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Lecture Fundamental accounting principles (21e) - Chapter 13: Accounting for corporations

After completing this chapter you should be able to: Define internal control and identify its purpose and principles, define cash and cash equivalents and explain how to report them, compute the days’ sales uncollected ratio and use it to assess liquidity. | Chapter 13 Accounting for Corporations Chapter 13: Accounting for Corporations Privately Held Publicly Held Ownership can be Corporate Form of Organization Existence is separate from owners An entity created by law Has rights and privileges C 1 Corporations are entities, created by law, that exist separately from their owners and that have rights and privileges. Corporations may be privately or publicly owned. Publicly owned corporations have additional reporting responsibilities beyond those of a privately held corporation. Characteristics of Corporations Advantages Separate legal entity Limited liability of stockholders Transferable ownership rights Continuous life Lack of mutual agency for stockholders Ease of capital accumulation Disadvantages Governmental regulation Corporate taxation C 1 The corporate form of organization has several advantages: It is a separate legal entity that can enter into contracts and sue and be sued. Stockholders’ losses are limited to the amount invested in the corporation. Ownership rights are transferable. The corporation continues in existence even when ownership changes. Stockholders are not agents of the corporation and can not enter into contracts on the corporation’s behalf. Capital needs can be met by selling more ownership in the corporation. Two disadvantages include: Extra governmental regulations imposed on corporations, and Corporate taxation of earnings. Corporations pay taxes on their earnings and if they distribute a dividend to stockholders, the stockholders pay taxes on the dividends received. This is sometimes referred to as double taxation. Corporate Organization and Management C 1 Corporate governance is the system by which companies are directed and controlled. Board of Directors Stockholders President, Vice President, and other Officers Employees of the Corporation A corporation is created by obtaining a charter from a state government. Organization expenses are the costs to organize a corporation; they include | Chapter 13 Accounting for Corporations Chapter 13: Accounting for Corporations Privately Held Publicly Held Ownership can be Corporate Form of Organization Existence is separate from owners An entity created by law Has rights and privileges C 1 Corporations are entities, created by law, that exist separately from their owners and that have rights and privileges. Corporations may be privately or publicly owned. Publicly owned corporations have additional reporting responsibilities beyond those of a privately held corporation. Characteristics of Corporations Advantages Separate legal entity Limited liability of stockholders Transferable ownership rights Continuous life Lack of mutual agency for stockholders Ease of capital accumulation Disadvantages Governmental regulation Corporate taxation C 1 The corporate form of organization has several advantages: It is a separate legal entity that can enter into contracts and sue and be sued. Stockholders’ losses are limited to the amount .