14th Century The history of accounting dates back to ancient civilisations, however the birth of double-entry bookkeeping in the 14th century is seen as being the beginning of the modern accounting period. The Renaissance period in Italy (14th to 16th century) saw many major developments in accounting practice. At this time, Arabic numerals were first used to keep records of business transactions in place of Roman numerals, and record keeping developed on a large scale. In 1494 Luca Pacioli, a Franciscan friar, published the Summa de Artihmetica, Geometria, Proportioni et Proportionalita. In it were 36 chapters on bookkeeping in which Pacioli described double-entry bookkeeping and other commerce-related concepts. Double entry bookkeeping is a system in which a debit and credit entry is entered for each transaction : “Every debit has its credit – every amount that is charged to on account must be placed to the credit of another”. Although Pacioli did not invent double-entry bookkeeping, he is credited with being the first person to widely disseminate this knowledge, and the principles published in his Summa remain largely unchanged to this day. Developments that came later included the splitting of records into different books “suited to the nature of the business carried on, each [book] containing such transactions as exclusively apply to its title”, for example cash books for recording money received and payed, and invoice books for recording goods purchased and sold. Variations in bookkeeping also developed between different industries & professions (e.g. Shipping, newspapers and printing). 17th Century Colonial expansion in the 17th century and demand for foreign goods saw the rise of ‘chartered companies’, the first corporations. The scale of these endeavors required large investment, the reward for investors being that assets were divided between stock holders at the end of each voyage. However this was not always possible, with permanently invested capital required to support future voyages. Bookkeeping had to develop to keep track of the assets and profits of many distinct trading ventures at different stages of completion. In 1657, the company ruled that stock was to be valued, and four years later the governor of the company stated that “future distributions would consist of the profits earned (dividends) and not “divisions” as in the past”. This was a big progression towards the modern conditions under which corporations operate and was the first large-scale example of stock exchange, investment and corporate finance. These accounting practices continued to develop through the next centuries. Many guides for investors and accountants were written during this development period. Examples include Stock Exchange Accounts; with an appendix of forms which details stock exchange bookkeeping, Haight and Freese Co’s Guide to Investors which lists the stock prices for various companies between 1890-1900 and A Corporate Venture which states that “unless the stockholder in a corporation knows the ropes they may be pulled to his disadvantage”. The Phonopore Company Limited certificate is an example of a shares certificate from 1893 indicating that William Robert Pullman Esquire was the holder of 120 shares in the Phonopore Company, valued at £1 each. 18th Century During the Industrial Revolution, methods were required which could be used to track costs related to large scale production in factory-manufacturing operations. Josiah Wedgwood, the founder of famous pottery manufacturer Wedgwood is considered by many to be a pioneer in cost accountancy. After examining business accounts, Josiah Wedgwood discovered that his head clerk had been embezzling from the company and so after hiring a new clerk he implemented weekly account reviews to keep track of his finances. These reviews allowed him to calculate detailed costs for materials and labour, leading to the discovery of overhead costs and economies of scale. 19th Century The early evolution of accounting was dominated by advances in bookkeeping practice. There are numerous books chronicling this progression. The century following the industrial revolution saw great progress from the “method of systematically recording [financial] exchanges into a means of giving business management an effective control over its affairs”. 1816 - John Croaker, a bank clerk from England, was caught and charged with embezzling from the bank and was sent to the colony of New South Wales. Upon arrival he was granted an immediate ticket of leave and began working as a clerk in the justiciary and set himself up as a commodities dealer. At this time, the first Bank of New South Wales opened, and John Croaker helped to establish their bookkeeping practices, instigating double-entry bookkeeping for the first time in Australia. 1854 - On the 6th of July 1854, a petition was signed by forty-nine accountants in Glasgow asking Queen Victoria for the grant of a Royal Charter. Thus the formal accounting profession emerged in Scotland with the formation of Edinburgh Society and Glasgow Institute of Accountants. The title ‘Chartered Accountant’ was decided upon and adopted for members of the Society, and was soon adopted by the Glasgow Institute and the later formed Aberdeen Society. However the Institute of Chartered Accountants of Scotland was not formed until the three societies merged in 1951. 1880 - In 1880, the Institute of Chartered Accountants in England and Wales was formed, bringing together members from a number of individual accounting organisations. The newly formed institute developed standards of conduct and examinations for admission. Books such as Book-keeping exercise for accountant students, The student’s business methods and commercial correspondence and Australian elementary bookkeeping represent examples of the shift towards professional education and accreditation in the accountancy profession.Double Entry Bookkeeping for technical classes and schools gives examples of civil service examination papers for accountants from this period. 