What is Accounting?What is Accounting?Types of BusinessTypes of Business

Forms of Business OwnershipForms of Business Ownership

What is Accounting?What is Accounting?

1. Information Gathering1. Information GatheringBased on financial events that occurBased on financial events that occur

2. Information Measuring2. Information MeasuringExpressed in monetary termsExpressed in monetary terms

3.Recording Information3.Recording InformationKeeping track of eventsKeeping track of events

What is AccountingWhat is Accounting4.Information Classification4.Information Classification

Classify data into appropriate categoriesClassify data into appropriate categories

5. Summarizing and Reporting Information5. Summarizing and Reporting InformationBased on written reportsBased on written reports

6. Interpret and Controlling6. Interpret and Controlling Review statements to ensure accuracy andReview statements to ensure accuracy and efficiency of operations and to assist in efficiency of operations and to assist in

decisiondecision making. making.

What is the Purpose of What is the Purpose of Accounting?Accounting?

To provide information to decision makers.To provide information to decision makers.

More specifically…More specifically… The basic purpose of financial statements The basic purpose of financial statements is to assist decision makers in evaluating is to assist decision makers in evaluating the financial strength, profitability, and the financial strength, profitability, and future prospects of business.future prospects of business.

Who Uses Accounting Information? Who Uses Accounting Information? And For What?And For What?

Managers and Business OwnersManagers and Business OwnersPlanning and controlling daily operations as well Planning and controlling daily operations as well as long-term goals as long-term goals

Investors (current and potential)Investors (current and potential)Should I continue, discontinue, increase, and/or Should I continue, discontinue, increase, and/or decrease my investmentdecrease my investment

Creditors (i.e. Banks)Creditors (i.e. Banks)Should I give the loan? Will I get my money Should I give the loan? Will I get my money back?back?

Who Uses Accounting Information? Who Uses Accounting Information? And For What?And For What?

Government Regulatory BodiesGovernment Regulatory BodiesCanadian Revenue Agency (Is this person or Canadian Revenue Agency (Is this person or business paying all their taxes)business paying all their taxes)

EmployeesEmployeesJob security, career advancement, flexibility, Job security, career advancement, flexibility, potential investorspotential investors

UnionsUnionsFor contract negotiations as well as other For contract negotiations as well as other interests of the employees (raise, better interests of the employees (raise, better benefits?)benefits?)

Types of BusinessTypes of Business Business DefinedBusiness Defined

An organization that involves the manufacture and/or An organization that involves the manufacture and/or sale of goods and/or services in order to earn a profit.sale of goods and/or services in order to earn a profit.

Most business fall into one of the four categories:Most business fall into one of the four categories: 1. The Merchandising Business1. The Merchandising Business

2. The Service Business2. The Service Business 3. The Manufacturing or Producing Business3. The Manufacturing or Producing Business 4. The Non-Profit Organization4. The Non-Profit Organization

The Merchandising BusinessThe Merchandising Business

Buys goods and resells them atBuys goods and resells them at a higher price for a profit. a higher price for a profit.

Examples:Examples:

The Service BusinessThe Service Business sells a service to the publicsells a service to the public it does not sell a product as its mainit does not sell a product as its main activity activity usually provides skills or expertise andusually provides skills or expertise and the customer is involved in the delivery of the customer is involved in the delivery of the service the service

Note:Note:

Sometimes a service company will sell Sometimes a service company will sell products (i.e. hairdresser selling products (i.e. hairdresser selling shampoo), but it is a sideline and not the shampoo), but it is a sideline and not the main business.main business.

Sometimes a merchandising business will Sometimes a merchandising business will offer services (i.e. computer repair or offer services (i.e. computer repair or hemming clothes), but it is also just a hemming clothes), but it is also just a sideline and not the main business.sideline and not the main business.

The Manufacturing BusinessThe Manufacturing Business

Buys raw materials, Buys raw materials, converts them into a converts them into a product and sells product and sells these products to these products to earn a profit.earn a profit.

Consider a Consider a construction construction company, a paper company, a paper mill, or steel plant.mill, or steel plant.

The Producing BusinessThe Producing Business

Closely related to Closely related to manufacturingmanufacturing

Examples include Examples include farms who may farms who may produce milk, grain, produce milk, grain, etc. Other examples etc. Other examples include oil extraction, include oil extraction, mining, forestry, mining, forestry, hunting, and fishinghunting, and fishing

Non-Profit or Not-for-Profit Non-Profit or Not-for-Profit OrganizationOrganization

An organization that An organization that does notdoes not seek seek to make a profit, but instead to make a profit, but instead raises money/funds for a specific raises money/funds for a specific goal. (churches, charities, recreational goal. (churches, charities, recreational sports clubs) sports clubs)

Examples include: Canadian Cancer Foundation, Examples include: Canadian Cancer Foundation, Amnesty International, Junior Achievement etc.Amnesty International, Junior Achievement etc.

