Advanced Accounting 1

1

• Advanced Accounting 1
• Types of Business Entities
• and
• Chapter 1
• REVIEW

2
Types of Business Entities
3
Types of Business Entities

• Sole Proprietorship
• Corporation
• Partnership

4
Sole Proprietorship

• One owner
• Most widely used
• Easiest

5
Advantages Disadvantages of a Sole
Proprietorship

• Advantages
• Owner has total control
• Least regulated

Disadvantages 1) Owner assumes all the risk 2)
Business usually terminates upon death of owner

6
Corporation

• Artificial entity created by filing Articles of
  Incorporation with the state
• A tax identification number is issued
• Owned by Shareholders - they own shares in
  business
• Managed by a Board of Directors - they make major
  business decisions on behalf of the shareholders

7
Advantages Disadvantages of a Corporation

• Advantages
• Limited liability
• Exists forever
• Owners (shareholders) can sell to another owner

• Disadvantages
• No individual control
• Greater government regulation
• Double taxation (dividends)

8
Partnership

• Mix between sole proprietorship corporation
• Partners want to own business, but not have risk
• Partners dont necessarily manage the business

9
Advantages Disadvantages of a Partnership

• Advantages
• Limited liability
• Exists forever
• More control than corporation

Disadvantages 1) Paperwork
10
Terms to Know
Asset Anything of value that is owned. (More
specifically, anything of value that is owned,
especially that which could be converted to
cash Liability Equity of those to whom money is
owed. (More Specifically, debt owed by the
company such as bank loans.) Owners Equity
Equity of the owner. (More specifically, cash or
assets invested by owner.)
11
(No Transcript)
12
Accounting Equation

• Assets Liabilities Owners Equity

13
Double Entry Accounting

• Invented by Luca Pacioli, an Italian
  mathematician, in 1494
• Each transaction is recorded in at least 2
  accounts
• One account is the Debit
• One account is the Credit

14
Terms to Know

• Transaction - an activity that changes assets,
  liabilities, or owners equity
• Account - a record summarizing all the
  information pertaining to a single item in the
  accounting equation

15
Terms to Know

• Revenue An increase in Owners Equity
  resulting from the operation of a business
• (Sale on Account A sale for which cash will be
  received at a later date)
• Expense A decrease in Owners Equity resulting
  from the operation of a business

16
Terms to Know

• Contribution An increase in Owners Equity
  resulting from contributing assets to the
  business
• Withdrawal A decrease in Owners Equity
  resulting taking assets from the business

17
Template for Posting Entries to General Journal