Chapter 15 Sole Proprietorships, Partnerships, Corporations and Manufacturing Companies

Sole Proprietorships One owner Owner responsible for debts of business – unlimited liability All income to owner (all losses too) Freedom to act

Partnerships Two or more owners Separate capital and drawings accounts All have unlimited liability More access to capital Shared decision making Net income (losses) divided according to partnership agreement One partner leaves, partnership dissolves (unless process in place) Limited Partnerships limit liability

Methods of Dividing Income Fixed Ratio, –e.g., 2:1, Of $90000, A receives $60000, B $30000 Capital Ratio, e.g., amount invested ratio Salaries, then fixed ratio Interest on capital, salaries, fixed ratio Closing Entry: Income Summary90000 J. Schmoo, Capital60000 B. Good, Capital30000 One income statement shown but separate Division of Net Income and Statement of Partnership Equity

Corporations A legal entity Ownership determined by shares Limited liability (loss limited to investment in shares) Management separate from ownership More legal requirements Double taxation – corp. taxes and owners through profits received...”dividends”

Corporations Public – shares available through stock market Private – e.g., Maple Leaf Sports and Entertainment Limited Non-profit Income Statement separate regular activities (operating) from interest and taxes

Shareholder’s Equity Shareholder’s Equity: Common Stock, shares issued and outstanding Retained Earnings Total Shareholder’s Equity Control of the corporation rest with the individual(s) owning or controlling 50% + 1 shares

Dividends Profits can be retained to distributed as “dividends” Profits are distributed per share, e.g., $2 per share, 1000 shares x $2 = $2000 Declare for current shareholders Retained Earnings2000 Dividends Payable2000 Payment: Dividends Payable 2000 Cash2000

Retained Earnings Represents the sum of all net income and losses not given our in dividends Also may reflect changes in accounting policies, legal losses, etc. Statement of Retained Earnings provides summary: Retained Earnings, January 1, 2005$ Add: Net Income Total $65000 Less Dividends 2000 Retained Earnings $63000

Manufacturing Companies Produce goods Manufacturing statement includes cost of good manufactured Cost includes Raw Materials, Direct Labour and Factory Overhead (all other costs) Goods Sold transferred to Cost of Goods Sold on Income Statement Finished goods not sold transferred to Inventory on Balance Sheet

Manufacturing Statement