Accounting Environment

1.1Types of Business Organization

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1, Public sector Organization
2, Private sector Organization
A, Sole trade B. Partnership
I ,Limited liability partners
Ii, Unlimited liability partners
1.2 Characteristics of different business organization.
Public Sector Business Organization
1, State Ownership
2, Management and control by government.
3, Accountability towards the public.
4, Mostly covers the service sector.
5, High stability than private business organization
6, Less profit oriented

Private Sector Business Organization

Sole Trade
1, Investment by one person.
2, longevity is lower compared to partnership
3, Profit or loss is enjoyed by investor in full.
4, Risk is higher compared to partnership.
5, Responsibilities are not shared but borne by one person.
6, Liability spread over investors’ personal property
**** Study advantages and disadvantages of Sole Trade business.
Partnership
Operated as per Law of country and Partnership Act 1890 UK.
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1, Investment by 2 to 20 partners
2, Longevity is higher compared to sole trade
3, Profit or loss is enjoyed by all partners to the agreed ratio or equally.
4, Risk is lower compared to sole trade.
5, Responsibilities are shared equally by all partners .
6, Liabilities spreads over partners’ personal property.
7, Covered by Deed of partnership. ( Partnership agreement )

**** Study advantages and disadvantages of Partnership business compared to

Sole trade ship.

Private Limited Companies

1, Business should be registered at Registrar of Companies.
2, It is getting separate identity before the law.
3,Management by a board of directors.( Divorce of agreement )
4, More capital can be raised.
5, Accounts of the business should be audited annually.
6, Copy of audited financial reports should be sent to the Companies of registrar.
7, Covered by Companies Act 2006.
**** Study advantages and disadvantages of Limited Liability Companies
compared to partnership.
Stakeholders
Definition: Parties who are interest on business affairs.
Example for stakeholders : shareholders, Promising investors, customers ,
creditors , debtors , government , competitors , employees , directors ,Bankers

Financial Statement ( Financial Reports / Final records / Final Reports ) Page | 3

Definition : Set of document which is prepared by accounting department in a

business at the end of accounting period ( month / year ) that shows the level of
performance ( profit or loss , stability )
Basic Component of Financial Statement : 1, Income statement 2, Statement of
Financial Position.
Reasons for the interest of stakeholders towards the financial reports
Stake holders Reasons
Directors To evaluate the success of their
decision
To plan the future of the business.

Promising investors To evaluate the worth of future

investment and return on it.
Employees To see the job security
To demand pay hike and other fringe
benefits if business is gaining
considerable profit.
Creditors / suppliers To continue credit supplying of
inventory based on security of the
business.
Shareholders / investors To evaluate the earning ( return ) to
their investment.
Competitors To measure the strength and
weaknesses of its rival
To charge due tax on time
Government
Customers To get the better value for the price
paid
Bankers To evaluate the security of money lend.
To evaluate worthiness of the business
and ability to recover money lend.
Mass Media To evaluate the level of social
 responsibility of the business.

Technology in Accounting
Benefit of technology in Accounting Page | 4

1, Minimize paper work.

2, Minimize labour involvement.
3, Time saved.
4, Easy access for information when needed.
5, Increases the productivity ,speed and accuracy of information.
6, Unlimited storage facility with due security.

Example for accounting software : Sage , Quickbook , Sap ,Accpack ,Adobe

Risk ( limitation ) of Automated Accounting :

1, High cost of purchasing of software packages and training staff.
2, System failures at times and difficulty to access for data and accounting
information in no time.
3,Time consumption at a system failure.
4, Employees’ hesitation and fear.
5, Difficulty in tracing ( detecting ) errors unlike in annual system.
6, Impact on health with wrong body posture.
7, Threat from unauthorized access. ( Hacking )
8, Lack of supervision on accuracy of data and information ( less audit )
Methods of protecting data
Software : ( Computer programing / spread sheet EX : msexcel, Apple,
Numbers, Google sheet)
1, Controlling access to data using Complex pass words.( Authentication n
authorization)
2, Maintaining back up file in different locality.
3,Snapshots to restore data in case of losing. Page | 5

4, Firewalls in order to filter network traffic

5, Anti virus and anti –spyware.
5, Encryption.
6, Data erasure.

Hardware : ( Key board , mouse ,monitor ,hard drive , sound

card ,mother board )
1, Limiting access to computer unit and enforcing strong physical and electronic
security .
2, Managing proper ventilation.
3, Hiring professional for network cabling.
4, Regular audit by expertise.

Professional Ethics in Accounting

Principles of Professional Ethics in Accounting.
1, Integrity (trustworthiness)
2, Objectivity : should be impartial
3,Professional competency and due care.
4, Confidentiality
5, Adopt professional behaviour
Example 1 :
Example 2 :
Accounting roles and functions
1, Accounts payable- maintaining good rapport with payable parties ,better
bargaining with them, checking on time payment Page | 6

2,Account receivable – maintaining good rapport with receivable in friendly

manner, checking collection on time by minimizing irrecoverable debts.
3,Payroll – maintaining good rapport with internal staff by paying them salaries on
time.
4, Preparation of Financial reports periodically
5, Internal audit ( supervision n regular checking of compliance with accounting
standards not to have frauds and thefts.

Public Interest
Well being of the general community.
1, Providing sound financial and business reporting ( true and fair ) to relevant
parties like investors , promising investors , directors and government.
2, Fair and balance representation in decision making.
3,Working independently.
4, Consideration of environment impact
5, Respect for cultural and ethnical diversity.

Accounting Concepts.
1, Business Entity
2, Materiality
3,Consistency
4, Money measurability.
5, Prudence