Forms of Business OwnershipForms of Business Ownership

Forms of Business OwnershipForms of Business Ownership1.1. Sole Proprietorship Sole Proprietorship

owned by one personowned by one person

2. 2. Partnership PartnershipUsually owned by two or more partnersUsually owned by two or more partners

3.3. Franchise FranchiseOne business licenses (allows) another to use its name, operating One business licenses (allows) another to use its name, operating procedure, etc.procedure, etc.Can have any form of ownershipCan have any form of ownership

4.4. CooperativeCooperative

Owned by its workers or by members who buy from the businessOwned by its workers or by members who buy from the business

5. Corporation5. CorporationBusiness is an artificial “person” created by law and owned by Business is an artificial “person” created by law and owned by shareholdersshareholders

Sole ProprietorshipSole Proprietorship(over 1 million in Canada)(over 1 million in Canada)

Advantages – So what?Advantages – So what? Keep all the profitsKeep all the profits Make all the decisionsMake all the decisions You are your own You are your own

bossboss (i.e Financial (i.e Financial

information can be information can be kept secret. from kept secret. from competitors), but not competitors), but not the governmentthe government

DisadvantagesDisadvantages Unlimited LiabilityUnlimited Liability Facing personal and Facing personal and

financial risks and financial risks and challenges on your challenges on your ownown

Borrowing money Borrowing money may be more difficultmay be more difficult

Huge time Huge time commitmentcommitment

Sole ProprietorsSole ProprietorsExamples may include individuals who are:Examples may include individuals who are:

ArtistsArtistsAuthorsAuthorsCarpentersCarpentersComputer specialistsComputer specialistsDigital designersDigital designersEcotourism guidesEcotourism guidesFarmersFarmersIndustrial designersIndustrial designersPhotographersPhotographersWeb designersWeb designersChefs or BakersChefs or BakersHair stylistsHair stylists

PartnershipPartnership

More complex and needs a written agreementMore complex and needs a written agreementPartners must discuss and agree on issues Partners must discuss and agree on issues such as:such as: how much time and money each partner will puthow much time and money each partner will put

into the business into the business How the profits will be sharedHow the profits will be shared Who will make decisions about different aspects ofWho will make decisions about different aspects of

the business the business Who will manage the employeesWho will manage the employees How the partnership might be endedHow the partnership might be ended

Partnership AgreementPartnership AgreementAll partners must sign the partnership agreement which All partners must sign the partnership agreement which

includes:includes: the name and location of the businessthe name and location of the business Its purposeIts purpose The amount of partner’s investmentThe amount of partner’s investment The way that the profits and losses are to beThe way that the profits and losses are to be

divided divided The duties and responsibilities of each partnerThe duties and responsibilities of each partner The procedures for ending the partnershipThe procedures for ending the partnership

PartnershipsPartnershipsAdvantagesAdvantages Inexpensive to set up Inexpensive to set up

and organize ($1000)and organize ($1000) Two people to invest and Two people to invest and

it is easier to borrow from it is easier to borrow from a banka bank

More brains filled with More brains filled with different knowledge, different knowledge, experience, skillsexperience, skills

Shared responsibility Shared responsibility eases stress and eases stress and workloadworkload

Share debt and can more Share debt and can more easily take a vacationeasily take a vacation

DisadvantagesDisadvantages Unlimited liabilityUnlimited liability

Your personal assets Your personal assets (home, care etc may (home, care etc may need to be used to pay need to be used to pay off business debts)off business debts)

Conflicts between Conflicts between partners that can not be partners that can not be worked outworked out

Typical PartnershipsTypical Partnerships

Small independent service or retail businesses. Small independent service or retail businesses. bakeries, hair salons, flower shop, convenience bakeries, hair salons, flower shop, convenience store, landscaping or décor store, consignment store, landscaping or décor store, consignment shop, restaurants, retail stores,plumbers, shop, restaurants, retail stores,plumbers, electricians, mechanics, carpenterselectricians, mechanics, carpenters

Professional Designations or ApprenticeshipsProfessional Designations or Apprenticeshipsaccountants, lawyers, doctors, veterinarians, accountants, lawyers, doctors, veterinarians, mechanics, plumbers, electricians, carpentersmechanics, plumbers, electricians, carpenters

