Organization: Slide 8.

IPO (initial public offer): when public company first offers shares. Shares bought on