BAM-3205 (Chapter 1),Principles of Accounting.pptx

BAM-3205 (Chapter 1),Principles of Accounting.pptx

• 1.
  Principles of Business, Accounting& Management Chapter one: Introduction to Business
• 2.
  Business • The wordbusiness origins from the word busy. It means doing things. Business is any economic activity conducting for the purpose of earning profit by exchanging value. • To exchange value business provides goods and services in return of money. • For example: farming, providing service to patients by doctors.
• 3.
  Characteristics of business
• 4.
  Characteristics of business •Creation of utilities: business creates utility for consumers that satisfy consumer needs. With manufacturing business creates form utility where inputs are transferred to finished goods. • Dealing in goods and services: business produces and sells goods and deliver services. Hence, it is all about dealing in goods and services. • Continuity in dealing: business is not a short-term activity. Rather it runs for a perpetual life. • Sell, transfer and exchange: selling and transferring ownership of goods and exchanging value are the major activities of business.
• 5.
  • Profit motive:earning profit is the major aim of business activities. Business runs to generate profit or return for the owners. • Element of risk: nothing is fixed in business environment. Hence, risk is an important part of business. Business always tries to minimize risk by collecting information in decision making. • Economic activity: business is an economic activity having the aim of earning profit. It is concerned with production and distribution of goods and services with the aim to earn profit • Art and science: business is both art and science. As a science business uses logic, mathematical models and other models and equations in decision making. On the other hand, as art business requires creativity and innovation.
• 6.
  Importance of business •Business provides the goods and service needed by consumers. Goods and services satisfy the needs of customers. • Business create job opportunities for people. Job opportunities have some direct and indirect significance in human life. It improves standard of living by increasing their income. • Business improves infrastructural development of communities. For example: for smooth operation of business activities business organizations contribute to improve transportation. • Business expands trade in both home and abroad.
• 7.
  Forms of businessownership Sole Proprietorships • The vast majority of small business start as sole proprietorships. These firms are owned by one person, usually the individual who has day-to-day responsibility for running the business. Sole proprietors own all the assets of the business and the profits generated by it. They also assume complete responsibility for any of its liabilities or debts
• 8.
  Advantages of aSole Proprietorship • Easiest and least expensive form of ownership to organize. • Sole proprietors are in complete control, and within the parameters of the law, may make decisions as they see fit. • Sole proprietors receive all income generated by the business to keep or reinvest. • Profits from the business flow-through directly to the owner’s personal tax return. • The business is easy to dissolve, if desired. Disadvantages of a Sole Proprietorship • Limited capability for raising funds or capital. Hence, sole proprietors have limited capital. • Due to limited capital, this business can’t hire highly skilled employees.
• 9.
  Partnerships • In aPartnership, two or more people share ownership of a single business. Like proprietorships, the law does not distinguish between the business and its owners. The Partners should have a legal agreement that sets forth how decisions will be made, profits will be shared, disputes will be resolved, how future partners will be admitted to the partnership, how partners can be bought out, or what steps will be taken to dissolve the partnership when needed
• 10.
  Advantages of aPartnership • Partnerships are relatively easy to establish; however time should be invested in developing the partnership agreement. • With more than one owner, the ability to raise funds may be increased. • The profits from the business flow directly through to the partners’ personal tax returns. • Prospective employees may be attracted to the business if given the incentive to become a partner. • The business usually will benefit from partners who have complementary skills.
• 11.
  Disadvantages of aPartnership • Partners are jointly and individually liable for the actions of the other partners. • Profits must be shared with others. • Since decisions are shared, disagreements can occur. • Some employee benefits are not deductible from business income on tax returns. • The partnership may have a limited life; it may end upon the withdrawal or death of a partner
• 12.
  Corporation • Corporation isa business organization that has a separate legal personality from its owners. Ownership in a stock corporation is represented by shares of stock. • The owners (stockholders) enjoy limited liability but have limited involvement in the company's operations. The board of directors, an elected group from the stockholders, controls the activities of the corporation.
• 13.
  Advantages of acorporation • Owners have limited liability • Ownership of corporation is easy and simple. Sells of share is the transfer of ownership. • Company or corporation has perpetual life. • Large capital base is another benefit of corporation. Disadvantages of a corporation • In corporation employees are a separate body from owners. • In corporation double taxation is a great pitfall. • Complex formation of corporations.