What is accounting
What is accounting
Accounting is the process of recording, classifying, summarizing and interpreting the results. And accounting is the language of a business also accounting provides the financial information to different parties. We can also say that accounting is the communicator of the business.
It is also concerned with giving reliable and comparable information to all interested parties.
Like: Shareholders - Customers – Government – Suppliers – Lenders – External Auditors and etc.
Why we study accounting? We study accounting because without accounting the business will be blind.
What is record? All financial transactions or all financial activities are called recording and in a business the recording process is very necessary.
What is classifying? Classifying is the summary of transactions and recording. And the summary of summarizing is classifying. That is why it gives information about loses or the profits of the business.
Financial Statements: 1. Income Statement 2. Cash flow Statement 3. Balance Sheet
Users of Accounting Information
External Users
Shareholders: they are interested in accounting information because they want to know about the business profit and dividend that will be paid to them.
(What is a dividend? Some stocks, especially blue chips, pay dividends. This means that for every share you own, you are paid a portion of the company's earnings. For example, for every share of AT&T you own, you will get sent $0.15 every year. Most companies pay dividends quarterly (four times a year), meaning at the end of every business quarter, the company will send a check for 1/4 of $0.15 for each share you own.
This may not seem like a lot, but when you have built your portfolio up to thousands of shares, and use those dividends to buy more stock in the company, you can make a lot of money over the years.)
Shareholder Definition: (One who owns shares of stock in a corporation or mutual fund, for corporations, along with the ownership come a right to declared dividends and the right to vote on certain company matters, including the board of directors, Also called stockholder.)
Government: the government is interested in accounting information and financial accounting information so that they will imposes taxes and loans and sometime in salary of employees.
Lenders: lenders are interested in accounting information so that they could know whether the business in able to repay the loans or not.
Customers: customers are interested in accounting information because they can know whether the company policies are in favor of them or not.
External Auditors: they are interested in accounting information because they have to conduct audit on information’s provided by accounting records.
Suppliers: they are interested in accounting information because they want to know whether they will be paid back the money of the goods or not.
Sole Proprietorship (مالكيت، صاحبملكيامغازهبودن ), Partnership (مشاركت، شركاء ) or Corporation?
Starting a new business can be a daunting (حاكياز ترس، ناشياز بيم) task. There are hundreds of decisions to be made. Who, what, where, and when are not just for English class anymore. Another question that must be answered is "What form will my business be?" There are several factors to be considered and there are pros and cons (،موافق و مخالف) for each type. And here are the definitions of the business forms.
Sole Proprietorship: Most people are familiar with this type of business. This form is one person or married couple that usually operates the business by them. This is the "Mom and Pop" type of store. The owner receives all of the income from the business but is also responsible for all for the liabilities that the business incurs
(موجب"خرجيا ضرر يا تنبيهو غيره" شدن) The income or loss is also reported on the personal income tax of the owner. Most small businesses are started as this form of business. This is the easiest of all of the types of businesses to open.
General Partnership: In this type of business organization, there are two or more partners. The income is split
(دونيمكردن، از همجدا كردن ) between the partners, usually based on the amount of money or assets that each partner invests in the business and each must report his share of the income on his personal income tax form. Each of the partners have unlimited liability (بدهى هاى نامحدود مسئوليت نامحدود ) for the debts (وام، قرض ) of the business partnership. Another drawback (مانع، زيان، بيفايدگي ) to this type is problems can arise between the partners. However, sometimes another opinion in a decision is just what a business needs.
Limited Partnership: A limited partnership is similar to the general partnership. All of the general partners have an unlimited liability for the business debts. However, a limited partner’s liability, as the name implies, (ضمنا فهماندن) is limited to the amount of the contribution (سهم، اعانه) that he has made to the business. Usually, a limited partner does not have as much input as the other partners and like the other partnerships must report income on personal tax forms.
Corporations: A Corporation is usually viewed as a separate legal entity (موسسه مستقل) with many of the rights and responsibilities of a person. The investors have limited liability; shareholders are not responsible for the corporation's debts. The corporation files its taxes just like an individual. If the corporation makes a profit and distributes dividends, it cannot deduct the dividends from its taxes and the individual recipients (گيرنده، دريافتكننده، وصولكننده) must also pay taxes. Therefore, a corporation is taxed twice on its earnings. A corporation has other tax benefits that an individual does not.
"S" Corporation: An "S" corporation provides the owners the benefit of being treated as a partnership on income tax, while also being treated as a corporation for other purposes.
Limited Liability (مسئوليت) (LLC): All of the members in a limited liability company have limited liability for the debts of the business. This form of business is similar to an "S" corporation because it is usually treated as a partnership for income tax purposes, but has the benefit of limiting the liabilities of the owners.
Although corporations allow limited liability to the principals, many creditors such as banks, other companies, and landlords may require a personal guarantee from the shareholders. A partnership may be a good decision; although, one of the partners may be dealing with a "hard head."
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