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Accounting - Chapter 1

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ACC 100
Else Grech

Accounting Chapter 1 Accounting includes identifying, measuring, recording, reporting, and analyzing economic events and transactions. It involves interpreting information, and designing information systems to provide useful reports that monitor and control an organization's activities. Forms of business organizations  Proprietorship  Partnership  Corporation Proprietorship - Business owned by 1 person - Straightforward to set up - Is not a separate entity from its owner, there is unlimited liability - The profits of the business are reported and taxed on the owners personal income tax return Partnership - Owned by two or more persons - Straightforward to set up - Partners need an oral or written agreement that indicates how profits and losses are to be shared - Similar to a proprietorship, it is not legally separate from its owners, therefor each partners share of profits is reported and taxed on that partners tax return. - Partners are usually subjected to unlimited liability, unless they have a different agreement Corporation - Separate legal entity chartered under provincial or federal laws (because it is separate legal entity, it can buy, own, and sell property, sue and be sued, therefor giving it an unlimited life) - Files a tax return and pays tax on its profits - Acts through managers, who are its legal agents - Owned by shareholders, who are not personally liable for corporate acts and debts. Their loss is limited to what they invested. This is called limited liability. Ownership, or equity, is divided into units called shares. Owners of shares are called shareholders (the American term is stock, and stockholders) A shareholder can sell or transfer shares to another person without affecting the operations of a corporation. When a corporation issues (or sells) only one class of shares, these are called common shares A corp. that sells it shares to the public is a publicly accountable enterprise (PAE) The public sale of shares refers to the trading of shares in an organized stock market such as the Toronto Stock Exchange A private enterprise (PE) is a corp. that doesn’t offer its shares for public sale. Sole Partnership Corporation Proprietorship Business entity Yes Yes Yes Legal entity No No Yes Limited liability No
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