ACCOUNTING

Forms of Business organization

the three forms of business organization

Types of Business Organization

Sole proprietorship Partnership Corporation

Sole Proprietorship

A business owned by one person

Not a separate legal entry Owner s personal resources at stake Life is limited by choice or death of owner Sale by owner establishes new company Separate accounting entry

Partnership
A business owned by more than one person

Not a separate legal entry Partners personal resources at stake Life is limited by choice or death of any partner Changes in any partner s % intersect requires new partnership Separate accounting entry

Corporation
A separate legal entry Liability limited to amount of investment Life of organization is indefinite Ownership transferable Separate accounting entry

Number and Receipts of U.S. proprietorships, Partnerships, and Corporations,1995.

Series 1
cor par pro 0 5,000 10,000 15,000 20,000

Series 1

Series 1
cor par pro 0 5,000 10,000 15,000 20,000

Series 1

Discussion

Q. How do sole proprietorships , partnerships , and corporation differ ? A. A sole proprietorship is a business owned by one individual. A partnership is similar in most respects to a partnership except that more than one owner is involved . A corporation is an economic unit that is legally separate from its owners.

Financial Position
Economic Resources = Enquires. Or Economic Resources =

Creditors Equities + Owners Equity Assets = Liabilities + Owners Equity Accounting Equation Assets Liabilities Owners Equity

Assets
Assets are economic resources owned by a

business that are expected to benefit future operations. Monetary items Non monetary physical things

Liabilities
Liabilities are the present obligations of a

business to pay cash , transfer assets, or provide services to other entities in he future.

Owners equity
Owners equity represents the claims by the

owners of a business to the assets of the business. Owners equity is the residual equity that remains deducting liabilities from assets Owners Equity = Assets liabilities Assets = Liabilities + Owners equity

Four Types of Transactions That Affect Owners Equity

INCREASES

DECREASES

Owners Investments Owners Equity Revenues

Owners Withdrawals

Expenses

Some Illustrative Transactions

T1. Owners Investments

ASSETS Cash OE Capital

Beg. Bal T1. End. Bal.

0 50,000 $50.000

0 50,000 $50,000