MODULE (FABM 22) FUNDAMENTAL OF ACCOUNTANCY, BUSINESS AND MANAGEMENT 1

Chapter 3-Users Of Information ,Types And Forms Of Business

Objectives:

1. Define External and internal users

2. Describe the information needed by each users
3. Describe the fundamental business model
4. Differentiate the forms of business organization

USERS AND THEIR INFORMATION NEEDS

External users are individuals and others that have current or potential financial
interest in the reporting entity but are not involved in the daily operations of the entity. The
information needs of these users are diverse so that only the primary or the general-
purpose financial statements are provided.
Internal users include the board of directors, chief executive officers, chief financial
officers, vice presidents, internal auditors, business unit managers, plant managers and
the supervisors.
The users of accounting information and their information needs follow:
 Employees are interested in information about the stability and profitability of their
employers.
 Stockholders or investors need information to help them determine whether they
should buy, hold or sell.
 Creditors or lenders are interested in information that enables them to determine
whether their loans and the related interest will be paid when due.
 Customer have an interest in information about the continuance of an enterprise,
especially when they have a long-term involvement with, or are dependent on, the
enterprise.
 Suppliers and other trade creditors are interested in information that enables
them to determine whether amounts owing to them will be paid when due.
 Government and their agencies are interested in the allocation of resources and,
therefore, the activities of the enterprises.
 Public. Enterprises affect members of the public in a variety of ways.
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FORMS OF BUSINESS ORGANIZATION

Sole Proprietorship
This business organization has a single owner called the proprietor who generally is
also the manager. Sole proprietorships tend to be small service-type (e.g. physicians,
lawyers and accountants) businesses and retail establishments.
Advantage of a Sole Proprietorship
1. Easy to set-up and discontinue.
2. Requires a small amount of capital to start.
3. Profits all accrue to the owner.
4. Total control on the part of the owner.
Disadvantage of a Sole Proprietorship
1. Unlimited personal liability.
2. Limited management skills.
3. Limited access to capital.
4. Lacks continuity in case of death or incapacity of the owner.
Partnership
In a contract of partnership, two or more persons bind themselves to contribute
money, property, or industry to a common fund, with the intention of dividing the profit
among themselves.
Characteristics of a Partnership
Mutual Contribution. There cannot be a partnership without contribution of money,
property or industry (i.e. work or services which may either be personal manual efforts or
intellectual) to a common fund.
Division of Profits or Losses. The essence of partnership is that each partner must
share in the profits or losses of the venture.
Mutual Agency. Any partner can bind the other partners to a contract if he is acting within
his express or implied authority.
Limited Life. A partnership has a limited life. It may be dissolved by the admission, death,
insolvency, incapacity, withdrawal of a partner or expiration of the term specified in the
partnership agreement.
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Unlimited Liability. All partners (except limited partners), including industrial partners,
are personally liable for all debts incurred by the partnership.
Income Taxes. Partnerships, except general professional partnerships, are subject to tax
at the rate of 30% (per R.A. No. 9337) of taxable income.
Partner's Equity Accounts. Accounting for partnerships are much like accounting for
sole proprietorship. The difference lies in the number of partner's equity accounts.
Advantages and Disadvantages of a Partnership
Advantages versus Proprietorship
1. Brings greater financial capability to the business.
2. Combines special skills, expertise and experience of the partners.
3. Offers relative freedom and flexibility of action in decision-making.
4. Risks are shared.
Advantages versus Corporation
1. Easier and less expensive to organize.
2. More personal and informal.
Disadvantages
1. Profits are shared.
2. Easily dissolved and thus unstable compared to a corporation.
3. Mutual agency and unlimited liability may create personal obligations to partners.
4. Less effective than a corporation in raising large amounts of capital.
Partnership Distinguished From Corporation
Manner of Creation. A partnership is created by mere agreement of the partners while
a corporation is created by operating by operation of law.
Number of Persons. Two or more persons may form a partnership; in a corporation, at
least five (5) persons, not exceeding fifteen (15).
Commencement of Juridical Personality. In a partnership, juridical personality
commences from the execution of the articles of partnership; in a corporation, from the
issuance of certificate of incorporation by the Securities and Exchange Commission.
Management. In a partnership, every partner is an agent of the partnership if the partners
did not appoint a managing partner; in a corporation, management is vested on the Board
of Directors.
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Extent of Liability. In a partnership, each of the partners except a limited partner is liable
to the extent of his personal assets; in a corporation, stockholders are liable only to the
extent of their interest or investment in the corporation.
Right of Succession. In a partnership, there is no right of succession; in a corporation,
there is right of succession. A corporate has the capacity of continued existence
regardless of the death, withdrawal, insolvency or incapacity of its directors or
stockholders.
Terms of Existence. In a partnership, for any period of time stipulated by the partners;
in a corporation, not to exceed fifty (50) years but subject to extension.
Corporation
A corporation is an artificial being created by operation of law, having the right of
succession and the powers, attributes and properties expressly authorized by law or
incident to its existence.

