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BASIC ACCOUNTING SLIDES C(1) (2)

Chapter 1 introduces accounting, defining its purpose and identifying main users of accounting information, including internal and external stakeholders. It outlines different business forms in South Africa, such as sole traders, partnerships, close corporations, and companies, along with their advantages and limitations. The chapter also discusses types of business activities and key considerations for starting a business.

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2 views

BASIC ACCOUNTING SLIDES C(1) (2)

Chapter 1 introduces accounting, defining its purpose and identifying main users of accounting information, including internal and external stakeholders. It outlines different business forms in South Africa, such as sole traders, partnerships, close corporations, and companies, along with their advantages and limitations. The chapter also discusses types of business activities and key considerations for starting a business.

Uploaded by

dwello247
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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Chapter 1:

Introduction to
© VAN SCHAIK PUBLISHERS
Outcomes
At the end of this chapter students should be able to:
• define the purpose of accounting
• identify the main users of accounting information
• explain the difference between financial
accounting and cost and management accounting.

© VAN SCHAIK PUBLISHERS


Chapter outline
• What is accounting?
– Definition of accounting
– Nature of accounting
• Users of accounting information
• How useful is accounting information?
• The basic business forms found in South
Africa
– Sole trader
– Partnership
– Close corporation (CC)
– Company © VAN SCHAIK PUBLISHERS
• Types of business activity
– Service businesses
– Manufacturers
– Wholesalers
– Retailers
• Considerations before commencing a
business
• The accounting field

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What is
• Definitionaccounting?
of accounting system of:
-Gathering: collecting financial information
-Analysing: effect on business
-Recording: enter in accounting records
-Reporting: summarising in condensed format
-Interpreting:analysing information for decisionmaking
• Nature of accounting
-Means of communication: finances of business
-Main purpose of accounting is to provide its users
with both financial and nonfinancial information

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USERS OF ACCOUNTING
Users of accounting
INFORMATION
information
• INTERNAL: Owners, Managers,
Employees
• EXTERNAL: Customers, Competitors,
Lenders, Government, Suppliers,
Investment analysts

INFORMATION MUST BE USEFUL


• Useful when it has four main
qualitative characteristics:
Comparabilty, Understandabily,
Relevance & Reliability
© VAN SCHAIK PUBLISHERS
The basic business forms found
in South Africa
Sole trader:
• Owner will supply the capital
• No legal formalities other than a licence to trade.
• Owner is taxed on profits in his own hands.
• No legal personality.
Advantages:
• Owner is independent.
• Owner is directly involved.
• Decisions can be taken quickly.

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SOLE TRADER (CONT)

Limitations:
• Expansion prospects limited.
• Owner has unlimited liability.
• Owner may not be versatile or skilled enough to
do everything.
• There is no continuity.
PARTNERSHIP
• Two to 20 people; purpose making a profit.
• Each partner’s profits are taxed in his own
hands, similar to a sole trader.
PARTNERSHIP
Advantages:
• Additional capital, new ideas, expansion.
• Partners can specialise in different areas.

Limitations:
• Jointly and severally liable
• Ownership not easily transferable
• Continued existence limited.
• Funds limited to the funding of the partners. This
can limit expansion or growth.
CLOSE CORPORATION
• Established by Close Corporations Act of 1984.
• New Companies Act 71 of 2008,(May 2011):
registration of new CCs no longer possible.
• CCs registered prior to Act, still allowed to
operate, can convert to companies.
• Formed by founding statement
• One to 10 members, natural persons
• Separate legal entity or juristic person.
• Taxed at the same rate as companies, income not
taxed in the hands of members.
CLOSE CORPORATION
Advantages:
• Limited liability.
• Perpetual succession
• Members only liable when certain rules are
breached.
• An audit of the books is not required by law.
• A CC may acquire shares in a company. Note that a
company cannot acquire
membership in a CC as only natural persons can be
members
CLOSE CORPORATION
Limitations:
• Restriction of the number of members to 10
limits the capital and possible growth of the
business.
• A CC is taxed at the same rate as a company,
which is a higher rate than a sole trader or
partnership.
• In order for a member to leave the CC or be
paid out, all members have to agree to
dispose of a member’s interest.
COMPANY
• Owners called shareholders and can be one or
more individuals or organisations.
• New Companies Act 71 of 2008 came into
operation on 1 May 2011.
• Incorporated by MOI.
• Two broad categories, namely:
1. Profit companies – purpose is financial gain.
2. Non-profit companies – is for public benefit or
relating to cultural or social activities.
COMPANIES
Profit companies include:
– private companies: to be reflected as
Proprietary Limited or (Pty)Ltd
– public companies: to be reflected as Limited or
Ltd
– personal liability companies: to be reflected as
Incorporated or Inc.
– state-owned companies: to be reflected as
SOC Ltd
Non-profit companies to be reflected as NPC, must be
incorporated by three or more persons.
COMPANIES
• A private company: one or more persons;
prohibited from offering its shares to the public.
• A public company: one or more persons;
Securities are issued through an initial public
offering (IPO) and are traded on an open market
such as the JSE.
• Much more complicated and expensive to
form than any other form of business.
• The registration of a company must be made at
the Companies and Intellectual Property
Commission (CIPC).
COMPANIES
• A distinct and separate legal entity apart from
its shareholders.
• Shareholders have limited liability. Unlike a sole
trader and a partnership, the
shareholders do not have to pay the
company’s debt if it cannot do so itself.
• A company is managed by the board of
directors, which is headed by the chief
executive officer (CEO).
COMPANIES
Advantages:
• The limited liability of the shareholders ensures that
shareholders are not responsible for the debts of
the company (in the case of public companies).
• There is an improved access to capital which in turn
can stimulate growth.
• A company enjoys perpetual succession. The
unlimited life of the company ensures that investors
can keep their shares as a long-term investment
Table 1.1 The difference between public and private c
ompanies (Textbook page 6)

Table 1.2 Comparison of the characteris


tics of each business form (Textbook page 7)

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Types of business activity
• Service businesses: Provide service for fees
• Manufacturers: Transform raw materials into
finished goods.
• Wholesalers: Buy from manufacturers and
sell to retailers.
• Retailers: Buy from manufacturer &
wholesaler and sell to public (consumers).

© VAN SCHAIK PUBLISHERS


CONSIDERATIONS WHEN STARTING A
BUSINESS
• The type of business activity: Do SWOT analysis to
assess success.
• The entity form: Effects continuity, control, tax &
regulatory responsibility.
• The location of the business: Consider availability of
premises & transport costs.
• Capital requirements: Determine amount needed
The accounting
field
Table 1.3 The
major differences
between financial
accounting and
management
accounting
(Textbook page
11)

© VAN SCHAIK PUBLISHERS

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