Explaining Basic Accounting Concepts & Business Structures

Explaining Basic Accounting Concepts & Business Structures

ACT/537

30 September 2013

Hung Tran

Explaining Basic Accounting Concepts & Business Structures

Accounting concepts are a collection of extensive standards that are developed to supply a straightforward framework for financial reporting. Because financial reporting necessitates proficient judgments; these principles and concepts guarantee that the individuals using the reports are not misinformed by the implementation of accounting policies/practices opposed to the strength of the accountancy profession. Still, to understand basic accounting concepts, one must first become familiar with business structures and several other key concepts and terms.

Business Structures and Features

One of the first decisions a business owner has to make is how his or her wants to construct their business. No one business structure is best for all companies. Whether a business is better off starting as a sole proprietor, partnership, or corporation depends on several factors. However, one must understand each of these organization structures before factoring in other categories (Kimmel & Kieso, 2007).

Sole Proprietorship

A single individual or a married couple doing business alone is known as sole proprietorship. The benefit to sole proprietorships is that it is simple to form and operate, and can offer greater flexibility from legal controls, management, and taxes. Unfortunately, the largest drawback to sole proprietorship is that all debts incurred by the business are personally liable to the owner. However, a large benefit to using sole proprietorship are the tax aspects; expenses and personal income are included on the owners personal income tax return (Kimmel & Kieso, 2007).

Partnership

Partnerships are created by two or more individuals who agree to contribute skills, labor, and money to a business. All partners share in the profits, losses, and management of the company. Additionally,...