Attributes of a Corporation
1. A corporation is an artificial being with a personality separates and apart from its
individual shareholders or members.
2. It is created by operation of law. It cannot come into existence by mere agreement
of the parties as in the case of business partnership.
3. It enjoys the right of succession. A corporation has the capacity of continued
existence subject to the period stated in the Article of Incorporation.
4. It has the powers, attributes and properties expressly authorized by law or incident
to its existence.
Advantages of a Corporation

1. The corporation has the legal capacity to act as a legal entity.

2. Shareholders have limited liability.
3. It has continuity of existence.
4. Shares of stock can be transferred without the consent of the other shareholders.
5. Its management is centralized in the board of directors.
6. Shareholders are not general agents of the business.
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7. Greater ability to acquire funds.

Disadvantages of a Corporation

1. A corporation is relatively complicated in formation and management.

2. There is a greater degree of government control and supervision.
3. It requires a relatively high cost of formation and operation.
4. It is subject to heavier taxation than other forms of business organizations.
5. Minority shareholders are subservient to the wishes of the majority.
6. In large corporation, management and control have been separated from
ownership.
7. Transferability of shares permits the uniting of incompatible and conflicting
elements in one venture.
Cooperative
Is an autonomous and duly registered association of persons, with a common bond
of interest, who have voluntarily joined together to achieve their social, economic, and
cultural needs and aspirations by making equitable contributions to the capital required;
patronizing their products and services and accepting a fair share of the risks and benefits
of the undertaking in accordance with universally accepted cooperative principles.

Purposes of Cooperatives
1. To encourage thrift and savings mobilization among the members;
2. To generate funds and extend credit to the members for productive and provident
purposes,
3. To encourage among members systematic production and marketing.
4. To provide goods and services and other requirements to the members;
5. To develop expertise and skills among its members;
6. To acquire lands and provide housing benefits for the members;
7. To insure against losses of the members;
8. To promote and advance the economic, social and educational status of the
members;
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9. To establish, own, lease or operate cooperative banks, cooperative wholesale and

retail complexes, insurance and agricultural/industrial processing enterprises, and
public markets;
10. To coordinate and facilities the activities of cooperatives;
11. To advocate for the cause of the cooperative members;
12. To ensure the viability of cooperatives through the utilization of new technologies;
13. To encourage and promote self-help or self-employment as an engine for
economic growth and poverty alleviation; and
14. To undertake any and all other activities for the effective and efficient
implementation of the provisions of the Cooperative Code.

Objectives and Goals of a Cooperative

1. Provide goods and services to its members to enable them to attain increased
income, savings investments, productivity, and purchasing power, and promote
among themselves equitable distribution of net surplus through maximum
utilization of economies of scale, cost-sharing and risk-sharing;
2. Provide optimum social and economic benefits to its members;
3. Teach them efficient ways of doing things in a cooperative manner;
4. Propagate cooperative practices and new ideas in business and management;
5. Allow the lower income and less privileged groups to increase their ownership in
the wealth of the nation; and
6. Cooperate with the government, other cooperatives and people-oriented
organizations to further the attainment of any of the foregoing objectives.

Advantages of a Cooperative

1. Unlimited life.
2. Equality of members.
3. Tax benefits.
4. Limited liability.
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5. Greater ability to attract capital.

6. Affords greater business volume with the resulting benefit of bigger profits which
will be shared by more people.

Disadvantages of a Cooperative

1. Shared control.
2. One member, one vote.

For further discussion please refer to the link provided: FORMS OF BUSINESS
ORGANIZATION
https://www.youtube.com/watch?v=x8LqdZnOnIU
For further discussion please refer to the link provided:Cooperative
https://www.youtube.com/watch?v=90FL_bBE4mw

Reference:
Fundamentals Of Accountancy Business Management 1
Win Ballada,CPA,CBE,MBA Top 2,CPA Board, Author, Basic
accounting 20th Edition