Week One Acc537

Fundamental Concepts and Business Structures in Accounting

ACC/537

February 19, 2012

Fundamental Concepts and Business Structures in Accounting

Authors Kimmel, Weygandt, and Warfield (2007) describe accounting as a method for incorporating standardizations in the vocabulary and rules of operation used to communicate financial information. Accounting procedures cross national borders and involve ensuring that every business enterprise complies with regulatory governances. This paper examines how accounting and business structures interrelate to show applicability, reliability, and uniformity in financial reporting.

Business Structure Types and Characteristics

Kimmel, Weygandt, and Kieso (2007) describe business enterprises as inclusive of sole proprietorships, partnerships, and corporations. The type of ownership a business enterprise selects impacts tax liability, legal constraints, and ultimately the organization’s ability to survive.

Individual or single owners operate the most common form of enterprise, the sole proprietorship. The single owner is solely responsible for all organizational cost liabilities but also receives all of the organization’s profits. Advantages of a sole proprietorship include ease of company formation, straightforward decision-making, and organizational informality. Disadvantages include unlimited liability, taxes paid at personal marginal tax rate, and financing limited to the personal resources of the owner.

A partnership is held by more than one owner and allows equal decision-making of each partner as well as corresponding responsibility for business liability. A partnership affords owners the ability to pool resources necessary to launch a business. Advantages of partnership include ease of formation, equal share, individual rights for management, ease of dissolution, and tax ramifications. Disadvantages include individual partner liability, ability to raise capital, employee...