BAT4m Unit 1: Review of Grade 11 Accounting September

 A business can be formed in three different ways:  Proprietorship – one owner  Partnership – two or more owners  Corporation – Many owners Forms of Business Organization Forms 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 Type 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 Type 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 Type of Business Organization

Partnership Partners’ Equity Park, Capital$50,000 Michael, Capital$50,000 Total Partner’s Equity $100,000 Accounting for partnership

Corporation Shareholders’ equity: Share capital$800,000 Retained earnings$300,000 Total Shareholders’ equity$1100,000 Accounting 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 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 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 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 account 4. Expense activity – as expense account closes to income summary account. Quick 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 Shares

 P31 BE1-9  P41 P1-1b, p1-2b, p1-3BHomework