BAT4m BAT4m Unit 1: Review of Unit 1: Review of Grade 11 Accounting Grade 11 Accounting September 8 2014
Dec 30, 2015
BAT4mBAT4mUnit 1: Review of Grade Unit 1: Review of Grade
11 Accounting11 AccountingSeptember 8 2014
A business can be formed in three different ways:Proprietorship – one ownerPartnership – two or more ownersCorporation – Many owners
Forms of Business OrganizationForms of Business Organization
In the early chapters of this text, we focus mostly on sole proprietorship.
Partnership and corporation will be discussed in Unit 4.
Until Unit 4, you do not need to know the details of how accounting method is different in each form of business.
Accounting Equation Distinction by Accounting Equation Distinction by Type of Business OrganizationType of Business Organization
The main distinction between the forms of organization is found in The terminology for owner’s equity
section The accounting of the owner’s
investments and withdrawls In a proprietorship, the company is
owned by one person and the equity is termed owner’s equity.
Accounting Equation Distinction by Accounting Equation Distinction by Type of Business OrganizationType of Business Organization
In partnership, the equity is termed “partners’ equity”.
In corporation, the owners are shareholders and the equity is called, “shareholders’ equity”
In Income Trust, owner’s equity is called, “unit holders’ equity”
Accounting Equation Distinction by Accounting Equation Distinction by Type of Business OrganizationType of Business Organization
PartnershipPartners’ Equity
Park, Capital $50,000Michael, Capital $50,000
Total Partner’s Equity $100,000
Accounting for partnershipAccounting for partnership
CorporationShareholders’ equity:
Share capital$800,000Retained earnings$300,000
Total Shareholders’ equity $1100,000
Accounting for corporationAccounting for corporation
In corporation, when owners want to invest their own money, they have to buy shares of the corporation.
These investments are grouped together and called share capital. These are usually the first item in SE section.
The second item in SE section is usually “Retained Earning”.
Accounting for corporationAccounting for corporation
RE are accumulated earning of the company which have been retained. (i.e. not paid out to shareholders as dividends)
Remember dividends? Similar to what?Interest income for bankers.Dividends are for shareholders.
When corporations want to give some portion of their net income, they will declare dividends such as $1 per share.
Accounting for corporationAccounting for corporation
Dividends are similar to drawing of owners in sole proprietorship business.
Dividends reduce the SE as drawings reduce OE in in sole proprietorship.
Accounting for corporationAccounting for corporation
What are 4 ways of changing OE or SE?1. Drawings (declaring and paying out dividends)2. Investment (issuing and selling more shares) 3. Revenue activity – as revenue account closes
to income summary account4. Expense activity – as expense account closes
to income summary account.
Quick ReviwQuick Reviw
On September 1, Facebook corporation issued and sold 10,000 shares at $50 per share. How will they record this transaction?
On October 1, If FB declared and paid out 50 cents dividend per share, how would they record this transaction? (50,000 shares outstanding)
Issuing SharesIssuing Shares
P31 BE1-9 P41 P1-1b, p1-2b, p1-3B
HomeworkHomework