scribd.scribd.scribd.scribd.scribd.scribd.scribd.scribd.scribd.scribd.scribd.scribd.scribd.scribd.scribd.

s
cribd.scribd.scribd.scribd.scribd.

scribd.scribd.scribd.scribd.

Understanding Business

CHAPTER

Study Notes

By:

 Shaista Aziz

 ACCA F1

 Accountant in Business

UPDATED FOR

2014

EXAMS
 

Understanding Business

CHAPTER

Study Notes

 ACCA F1

By: Shaista Aziz

 Accountant in Business
 

Understanding Business

CHAPTER

TABLE OF CONTENTS

Title of Chapter

Understanding business Organizational Structure Organizational Culture Performance Measurement

Corporate Governance Ethics Information Technology and Systems Management Theories

Chapter #

12345678

Page #

05 15 21 27 31 41 45
 

Understanding Business

CHAPTER

ABOUT THE AUTHOR

Shaista Aziz, an ACCA affiliate herself teaches Law and business related subjects at ACCA LIVE.

About the book

Although this publication has been written keeping the students studying paper F1 of ACCA course,
however, the students of other professional qualifications like CA, CIMA and ACCA etc. who want to
test their business basics can also consult these study notes. This book can be used in addition to
official study texts by ACCA. Author has given every effort that topics discussed in these notes
provide sufficient material to help students not only pass the exam but also to understand the
topics. Book is written in plain English for clear understanding. Even though that author has taken
great care and has reviewed these notes, still if you find any mistakes and areas that need correction
you can let us know. Also if you have any suggestion in making this book and other resources even
this better then it will be much appreciated. Students are advised to
visit http://pakaccountants.com for more resources related to ACCA F8 and other professional
qualifications. Students also have different facilities at their disposal absolutely free like discussion
forums, LIVE! Sessions with tutors, study material, video lectures, exam tips, subject related
articles, ask tutor and many others.

How to add more questions

As these Study Notes are provided free of cost so that students can benefit from it without getting
worried about their finances. Therefore,

we need your help to help other students

 so that they can also learn, practice and become successful in their lives.

So, let others know about this and having more students reading this book will keep us motivated as
well.

So,

it’s that simple. More you

share
 by sharing it with your friends and everyone you know.

Help others to get a help for yourself! 

© PakAccountants.com 2013

This book is provided FREE of cost online. This book is for students and for students only for their
individual use.
 

Understanding Business

CHAPTER

Understanding Business

CHAPTER
 

Understanding Business

CHAPTER

Business

Business is any legal activity that is performed by individuals or group of people to generate profit.

Organization

Is simply a group of people ,intentionally organized to work together having common goals and
objectives and which has a boundary separating it from its environment . Business combinations
/Organizations any legal activity that is performed by group of people with a view to earn profit. e.g
organizations involved in a trade of goods.

Purpose of organizations

1.

An organization encourage collective effort ,so different people work together to achieve objective
more effectively which individual person cannot achieve himself. 2.

Synergy development. 3.

Time saving. 4.

Accumulation of knowledge. 5.

High level of skills and expertise.

How organizations differs

Organizations differs on the basis of following aspects.

1.

Ownership

Private sector organizations Public sector organizations

2.

Control

Government sponsored organizations Non government organizations

3.

Activity
 

Understanding Business

CHAPTER

1
Manufacturing organizations Service organizations

4.

Objective

For profit organizations Nonprofit organizations

5.

Size

Sole proprietorship Partnership Corporation Some other elements are technology ,legal status and
sources of finance.

Types of business organizations

Organizations can be divided into different types, as some types are given below.

For Profit organizations Nonprofit organizations Private sector organizations Public sector
organizations Non government organizations

1.

For profit organizations

Every organization having primary objective is to generate profit are called as profit making
organizations. These organizations are also called as

commercial organizations. e.g Trade of goods and services These are mostly private organizations
 

Understanding Business

CHAPTER

1
2.

Non profit organizations

These are the organizations having primary objective is to facilitate public and social welfare are
called nonprofit organizations. e.g. Charities These organizations mostly work under public sector.

3.

Private organizations

These are the organizations usually owned, controlled and managed by private individuals and
mostly work for the purpose of profit. These organizations mostly work at three levels. 1.

Sole Trader ship 2.

Partnership 3.

Company

Sole trader ship

In this the whole business is owned by a single person .Although other persons can be employed but
the ultimate responsibility and authority depends on one person that is called proprietorship or
owner. The owner is stand to loose and gain everything from that business. Many sole traders are
small businesses that sell services e.g. taxi drivers, plumbers, decorators and electricians. Sole
traders cease to exist when owner retires or dies.

Advantages 1.

It is simplest form of business.

 2.

It is easy and cheap to set up.

 
 

Understanding Business

CHAPTER

1
3.

Income of the business attributed to one person.

 Disadvantages 1.

Owner may have to work for long hours.

 2.

Less expertise due to one person.

 3.

Owner may have unlimited liability, that means owner must have to pay all liabilities.

2. Partnership

When two or more persons work together and pool their resources and expertise with a view to
earn profit that formed partnership. In this each partner is liable for all the debts of firm. An ordinary
partnership can have between two and twenty partners. Partnership is usually established by writing
out a

deed of partnership witnessed by a solicitor on which important details are sets out .e.g how profit
and loss shared. Examples of partnership  Accountants and solicitors.

