Types of Business Organization

This time we will discuss the Types of Business Organizations, Accounting Concepts and Principles of Individual Companies, Partnerships or Corporations. Happy reading …..

Table of contents :

  • Types of Business Organization
    • Individual Company (Proprietorship)
    • Partnership (partnership)
    • Corporations (corporation)
    • Limited Liability Alliance (LLP) and Limited Liability Company (LLC)
  • Accounting Concepts and Principles
    • Entity Concept
    • Principle of Reliability (Objectivity)
    • Principal Cost (Cost Principal)
    • Going Concern Concept
    • Stable Monetary Unit Concept
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Types of Business Organization

1. Individual Company (Proprietorship)

The owner is only one person, called the proprietor, who often manages the running of the business. Individual companies tend to be small retail stocks or professional businesses, such as doctors, lawyers and accountants.

From an accounting point of view, the records of every individual company are separate from the records of their owners. The accounting records of private companies do not include personal records of the proprietors. However, from a legal point of view, the company is a proprietor.

2. Partnership (partnership)

Namely combining two or more individuals as co-owners. Each owner is a partner. Many retail shops and professional organizations for doctors, lawyers and accountants are associations.

Most alliances are small or medium sized, but some are giant, with 1,000 or more partners. From an accounting point of view, the partnership is a separate organization distinct from the partners.

However, from a legal point of view, the partnership is a partner like a private company.

3.Corporations (corporation)

Is a company owned by shareholders (stockholder, or shareholder), namely people who have a share of ownership in the company.

A company will become a corporation if the state government approves its incorporation deed. Unlike individual companies and partnerships, a corporation is a separate legal entity from its owners.

 

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There is a difference between corporations and individual companies or partnerships, where these differences make the corporation so popular, where people can invest in a corporation with limited personal risk, including:

  1. If the individual or partnership company is unable to pay its debts, the lender can confiscate the owners’ personal assets to fulfill the obligation;
  2. If the corporation goes bankrupt, lenders cannot confiscate the personal assets of shareholders.

Another factor why corporations are so popular is the division of ownership into individual shares.

Example: The Coca Cola company owns billions of shares that are owned by many shareholders. An investor who does not have a personal relationship with Coca Cola can become a shareholder by buying 50, 100, 5,000 or any of the company’s shares.

4. Limited Liability Alliance (LLP) and Limited Liability Company (LLC)

A limited liability partnership (LLP) is one company in which one partner cannot create large liabilities for the other partner.

Each partner is only responsible for his own actions and those under his control. A Limited Liability Company, a company not a proprietor, is responsible for the company’s debt.

Accounting Concepts and Principles

The regulations governing accounting are known as GAAP ( Genarally Accepted Accounting Principles ) or generally accepted accounting principles.

Entity Concept

Is an organization that stands alone as a separate economic unit. By drawing a boundary between each entity so that we do not confuse the affairs of these entities with the affairs of other entities.

Example: the company “MY” formed the initial capital to start a business with funds amounting to Rp. 100 million obtained with bank loans.

 

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According to the concept of an entity, the company “MY” will take into account the Rp 100 million in funds separately from personal assets such as clothes and cars.

IF IDR 100 million is mixed with personal assets, it will be difficult to measure the success or failure of the “MY” company. In essence, there is a limit or separation between company assets and personal assets, making it easier to analyze.

Principle of Reliability (Objectivity)

It is also called a guideline based on reliable data where verifiable data means that data can be confirmed by any independent observer.

For example: the company sells goods, so to prove that this transaction is reliable, the sale is accompanied by an offer letter from the company.

And equipped with a Purchase Order from the buyer, then accompanied by a payment confirmation that explains the terms of the sale (payment terms, delivery of goods, etc.).

Principal Cost (Cost Principal)

Stating that the assets and services acquired should be recorded at their actual cost.

For example: the company “MY” buys electronic goods for Rp. 2 million, this price is actually cheaper than if “I” bought elsewhere.

This is because the seller will wash the warehouse, so the goods are sold at affordable prices. Even though “I” know that the price outside is more expensive, for example Rp. 3 million, the bookkeeping will still record Rp. 2 million because the recording must be actually not presumed.

The cost principle also states that accounting records must continue to report the historical cost of an asset over its useful life.

For example, electronics were purchased a year ago for Rp. 2 million and now, if they are sold, they will sell for Rp. 3 million (up). So the recording of “MY” company is still Rp. 2 million, not Rp. 3 million.

Going Concern Concept

This concept assumes that the entity will continue to operate for a foreseeable future.

Based on this concept, accountants assume that the company will operate long enough so that it can use existing resources to achieve the goals outlined.

Stable Monetary Unit Concept

In the United States we record transactions in dollars because the dollar is the medium of exchange. The dollar value can change over time, and an increase in the price level is called inflation.

During periods of inflation, a dollar will buy you less food and less fuel for your car. However, accountants assume that the purchasing power of the dollar is still stable.

 

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