Ch 3 Flashcards
External
Users:
-Customers
-Creditors
-Potential Investors
-Government
-Academe
-Public
They are people or entities that
acquire goods and services for a fee,
however, even large businesses can be
customers.
Customers.
Another source of funds.
They lend their resources to the business in
exchange for a fee or what we called as
interest for using the said resources.
Creditors
Similar with creditors. They put their
resources in a business hoping to earn a
decent forward. Investment is like a
gamble, it is either you earn big or lose.
If the business is profitable, they also
receive share of the profits. If the business
is losing, they also suffer from the loss.
Potential Investors
To regulate the businesses in the economy,
check if businesses follow guidelines provided
by law in their operations.
They also see if businesses are not trying to
deceive the users of financial statements by
misrepresenting the amount of earnings or
manipulating portions of the company’s
financial statements.
Government
They do not usually transact with
businesses, the group utilize
financial statements for academic purposes.
It is not confined only in the accountancy
field, it can be used also in other fields of
study such as banking and finance,
entrepreneurship, and economics.
Academe
Financial statements gives us hints about
the condition of the economy.
If it not
good, the general public will minimize their
spending and increase savings. It will also
identify if possible new jobs in the industry
will exists due to good economy
Public
Internal Users:
-Management
-Employee
-Owners / Stockholders
All managers must know the company inside and out. By examining
financial statements, managers are able to identify problems and
respond to them accordingly.
Management
use financial statement for
personal reasons. They are concerned with
the company’s profitability.
❑ compensation
❑ Additional benefits (year-end bonuses,
fringe benefit, remuneration packages,
termination pay)
Employees
want to know if their
investments will yield acceptable returns.
A profitable business keeps its investor
happy
Owners / Stockholders
Fundamental
Business Model
Initial Cash Investment
Use cash to buy
additional assets or
pay operating costs
Produce products or
services
Sale of Products or
services (Cash or On
Account)
Use available cash to
pay debts, convert
into other assets, or
spent on operating
costs (after-tax)
Types of Business:
-Service Business
-Merchandising Business
-Manufacturing Business
-Hybrid Business
-Raw Material Business
-Infrastructure Business
-Financial Business
-Insurance Business
A type of business which provides intangible products (products with no physical form). Service type firms offer professional skills, expertise, advice, and other similar products.
Examples of service businesses are: salons, repair shops, schools, banks, accounting firms, and law firms
Service Business
This type of business buys products at wholesale price and sells the same at retail price. They are known as “buy and sell” businesses. They make profit by selling the products at prices higher than their purchase
costs.
A merchandising business sells a product without changing its form. Examples are: grocery stores, convenience stores, distributors, and other resellers
Merchandising Business
A type of
business where it buys products with the intention of using
them as materials in making a new product. Thus,
there is a transformation of the products purchased.
A business thst combines raw materials,
labor, and factory overhead in its production process.
The manufactured goods will then be sold to customers.
Manufacturing Business
A type of business where are companies that may be
classified in more than one type of business. A restaurant, for example, combines ingredients in making a fine meal (manufacturing), sells a cold bottle of wine (merchandising), and fills customer orders (service).
Hybrid Business
Those involved in the raw material supply business engage in the movement and storage of raw materials and unfinished goods from the point where they are generated to the point where they are used to produce a product or transformed into finished goods.
Raw Material Business
the basic physical systems of a business or nation — transportation, communication, sewage, water and electric systems are all examples of
infrastructure. These systems tend to be high-cost investments and are vital to a country’s economic development and prosperity.
Infrastructure Business
an establishment that conducts financial transactions such as investments, loans and
deposits.
Financial Business
protects businesses from losses due to events that may occur during the normal course of business. There are many types of insurance for businesses including coverage for property damage, legal liability and employee-related risks.
Insurance Business
Forms of Business
Organizations:
-Sole Proprietorship
-Partnership
-Corporation
-Cooperatives
-Single individual
-Do not have separate legal existence from the owner
Advantages:
1. Ease of formation
2. The owner has full control of the business
3. Owners can mix personal and business assets
4. Owners have all the profits for themselves
5. Simple taxation
Disadvantages:
1. Unlimited liability
2. Difficulty of raising additional capital
3. Owner’s bias
Sole Proprietorship
-Two or more persons are needed
-Money, property and industry are to be contributed
-Established for the purpose of obtaining profit
-Used by companies to generate profit by practice of profession
Partnership
Other forms of partnership:
-Limited partnership
-Limited liability partnership
-Limited liability company
General Features:
1. Separate legal existence
2. Limited liability
3. Transferable ownership rights
4. Virtually unlimited life
5. Corporation management
6. Government regulations
7. Double taxation
8. Dividends
Corporation
A duly registered association of persons, with a common bond of interest, who have voluntarily joined together to achieve a lawful common social or economic end, making equitable contributions to the capital required and accepting a fair share of the risks and benefits of undertaking in accordance with universally accepted cooperative principles.
Cooperatives
