FINANCIAL ACCOUNTING

FORMS OF BUSINESS ORGANIZATION: There are three main types of business entities: - Single proprietorship - Partnership, including general partnership which is a business owned by two or more people acting as partners, and limited partnership which is owned by at least one individual or organization. - Corporation. Table of comparison among types of business entities Single proprietorship (Sole proprietorship) Characteristics - Sole trader is owned by one person who supplies cash or other assets to the business. - The owner is entitled to all profits and legally liable for its debts. - The owner may manage his organization by himself or hire a professional manager but he still take responsibilities for its operation. Advantages - High flexibility - Simple and quick foundation, management , and even dissolution. Partnership - Partnership is owned by two or more people acting as partners. - The partners supply the resources and share the profits and losses. The individual partners are limitedly or unlimitedly liable for the debts of the partnership according to their contributions (capital) - A larger amount of capital and larger scale of business ( in comparison to Sole Trader). Corporation Corporation is owned by shareholders whose ownership interests are represented by shares in the company. - Shareholders have limited liability within their respective capital contributions

- Large capital and wide scale of business. - Limited liability - Unlimited lifetime

Disadvantages

- Little capital and small - Limited lifetime - It is difficult in scale of business - It may be difficult to foundation and - Unlimited liability control the operation management. - Limited lifetime

ASSUMPTIONS AND THE CHARACTERISTICS OF INFORMATION USED IN THE PREPARATION OF FINANCIAL STATEMENTS 1. The accounting entity assumption - The entity is considered a separate entity distinguishable from its owner and from all other entities. - Assumption: Each entity controls its assets and incurs its liabilities. - A separate set of accounting records is maintained for each entity, and the financial statements prepared provide information on that entity only.

2. The accrual basis assumption - The effects of all transactions and events are recognised in accounting records when they occur, and not when the cash is received or paid. 3. The going concern assumption: the existing entity will continue to operate in the future. 4. The period assumption: the division of the life of the entity into equal time intervals. 5. The characteristic of relevance: The information is relevant to users for decision making and presented by the accountant to the user in time to make economic decisions. 6. The characteristic of reliability: The information is presented reliably and faithfully without bias or undue error, the underlying transactions and events. 7. The characteristic of comparability (including consistency): The information should be comparable and presented in the same accounting policies and procedures. 8. The characteristic of understandability: The information should be clear, concise and understandable to users who has reasonable knowledge of business and economic activities and financial accounting. 9. The characteristic of materiality: Users can omit some insignificant information, misstate or group them with others without misleading the statement when making economic decisions. 10. Benefits and costs: The benefits of financial reporting information should justify the costs of providing and using it.

KEY TERMS: - Accrual basis: nguyn tc c s dn tch (nguyn tc thc t) - Going concern: nguyn tc hot ng lin tc - Materiality: nguyn tc trng yu