 Advantages 1.

Different partners have unique and different ideas so pool of expertise generate.

 2.

Work load managed easily.

 3.

Loss is shared between partners

 Disadvantages 1.

Conflicts can arise between partners related with work and profit sharing.
 2.

Difficult to establish and then management.

3.

Companies

A company is owned by large number of people known as members and shareholders. hay appoint
directors for direction and management of companies. So company is a legal personality separate
from its owners.
 

Understanding Business

CHAPTER

1
A company is a most popular form of business association. A company is more formal than sole
trader and partnership.

Structure a)

Shareholders / Owners.

They provide finance to start business in return of dividend. They have limited rights over day to day
running of business.

 b)

Directors.

 They are appointed by shareholders for day to day running of operations more effectively. They are
accountable to shareholders also regarding their responsibilities.

 Types of companies i)

Private limited company.

These are the companies which have small number of shareholders and its shares cannot offer to
general public. Mostly the shareholding is limited to family members, relatives and friends.

 E.g.

Law and small accountancy firms.

 ii)

Public limited company.

These are the companies having greater number of shareholders and its shares are offered to
general public also.

These companies can raise funds easily through general public. e.g. city bank But the liability of
members in both companies is limited to their investments.

Advantages of limited companies 1.

More money can be raised.

2.

Reduced risk due to limited liability.

3.

Separate legal entity from its owners.

4.

No limitation on the size of companies.

Disadvantages 1.

Ownership is divided between large number of people so practically less power of each member.

 2.

Compliance cost of companies is greater.

Public sector organizations

 

Understanding Business

CHAPTER

1
These are the organizations owned and controlled by government and local government. Their
primary objective is to provide facilities to whole society so they do not operate for profit but they
can earn profit also from some activities but the generated profit also used on society .e.g.
Government schools, universities, hospitals, post office and electricity.

Advantages

1.

Every person has access to the services provided by public sector organizations e.g. Health services.
2.

Cost is lower than private organizations. 3.

These sectors are more efficient than private sectors.

Disadvantages

1.

They have limited resources and public demand is greater than government resources. 2.

There can be conflict between economy of operation and adequacy of services.

5 Non government organizations

These are the organizations that are not owned and controlled by government and these are
privately owned but do no operate to earn profit like private organizations. e.g. Amnesty
international ,Green peace and Red cross.

Advantages 1.

These organizations are more efficient than public sector organizations.

 2.

These organizations promote social, political and environmental change.

 3.

These organizations possess efficient level of Organization structure.

Disadvantages
1.

More complex and difficult to manage as they provide diverse range of activities. 2.

Difficult to raise funds and donations.

STAKEHOLDERS

 
 

Understanding Business

CHAPTER

1
A person, group, organization or system that affects or can be affected by organization’s

decisions and actions. E.g Investors, Employees, Customers, Suppliers, Managers, Government and
pressure groups. They are directly or indirectly involved with the organization.

Types of stakeholders

There are three broad types of stakeholders. 1.

Internal stakeholders 2.

External stakeholders 3.

Connected stakeholders

Internal stakeholders

These are the stakeholders that are within the organization and are directly involved with the
operations of organizations. Internal stakeholders are strongly influenced by the organization. E.g.
Directors, workers and managers

Directors.

 They may be executive or non executive directors, appointed by shareholders. They have interest to
secure their position and take decisions that are within the best interest of directors.

Managers

. The managers are key members that are involved in managing the organization. They are
concerned with economical condition of the organization, because of their interest of jobs,
promotions and other benefits. Workers. These are lower level employees and supporting staff .They
also has an interest of  jobs, retirement benefits and other allowances. So they are interested in the
stability and profitability of their employees.

External stakeholders

These are the stakeholders that have no direct link and also not involved in running operations but
at some point they are affected by the actions of organizations and can in turn affect the
organization. e.g. government ,trade union ,professional bodies and pressure groups.

Understanding Business

CHAPTER
1

Connected stakeholders

These are the stakeholders that are not directly involved in operations but they have wide
contractual relationships with the organization. e.g. shareholders ,customers ,suppliers and bankers.

Stakeholder conflicts

different stakeholders may have different objectives and priorities so conflicts can arise between
them .But the major conflict that is vividly characterized is between managers and

shareholders .Mostly manager ‘S decisions focus on short term benefits that give higher returns

instantly but shareholders want to see organization in long run so focus on decisions more carefully
to get long run benefits. In the same way customers want high quality goods with low prices while
managers focus on reducing their cost and increasing the prices charged to customers.

Measuring stakeholder satisfaction through mapping power and interest

In order to resolve the conflicts between stakeholders and to get them satisfied, Medlow suggested
to measure their power and interest .These factors will determine the relationship between
stakeholders and organization. Organization may try to satisfy all stakeholders according to their
nature of relationships.

Factors I) POWER II) INTEREST A=Low interest, low power minimum effort B=high interest, low
power keep informed C=low interest, high power keep satisfied D=high interest, high power key
players

Examples

9
of 69

View on Scribd