| ACCA F3 EF 2009 |
| 1 | CHAPTER The context and purpose of financial reporting The objectives of financial reporting The needs of users and stakeholders The main elements of financial reports Capital and revenue items The regulatory framework O\0>-l>UJl\)>— Duties and responsibilities of those charged with governance Emile Woolf Publishing Limited 15 Paper F3: Financial accounting 1.1 1.2 The objectives of financial reporting The purpose of financial accounting Types of business entity Advantages and disadvantages of different types of business entity The nature, principles and scope of financial reporting The objectives of financial reporting The purpose of financial accounting 'Financial accounting' is a term that describes: I maintaining a system of accounting records for business transactions and other items of a financial nature, and I reporting the financial position and the financial performance of an entity in a set of 'financial statements'. |
| 2 | Note: The term 'entity' is used to describe any type of organisation. 'Business entities' include companies, business partnerships and the businesses of 'sole traders' Many business entities operate a system of recording their business transactions in accounting records. This system is called a book-keeping system or ledger accounting system. All large businesses (and many small ones) have a book- keeping system for recording the financial details of their business transactions on a regular basis. |
| 3 | The information that is recorded in the book-keeping system (ledger records) of an entity are also analysed and summarised periodically, typically each year, and the summarised information is presented in financial statements. Financial statements provide information about the financial position and performance of the entity. Types of business entity A business entity is a commercial organisation that aims to make a profit from its operations. |
| 4 | There are three main types of business entity; I a sole trader I a business partnership I a company (a limited liability company). Sole trader The business of a sole trader is owned and managed by one person. Any individual who sets up in business on his own, without creating a company, is a sole trader. Emile Woolf Publishing Limited Chapter 1: The context and purpose of financial reporting Sole trader businesses are usually small operations, but the owner might employ a number of employees who work for the business to earn a wage or salary, but do not have any share in the ownership of the business. |
| 5 | Important features of a sole trader business are as follows. I The owner of the business is personally liable for the unpaid debts and other obligations of the business. For example if the business owes a supplier $1,000 for goods it has purchased, but does not have the money to make the payment, the owner of the business can be made personally liable to make the payment out of his 'non-business' assets. |
| 6 | I The profits of a sole trader business are treated as income of the owner, for the purpose of calculating the amount of tax payable on income. Partnership A business partnership is an entity in which two or more individuals (partners) share the ownership of the business. Each partner contributes some funds ('capital') to set up the business. Like a sole trader, a partnership may have employees who work for the business, but have no share in the ownership. |
| 7 | Important features of a 'normal' partnership are as follows. I The owners of the business are personally liable as individuals for the unpaid debts and other obligations of the business. For example if the partnership owes a supplier $1,000 for goods it has purchased, but does not have the money to make the payment, the partners can be made personally liable to make the payment out of their 'non-business' assets. |
| 8 | I The profits of a partnership are shared between the partners in an agreed way, and each partner's share of the profits is treated as personal income, for the purpose of calculating the amount of tax payable on his or her income. Company (limited liability company) A company (a 'corporation' in the US) is a special form of business entity. Nearly all companies in business are limited liability companies with liability limited by shares. |
| 9 | I Ownership of the company is represented by ownership of shares. A company might issue any number of shares, depending largely on its size. A Very small company might have just one share of $1, whereas a large stock market company will have millions of shares in issue. If a company has issued 100 shares, ownership of 40 shares would represent 40% of the ownership of the company. I Unlike a sole trader or a partnership, a company has the status of a 'legal person' in law. |
| 10 | This means that a company can be the legal owner of business assets, and can sue or be sued in its own right in the law. I A company is also taxed separately from its owners. Whereas the profits of a sole trader and business partners are all taxed as personal income of the business owners, the profits of a company are taxed as income of the company itself. I A company has legal liability as a 'legal person'. |
| … |
Комментарии