Fundamentals of Accounting – ACT001

Unit 1 – Business
Organizations/Structure/Functions
 Objectives to be Covered:

• Describe the purpose and types of business organizations.

• Define the stakeholders in business organizations/rights &
responsibilities.
• Identify external factors affecting business:
Political/Legal/Social/Technological/
Environmental/Competitive.
• Identify micro-economic factors affecting business.
• Describe and analyze business structures& design:
formal/informal; organizational culture; committees in
business organizations governance and social responsibility
 Types of Business Organizations
Introductory Pop - Quiz

1. Name THREE main forms of business

organizations
2. Name the form of business to which the
following belongs:
- A form of business in which one person
takes all the profits. _________
- A form of business in which there can be a
minimum of two owners and a maximum of
twenty. __________
 Types of Business Organizations
Introductory Pop - Quiz

2. cont’d
- A form of business in which shares are
sold to raise capital. _________
- A form of business in which there can be
a minimum of seven owners and no
maximum. ____________
- A business in which members share
common interest and goals. _________
 Types of Business Organizations
• Commercial Organizations (sole traders,
partnership, limited liability companies)
• Not for Profit Organizations
• Public Sector organizations
• Private sector organizations
• Non-Governmental Organizations (NGOs)

Research the forms of organizations listed above.

(features/characteristics, advantages & disadvantages)
 Stakeholders in a Business
• Stakeholders refer to any individual or
group of individuals who have vested
interest in the business and as such wants
it to be successful.
 Stakeholders in a Business
The following are the major stake holders
involved in business activities
• Owners/Co-owners
• Employers
• Employees
• Customers/Consumers
• Government

(Research the role of each of the above groups and the interest
they have in a business)
 External Factors Affecting a Business

• Political and legal Factors

• Economic Factors
• Social Factors
• Technological Factors

Additional Reading Required:

ACCA Study Text: F1 Accountant in Business, Kaplan Publishing
Chapters 6 - 9
 Example: External Factors Affecting a
Trucking Business

Political
• Fuel tax
• Government steps to reduce pollution
from lorries
• Congestion charges in cities
• Plans to build new roads
• Road blockades due to strikes
 Example: External Factors Affecting a
Trucking Business

Economic
• State of the economy – a downturn would
result in less trade
• Fuel is a major cost so oil price
movements will be seen as significant
• Most truckers borrow to purchase trucks,
so a rise in interest rates would increase
costs
 Example: External Factors Affecting a
Trucking Business

Social
• Predicted car numbers and usage would
affect likelihood of traffic jams and hence
journey times
• Public concerns over safety could result in
lorries being banned from certain routes
or/and reductions in speed limits
 Example: External Factors Affecting a
Trucking Business

Technology
• Developments in route planning software
• Anti-theft devices
• Tracking systems to monitor driver hours
• Developments in tire technology
 Example: External Factors Affecting a
Trucking Business

Competitive
•Competitive rivalry from other truckers
• Threat from substitutes – e.g. haulage by
rail
• Threat of new firms entering the market
 Corporate Governance

• Corporate governance is the system by

which companies are directed and
controlled.
• Corporate governance involves a set of
relationships between a company’s
management, its board, its shareholders
and other stakeholders.
 Corporate Governance
Benefits of Cooperate Governance
 
• Business success – improved controls and decision-making
will aid corporate success as well as growth in revenues and
profits.
• Investor confidence – corporate governance will mean that
investors are more likely to trust that the company is being
well run. This will not only make it easier and cheaper for
the company to raise finance, but also has a positive effect
on the share price.
• Minimization of wastage – strong corporate governance
should help to minimize waste within the organization, as
well as corruption, risks and mismanagement.
 Business Organization and Structure

• Organizational structure is concerned with

the way in which work is divided up and
allocated.
• It outlines the roles and responsibilities of
individuals and groups within the
organization.
 Business Organization and Structure

Type of Structure

• Functional
• Divisional
• Geographical
• Matrix
 Business Organization and Structure

Span of Control
This refers to the number of persons
reporting to a manager/supervisor. The
number of persons to be supervised by
any one person should be of a
manageable size to facilitate effectiveness
of supervision.
 Business Organization and Structure

Chain of Command
This means that the right or authority to
command, that is, to exercise authority or
show that a person is in charge, must be
seen from the top to the bottom of the
organization.
 Business Organization and Structure
Formal and Informal Organization

Formal Organization
The formal structures of an organization have been
designed by management to try and ensure that the
organization meets its goals.

The formal organization will show clearly how work is

divided up and how communication must flow within the
organization. Formal organization structure shows the
chain of command and will show lines of authority flowing
downwards and lines of responsibility flowing upwards.
 Business Organization and Structure
Formal and Informal Organization

Informal Organization
The informal organization is the network of
relationships that exist within an organization. This
network evolves over time and tends to arise
through common interests and friendships
between members of staff. These relationships are
often across divisions.
  An informal organization will be present to some
degree within all formal organizations.
Question:
1. How does the informal organization contribute to the formal
organization?
2. What are the advantages and disadvantages of the informal
organization.
 Business Organization and Structure

Major Functional Areas of a Business

• Production
• Marketing
• Human Resources
• Finance

(Explain the functions/activities that are performed by each of

the functional areas in a business)
 Business Organization and Structure
Communication

Communication is the means by which we

create, transmit, and interpret ideas, facts,
data, feelings and opinions.

Communication is the process of

transmitting information from one person to
another. It is the sharing of experience or
interchange between two or more persons.
 Business Organization and Structure
Communication

Communication flow within an organization

may be:
- Horizontal
- vertical
 Business Organization and Structure
Communication

The communication process involves the

following elements:
• Sender
• Receiver
• Message
• Channel
• Feedback