MM1F27

• Accounting is


  process of identifying, measuring and communication economic info about an entity to permit informed judgements and decisions by users of the economic info
• Accounting is the language of business because 


  it records and processes financial info into an easily accessible format that can be understood by any person in the business world
• Questions Raised by Accounting Definition

  What is the the process?

  How is economic info identified?

  How is economic info measured?

  How is economic info communicated?

  What is an entity?

  Who are the users of economic info?

  What types of judgements and decisions do users make?
• Accounting info system

  1. Identification
  2. Recording
  3. Analysis
  4. Reporting
• Questions Answered by Accounting

  -       Score Keeping (how well is business doing)

  -       Attention Directing (which problems should be looked at)

  -       Problem Solving (which is the best alternative for doing a job)
• Entities are


  businesses that exists independently of those who own it 
• Owners Capital is

  amount of finance to enable the business to acquire assets and sustain its operations
• Types of Entities

  Sectoral an businesses
• Sectoral Entities

  manufacturing

  trading

  service
• Business Types

  sole trader

  partnership

  company
• Sole Trader Key Features

  Individual may enter business alone

  If individual has no sufficient funds, he or she may borrow from a bank

  Business is intertwined with the personal life

  Business - separate entity of which sole trader is the owner and takes the risk of both bad and good outcomes (unlimited liability)

  Individual himself has little need for accounting info because he or she is very familiar with the business.

  Accounting info, in this case, is used by:

  • Government for tax purposes
  • Bank for lending purposes
  • Someone intending to buy the business 
• Partnership Key Features

  Formed by verbal or written agreement

  Sole trader may expand to enter into partnership with one or more people

  Pooling of skills and resources (e.g., one partner with skills and another with money)

  Unlimited liability/joint and several liability

  Partnership is separate economic entity owned by partners.

  Need for accounting info:

  - partners to ensure they have fair share

  - HM Revenue and Customs

  - Bank for lending purposes

  - Other ppl who want to join partnership

  It is not necessary to disclose accounting info to the public
• Unlimited Liability is

  All people involved in business are entitled to share in the running of the business. The share is specified in agreement. All people involved take financial risk 
• Joint Liability


  If one partner is unable to meet all the obligations (e.g., no sufficient funds to cover debts) another partner required to meet the obligations of partnership 
• Limited Liability Company key features:
• Registered under Companies Act
• Memorandum and articles of association set the powers allowed to the company
• Shareholders appoint directors to run the company
• Company may only carry out the activities set out in its memorandum and articles of association
• Liability is limited to the amount shareholders have agreed to pay for shares
• Accounting information must be disclosed to the public through Registrar of Companies Annual Financial Statement (“The Accounts”)
• Company is a separate legal entity, meaning that it can own property, make contracts, and take legal action or be the subject of legal action