ACG 2209 Rasmussen College Three Types of Business Ownership Paper

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Enr3016

Business Finance

ACG 2209

Rasmussen University

ACG

Description

Write a paper consisting of a minimum of 750 words to explain the three types of business ownership and the differences between these. Be sure to do the following:

  • Explain the differences between a service company, merchandising company, and manufacturing company.
  • Provide examples of these three types of companies and why each would be considered a service, merchandising, or manufacturing company.
  • Explain the basics of the accounting assumptions and principles.

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Chapter 1 An Introduction to Accounting © McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education. Collecting and Organizing Information Accounting is an information system that reports on the economic activities and financial condition of a business or other organization. Copyright © 2021 McGraw-Hill Education. All rights reserved. No reproduction or distribution with the prior written consent of McGraw-Hill Education. 1-2 Accounting Principles Measurement Principle (Cost Principle) Accounting information is based on actual cost. Actual cost is considered objective. Revenue Recognition Principle 1. Recognize revenue when goods or services are provided to customers and 2. at an amount expected to be received from the customer. Expense Recognition Principle (Matching Principle) A company records its expenses incurred to generate the revenue reported. Learning Objective C2: Describe the importance of ethics and GAAP. 1-3 Accounting Assumptions Going-Concern Assumption Monetary Unit Assumption The business is presumed to continue operating instead of being closed or sold. Transactions and events are expressed in monetary, or money, units. Time Period Assumption Business Entity Assumption The life of a company can be divided into time periods, such as months and years. A business is accounted for separately from other business entities, including its owner. Learning Objective C2: Describe the importance of ethics and GAAP. 1-4 The Accounting Equation The Accounting Equation is composed of three elements: assets, liabilities and stockholders’ equity. Stockholders’ equity is subdivided into two additional elements called common stock and retained earnings. Businesses use resources to conduct their operations. The resources a business uses to earn money are called assets. Copyright © 2021 McGraw-Hill Education. All rights reserved. No reproduction or distribution with the prior written consent of McGraw-Hill Education. 1-5 Creating an Accounting Equation Claims on the assets are from three sources: 1. Creditors (liabilities) 2. Investors (stockholders’ equity) 3. Operations (profits increase assets) Copyright © 2021 McGraw-Hill Education. All rights reserved. No reproduction or distribution with the prior written consent of McGraw-Hill Education. 1-6 Creating an Accounting Equation Continued Commitments made to investors are described in certificates called common stock. Common Stock Retained Earnings Increases to stockholders’ equity from earnings are called retained earnings. Copyright © 2021 McGraw-Hill Education. All rights reserved. No reproduction or distribution with the prior written consent of McGraw-Hill Education. 1-7 Elements of Financial Statements 1. Assets 2. Liabilities 3. Stockholders’ Equity The elements represent broad categories. Copyright © 2021 McGraw-Hill Education. All rights reserved. No reproduction or distribution with the prior written consent of McGraw-Hill Education. 1-8 Recording Business Events Under an Accounting Equation An accounting event is an economic occurrence that changes an entity’s assets, liabilities, or stockholders’ equity. A transaction is a particular kind of event that involves transferring something of value between two entities. Copyright © 2021 McGraw-Hill Education. All rights reserved. No reproduction or distribution with the prior written consent of McGraw-Hill Education. 1-9 Asset Source Transactions Event 1: Rustic Camp Sites (RCS) was formed on January 1, Year 1, when it acquired $120,000 cash from issuing common stock. 1. RCS increases assets (cash). 2. RCS increases stockholders’ equity (common stock). Recorded Twice Double-Entry Bookkeeping Copyright © 2021 McGraw-Hill Education. All rights reserved. No reproduction or distribution with the prior written consent of McGraw-Hill Education. 1-10 An Asset Source Transaction Event 2: RCS acquired an additional $400,000 of cash by borrowing from a creditor. 1. RCS increases assets (cash). 2. RCS increases liabilities (notes payable). Copyright © 2021 McGraw-Hill Education. All rights reserved. No reproduction or distribution with the prior written consent of McGraw-Hill Education. 1-11 Asset Exchange Transaction Event 3: RCS paid $500,000 cash to purchase land. 1. RCS decreases assets (cash). 2. RCS increases assets (land). Copyright © 2021 McGraw-Hill Education. All rights reserved. No reproduction or distribution with the prior written consent of McGraw-Hill Education. 1-12 Another Asset Source Transaction Event 4: RCS obtained $85,000 cash by leasing campsites to customers. 1. RCS increases assets (cash). 2. RCS increases stockholders’ equity (retained earnings). revenues Copyright © 2021 McGraw-Hill Education. All rights reserved. No reproduction or distribution with the prior written consent of McGraw-Hill Education. 1-13 Asset Use Transaction Event 5: RCS paid $50,000 cash for operating expenses such as salaries, rent, and interest. 1. RCS decreases assets (cash). 2. RCS decreases stockholders’ equity (retained earnings). expenses Copyright © 2021 McGraw-Hill Education. All rights reserved. No reproduction or distribution with the prior written consent of McGraw-Hill Education. 1-14 Another Asset Use Transaction Event 6: RCS paid $4,000 in cash dividends to its owners. 1. RCS decreases assets (cash). 2. RCS decreases stockholders’ equity (retained earnings). dividends Copyright © 2021 McGraw-Hill Education. All rights reserved. No reproduction or distribution with the prior written consent of McGraw-Hill Education. 1-15 Summary of Accounting Events Copyright © 2021 McGraw-Hill Education. All rights reserved. No reproduction or distribution with the prior written consent of McGraw-Hill Education. 1-16 Summary of Accounting Events Copyright © 2021 McGraw-Hill Education. All rights reserved. No reproduction or distribution with the prior written consent of McGraw-Hill Education. 