Accounting is the language of business in the sense that it is used to: identify, record, and report the transactions of a business.
A business may be in the form of a proprietorship, partnership, or a corporation. Each business organization form has characteristics which are similar to the others and some which are unique.
- Proprietorship – the business owned by one person who is personally liable (ie responsible) for all debts incurred by the business.
- Partnership – the business owned by more than one person each of whom is personally liable for all debts incurred by the business.
- Corporation – the business owned by shareholders. Created under provincial and federal laws, a corporation is a separate legal entity and is responsible for its own debts.
Business transactions are accumulated and reported on three types of financial statements:
- 1. Income Statement – reports on revenues and expenses.
- 2. Balance Sheet – reports on assets, liabilities, and owner’s/shareholder’s equity.
- 3. Statement of Cash Flows – reports on sources and uses of cash.
Collectively, these statements describe the financial well-being of a business. Other economic entities which report financial transactions include: cities, clubs & societies, schools & hospitals, strata corporations, and government agencies.
Those needing and interested in reading and interpreting financial statements are called the users. They include:
- Labour Unions
- Investment Analysts