FranchiseFranchiseOne of the fastest growing forms of business One of the fastest growing forms of business ownershipownershipThe franchisor sells to another person (the The franchisor sells to another person (the franchisee) the rights to use the business name franchisee) the rights to use the business name and to sell a product or service in a given and to sell a product or service in a given territory.territory.Available in many different sectors (fast food, Available in many different sectors (fast food, wine, funeral homes)wine, funeral homes)Franchise can be any form of business Franchise can be any form of business ownershipownership

Franchise AgreementFranchise Agreement

Written contract between the franchise seller Written contract between the franchise seller and buyerand buyerPermit the franchisee to use the franchisor’s Permit the franchisee to use the franchisor’s name, products, packagingname, products, packagingFranchisor will specify how the franchise is to be Franchisor will specify how the franchise is to be operated, what products can be sold, the operated, what products can be sold, the advertising, etc.advertising, etc.Provide more than 1 million jobs directly, many Provide more than 1 million jobs directly, many more indirectlymore indirectlyAnnual sales of $100 billionAnnual sales of $100 billion

FranchisesFranchisesAdvantagesAdvantages Proven track record and Proven track record and

nationally or nationally or internationally recognized internationally recognized namename

Personal ownership like a Personal ownership like a sole proprietorshipsole proprietorship

Less stress in initial set Less stress in initial set up as most issues like up as most issues like process, products and process, products and location, equipment, location, equipment, décor are spelled out by décor are spelled out by the franchisorthe franchisor

DisadvantagesDisadvantages Expensive to buyExpensive to buy Must pay royalties for Must pay royalties for

your sales your sales Little say in many of the Little say in many of the

business decisionsbusiness decisions If the franchisor fails, so If the franchisor fails, so

does the franchiseedoes the franchisee

Co-operativesCo-operatives

Also called Co-opsAlso called Co-opsBusiness owned and operated by a group of Business owned and operated by a group of people with a strong common interestpeople with a strong common interestStart-up costs are shared among membersStart-up costs are shared among membersMembers own and control and make all the Members own and control and make all the business decisionsbusiness decisions

Examples of CoopsExamples of CoopsFarmersFarmers

Belong to producer co-opsBelong to producer co-opsMembers bring crops to a central location to sell themMembers bring crops to a central location to sell themCoop monitors the supply of the crop and controls its Coop monitors the supply of the crop and controls its sale and pricesale and priceFarmers do not compete against each other or undercut Farmers do not compete against each other or undercut other’s pricesother’s pricesFarmers can combine to buy equipment and reduce Farmers can combine to buy equipment and reduce costs and share expertisecosts and share expertiseExample: Saskatchewan Wheat Pool sells products all Example: Saskatchewan Wheat Pool sells products all over the world.over the world.

Consumer Co-opsConsumer Co-ops

Join together to operate a business that Join together to operate a business that provides them with goods and servicesprovides them with goods and services

Profits are divided among the members in Profits are divided among the members in proportion to the amount of business that proportion to the amount of business that each member doeseach member does

Examples: Omish Community Furniture Examples: Omish Community Furniture Co-ops Co-ops

Credit Unions/ Caisses Populaires Credit Unions/ Caisses Populaires

Financial co-opsFinancial co-ops

Like banks but profits are distributed annually to Like banks but profits are distributed annually to their memberstheir members

Co-operativesCo-operativesAdvantagesAdvantages Shared skills and experiencesShared skills and experiences Less risk than for sole Less risk than for sole

proprietor and partnershipproprietor and partnership Liability is limited to the Liability is limited to the

amount of your share in the amount of your share in the capital of the coopcapital of the coop

Each member gets one vote – Each member gets one vote – equal decision making and equal decision making and influenceinfluence

If you have more shares, you If you have more shares, you still get one vote, but more still get one vote, but more share of the profitsshare of the profits

Coops get discounts due to Coops get discounts due to volume purchasing by many volume purchasing by many peoplepeople

Control sale and price of Control sale and price of goodsgoods

DisadvantagesDisadvantages Individual members hesitant to Individual members hesitant to

invest more – only one voteinvest more – only one vote Decision-making can be Decision-making can be

difficult because of multiple difficult because of multiple members members

Commitment of members may Commitment of members may vary because some have more vary because some have more money at stake and some may money at stake and some may take things more seriously take things more seriously than othersthan others

CorporationCorporation

Legal entity that exists independently of its owners who Legal entity that exists independently of its owners who are the shareholders.are the shareholders.

