ACCOUNTING TUTORIAL (Part 4)
"BASIC ACCOUNTING"
"FORMS" OF BUSINESS ORGANIZATION
1. SINGLE/SOLE PROPRIETORSHIP is a business owned by only ONE INDIVIDUAL.
2.PARTNERSHIP is an association of "TWO or MORE" persons who bind themselves to contribute money, property or industry(services) to a common fund, with the intention of dividing the profits among themselves.
3. CORPORATION is an artifical being(not natural, like human being) created by operation of LAW, having the rights of SUCCESSION, and the POWERS AND ATTRIBUTES expressly authorized by law or incident to its existence.
4. COOPERATIVE is a legal entity owned and democratically controlled by its members. Members often have a close association with the enterprise as producers or consumers of its products or services, or as its employees.
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"TYPES" OF BUSINESS
4.SERVICE BUSINESS. This business renders services to customers or clients for a fee.
(Sale of SERVICES)
5. MERCHANDISING/TRADING BUSINESS. This business buy goods or commodities and sell them at a profit.
(Sale of GOODS) (Buy=>Sell)
6. MANUFACTURING BUSINESS. This business makes "finished goods" from "raw materials" or unassembled parts. It "produces" the goods that it sells.
(Sale of GOODS) (Buy=>"Produce"=>Sell)
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"ELEMENTS" of FS (Financial Statements)
7. INCOME/REVENUE is the gross INFLOW of economic benefits during the period in the form of INFLOWS or enhancements on assets or decrease in liabilities that result in increase in equity, other than those relating to contributions from the owner or owners.
8. EXPENSE is defined as the gross OUTFLOW of economic benefits during the period in the course of ordinary activities when these OUTFLOWS result in DECREASE in equity other than those relating to distribution to owners.
~In simple terms, these are COSTS incurred to produce income/revenue.
9. ASSETS are defined as RESOURCES controlled by the enterprise as a result of past transactions and events and from which future economic benefits are expected to flow to the enterprise.
~In simple terms, these are PROPERTIES owned by the business.
10. LIABILITIES are defined as present OBLIGATIONS of an enterprise arising from past transactions or events, the settlement of which is expected to result in an outflow from the enterprise of resources embodying economic benefits.
~In simple terms, these are the financial obligations or DEBTS of the business.It is also described as CLAIM of the CREDITORS on the Assets of the enterprise.
11. OWNER'S EQUITY/CAPITAL represents the CLAIM of the OWNER on the Assets of the business. It is the RESIDUAL INTEREST in the Assets of the business after deducting all its liabilities.
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Important: CAPITAL ACOUNT (or EQUITY ACCOUNT) consists of the following:
a. "Owner's Capital"
b. "Owner's Drawing"
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EXAMPLES of "ASSET" Accounts
1. CASH is any medium of exchange that a bank will accept at face value. It includes coins and currencies, checks, money orders and bank drafts.
Current asset.
2. TRADING SECURITIES are debt and equity securities that are purchased with the intent of selling them in the "near term" or very soon.