1-17 Income Statement and the Matching Concept { Matching Concept Revenues (benefits) are matched to expenses (sacrifices). Revenues exceeded expenses. If expenses exceed revenues, the entity will report a net loss. Income is measured for a span of time called the accounting period. Copyright © 2021 McGraw-Hill Education. All rights reserved. No reproduction or distribution with the prior written consent of McGraw-Hill Education. 1-18 Statement of Changes in Stockholders’ Equity Copyright © 2021 McGraw-Hill Education. All rights reserved. No reproduction or distribution with the prior written consent of McGraw-Hill Education. 1-19 Balance Sheet Copyright © 2021 McGraw-Hill Education. All rights reserved. No reproduction or distribution with the prior written consent of McGraw-Hill Education. 1-20 Financial Statements Copyright © 2021 McGraw-Hill Education. All rights reserved. No reproduction or distribution with the prior written consent of McGraw-Hill Education. 1-21 Statement of Cash Flows Copyright © 2021 McGraw-Hill Education. All rights reserved. No reproduction or distribution with the prior written consent of McGraw-Hill Education. 1-22 Statement of Cash Flows for Rustic Camp Sites Copyright © 2021 McGraw-Hill Education. All rights reserved. No reproduction or distribution with the prior written consent of McGraw-Hill Education. 1-23 Chapter 4 Internal Controls, Accounting for Cash, and Ethics © McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education. Key Features of Internal Control Systems 1. Control Environment The integrity and ethical values of the company, including its code of conduct and other actions that set the tone of the organization 2. Risk Assessment Management’s process of identifying potential risks that could result in misstated financial statements and addressing those risks. Copyright © 2021 McGraw-Hill Education. All rights reserved. No reproduction or distribution with the prior written consent of McGraw-Hill Education. 1-25 Key Features of Internal Control Systems 3. Control Activities The activities usually thought of as “the internal controls” including segregation of duties, account reconciliations, and information processing controls designed to safeguard assets and enable an organization to timely prepare reliable financial statements. Copyright © 2021 McGraw-Hill Education. All rights reserved. No reproduction or distribution with the prior written consent of McGraw-Hill Education. 1-26 Key Features of Internal Control Systems 4. Information and Communication The internal and external reporting process, and includes an assessment of the technology environment. 5. Monitoring Assessing the quality of a company’s internal control over time and taking actions as necessary to ensure it continues to address the risks of the organization. Copyright © 2021 McGraw-Hill Education. All rights reserved. No reproduction or distribution with the prior written consent of McGraw-Hill Education. 1-27 Internal Controls 1. Separation of Duties 2. Quality of Employees 3. Bonded Employees 4. Required Absences 5. Procedures Manual 6. Authority and Responsibility 7. Prenumbered Documents 8. Physical Control 9. Performance Evaluations 10. Limitations Copyright © 2021 McGraw-Hill Education. All rights reserved. No reproduction or distribution with the prior written consent of McGraw-Hill Education. 1-28 Chapter 8 Proprietorships, Partnerships, and Corporations © McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education. Forms of Business Organizations • • • Sole proprietorships are owned by a single individual who is responsible for making business and profit distribution decisions. Usually no legal ownership agreement is required. Partnerships allow persons to share their talents, capital and risks and rewards of ownership. Two or more individuals share ownership. A partnership agreement defines responsibilities and describes how income or losses will be divided. A corporation is a separate legal entity created by the authority of a state government. All states require the application to provide articles of incorporation. Copyright © 2021 McGraw-Hill Education. All rights reserved. No reproduction or distribution with the prior written consent of McGraw-Hill Education. 1-30 Comparing Corporations with Proprietorships and Partnerships • • • • • • • • Corporate Advantages Separate legal Entity Limited liability of stockholders Continuous life Management Structure Easily transferable ownership rights Ability to raise capital Corporate Disadvantages Governmental regulation Corporate double taxation Copyright © 2021 McGraw-Hill Education. All rights reserved. No reproduction or distribution with the prior written consent of McGraw-Hill Education. 1-31 Management Structure Management Structure • Partnerships and proprietorships are usually managed by their owners. • Corporations have three tiers of management authority. • The owners (stockholders) represent the highest level of organizational authority. • The stockholders elect a board of directors to oversee company operations. • The directors then hire professional executives to manage the company. Copyright © 2021 McGraw-Hill Education. All rights reserved. No reproduction or distribution with the prior written consent of McGraw-Hill Education. 1-32
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1

Business Entities and Accounting Principles

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Business Entities and Accounting Principles
A service company is a business or organization that creates income by providing
different services rather than selling physical products. They don’t sell goods that a customer can
touch; they sell services offered to consumers and charge them based on their working time.
Based on the idea of not selling tangible products, they keep the inventory of their work in
balance sheets since they cannot rely on stocks. The inventories make it easier for accounting
since there is no need to calculate the cost of goods. The company records journal entries are
focused on the amount of cash received and the revenue earned. Whenever billing of a client
happens, they debit the account receivables and service income is credited. Service companies
operate by creating a win-win between operational savings and value-added services; they
provide a unique innovation in how they provide the services
Merchandising company is a business that purchase goods and s...


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