Has the same rights and obligations under Has the same rights and obligations under Canadian Canadian law as a natural personlaw as a natural person

It can be found guilty of committing a crimeIt can be found guilty of committing a crime

CorporationCorporation

Brought into existence by drawing up and filing with the Brought into existence by drawing up and filing with the proper government agency a document called the proper government agency a document called the articles articles of incorporationof incorporation

A lawyer and accountant are often needed to prepare this A lawyer and accountant are often needed to prepare this documentdocument

CorporationCorporation

Articles of Incorporation include information Articles of Incorporation include information such as:such as:Name of corporationName of corporationHeadquarters of corporationHeadquarters of corporationType of corporationType of corporationNumber of shares allowed to be issued to Number of shares allowed to be issued to the public for purchasethe public for purchase

Classification of CorporationsClassification of Corporations

1. Non-Profit Corporation1. Non-Profit Corporation2. Crown Corporation2. Crown Corporation3. Private Corporation3. Private Corporation4. Public Corporation4. Public Corporation

Non-Profit CorporationsNon-Profit Corporations

Purpose is to undertake fundraising, to do Purpose is to undertake fundraising, to do research and to lobby for a particular research and to lobby for a particular cause in order to help peoplecause in order to help people

Example: United Way, Museums, Example: United Way, Museums, Religious organizations, athletic and Religious organizations, athletic and artistic organizations.artistic organizations.

Crown CorporationCrown CorporationOwned by the federal, provincial, or municipal Owned by the federal, provincial, or municipal governmentsgovernments

Function is to provide a special service to the publicFunction is to provide a special service to the public

Examples: Bank of Canada, Royal Canadian Mint, Examples: Bank of Canada, Royal Canadian Mint, Canada Post, Canadian Broadcasting Corp. (CBC)Canada Post, Canadian Broadcasting Corp. (CBC)

Private CorporationPrivate Corporation

Can have up to 50 shareholdersCan have up to 50 shareholdersA single person who incorporates may have only A single person who incorporates may have only one shareholder – him or herself.one shareholder – him or herself.Usually small but not alwaysUsually small but not alwaysEatons now owned by Sears was a private Eatons now owned by Sears was a private corporationcorporation

Public CorporationPublic Corporation

Does not have a restriction on the number Does not have a restriction on the number of shareholders. (unlimited number)of shareholders. (unlimited number)

Shares are bought and sold (traded) on Shares are bought and sold (traded) on the stock exchanges, such as the Toronto the stock exchanges, such as the Toronto Stock Exchange, the Vancouver Stock Stock Exchange, the Vancouver Stock Exchange.Exchange.

Examples include: Tim Hortons, Google, Examples include: Tim Hortons, Google,

Employees

Managers (Supervise Employees)

Officersi.e. CEO

(Chief Executive Officer)

(set corporate

objectives and hire managers)

Board of Directors

(hire officers)

Owners/Shareholders

(Elect Board of Directors)

STRUCTURE OF A

CORPORATION

Structure of a CorporationStructure of a Corporation

The shareholders elect a board of directors, who The shareholders elect a board of directors, who direct the overall affairs of the corporationdirect the overall affairs of the corporation

The BOD hire the officers (i.e. the President of The BOD hire the officers (i.e. the President of the corporation) who decide on the objectives for the corporation) who decide on the objectives for the company and hire the managers and the company and hire the managers and essentially run the day to day operations of the essentially run the day to day operations of the business.business.

The managers supervise the employees.The managers supervise the employees.

CorporationCorporationAdvantagesAdvantages Owners are only liable for the Owners are only liable for the

amount they invest – Limited amount they invest – Limited liabilityliability

Has more financial resources Has more financial resources to expand and grow (money to expand and grow (money collected from the selling of collected from the selling of shares)shares)

Easier to get a loan from a Easier to get a loan from a bank because it has more bank because it has more assets to use as security assets to use as security (collateral”)(collateral”)

The tax rate is lower than for a The tax rate is lower than for a sole proprietorship.sole proprietorship.

(40-50% versus 23%)(40-50% versus 23%) Ownership is easily Ownership is easily

transferabletransferable

DisadvantagesDisadvantages More complicated to set up due More complicated to set up due

to government regulationsto government regulations Must be registered in every Must be registered in every

province it operatesprovince it operates Time consuming process and Time consuming process and

expensiveexpensive Closing a corporation can be Closing a corporation can be

time consuming and expensivetime consuming and expensive Business is managed by Business is managed by

employees who may or may not employees who may or may not be shareholders.be shareholders.

Must publish an annual report Must publish an annual report outlining the companies financial outlining the companies financial position which can benefit position which can benefit competitorscompetitors

Changes in stock market could Changes in stock market could impact future financial resources impact future financial resources raised through issuing new stock raised through issuing new stock to sell to the publicto sell to the public