Chapter 1: Business Decisions and Financial Accoun
• Understand the Business
- 3 ways business can be organized
- Sole proprietorship: one individual owns the business
- Easiest form to get started, get a business license and your good
- Profits (or losses) becoming part of taxable income of the owner
- Owner is personally liable for all debts of the business
- Most popular forms of business in the united states
- Partnership: profit, taxes, and legal liability are held by two or more
owners
- Slightly more expensive since a lawyer is needed to draw up a
partnership agreement
- Describes how profits are shared between owners and how
that would change if new partners are added or existing
partners leave
- Has more resources available to it
- Can help business grow faster
- Corporation: separate entity from both legal and accounting perspectives
- Corporation is legally responsible for its own taxes and debts
- Limiting legal liability
- Legal feed for creating a corporation can be expensive
- Income taxes must be paid by both the corporation and its owners
- Divide ownership into shares to be sold to new owners
- Shares are indicated on a stock certificate (legal document)
- Other:
- LLC: combines characteristics of a partnership and a corporation
• Accounting for Business Decisions
- Accounting: an information system designed by an organization to capture
(analyze, record, and summarize) the activities affecting its financial conditions
and performance and then report the results to decision makers, both inside and
outside the organization
- Private accountant: an accountant hired to work as an employee of a business
- Public accountant: accountant who provides advice to several businesses
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• Understand the Business
- 3 ways business can be organized
- Sole proprietorship: one individual owns the business
- Easiest form to get started, get a business license and your good
- Profits (or losses) becoming part of taxable income of the owner
- Owner is personally liable for all debts of the business
- Most popular forms of business in the united states
- Partnership: profit, taxes, and legal liability are held by two or more
owners
- Slightly more expensive since a lawyer is needed to draw up a
partnership agreement
- Describes how profits are shared between owners and how
that would change if new partners are added or existing
partners leave
- Has more resources available to it
- Can help business grow faster
- Corporation: separate entity from both legal and accounting perspectives
- Corporation is legally responsible for its own taxes and debts
- Limiting legal liability
- Legal feed for creating a corporation can be expensive
- Income taxes must be paid by both the corporation and its owners
- Divide ownership into shares to be sold to new owners
- Shares are indicated on a stock certificate (legal document)
- Other:
- LLC: combines characteristics of a partnership and a corporation
• Accounting for Business Decisions
- Accounting: an information system designed by an organization to capture
(analyze, record, and summarize) the activities affecting its financial conditions
and performance and then report the results to decision makers, both inside and
outside the organization
- Private accountant: an accountant hired to work as an employee of a business
- Public accountant: accountant who provides advice to several businesses
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