1887 - During the rapid growth of American industry in the 1800s, many Scottish and British accountants travelled to the United States to audit and keep track of British investments in the country. A number of these professionals remained in the US and are thought to have begun the practice of accountancy in America. In 1887 the American Association of Public Accountants was formed. 20th Century On the 19th of June 1928, a Royal Charter was granted by George the Fifth, establishing The Institute of Chartered Accountants in Australia upon recognition that the “profession of Public Accountants in the said Commonwealth [Australia] is practiced by a considerable number of persons and the duties and functions of such public accountants are of great and growing importance in respect of their employment in the capacities of Liquidators acting in the winding up of Companies and of Receivers under Decrees and Trustees in Bankruptcy or Insolvency, arrangements with creditors and in various positions of trust under the Courts of Justice in the said Commonwealth of Australia, and also in the auditing and certification of the accounts of Public Companies and other business, and various other kindred matters, in all of which a technical knowledge of the duties imposed is of essential importance.” Forms of Business Organization From a legal point of view, there are four types of businesses: 1. Sole proprietorships; 2. Partnerships; 3. Corporations; and 4. Co-operatives. A brief description of each type is followed by a summary of their advantages and disadvantages. For specific information on how or where to register or incorporate a business, contact your local Canada Business service centre. Sole Proprietorships This is the simplest way to set up a business. A sole proprietor is fully responsible for all debts and obligations related to his or her business. A creditor with a claim against a sole proprietor has a right against all of his or her assets, whether business or personal. This is known as unlimited liability. This type of business comes under provincial jurisdiction. If the proprietor chooses to carry on a business under a name other than his/her own, he/she must register with the province. Your business name registration, or renewal of registration, will be valid for a certain number of years. Call your local Canada Business service centre to determine when business name registrations need to be renewed in your jurisdiction. If a sole proprietor establishes a business in his/her own name, without adding any other words, it is not necessary to register the business. Partnerships A partnership is an agreement in which two or more persons combine their resources in a business. In order to establish the terms of the business and to protect partners/shareholders in the event of disagreement or dissolution of the business, a partnership/shareholders agreement should be drawn up with the assistance of a lawyer. Partners share in the profits according to the terms of their agreement. General Partnership All members share the management of the business and each is personally liable for all the debts and obligations of the business. This means that each partner is responsible for and must assume the consequences of the actions of the other partner(s). Limited Partnership Some members are general partners who control and manage the business and may be entitled to a greater share of the profits, while other partners are limited and contribute only capital. Limited partners take no part in control or management and are liable for debts to a specified extent only. A legal document, outlining specific requirements, must be drawn up for a limited partnership. Corporations A corporation is a legal entity that is separate from its owners, the shareholders. No shareholder of a corporation is personally liable for the debts, obligations or acts of the corporation. This type of business can be incorporated at either the federal or provincial level. A corporation is identified by the terms Limited, Ltd., Incorporated, Inc., Corporation, or Corp.. Whatever the term, it must appear with the corporate name on all documents, stationery, and so on, as it appears on the incorporation document. Private Corporation A private corporation can be formed by one or more people. A majority of its directors must be Canadian residents. If none of the directors reside in the province in which it does business, the corporation must appoint a Power of Attorney who reside in the province. A private corporation cannot sell shares or securities to the general public. Public Corporation A public corporation is one that issues securities for public distribution. Besides filing incorporation documents, a public corporation must file a prospectus with the appropriate Securities Commission in the province, must employ outside auditors and must distribute semi-annual financial statements. Federal Corporations Private and public corporations may be incorporated federally under the Canada Corporations Act. A firm operating nationally or in several provinces may find this advantageous. A federally incorporated business must still register in each province in which it does business. Cooperatives A co-operative is a corporation organized and controlled by its members, who pool resources to provide themselves and their patrons with goods, services, or other benefits. A cooperative business structure provides: Types of Business Operations There are three (3) different nature and types of businesses that are operated with the purpose of earning profit. Each type of business has distinctive features. 1. Service Business This type of business operation provides services, instead of product, to its customers. It includes, but not limited, to the following: • Professionals such Lawyers, Doctors, Accountant, Engineer, etc. • Consultation • Hospital • Hotel and Lodging • Restaurant • Transportation • Entertainment • Banking and Financial 2. Merchandising Business This type of business operation sells products to its customers. However, they don’t make the products they sell; instead, they buy or purchase it from other business. It includes, but not limited, to the following: • General merchandise such as grocery store and retail business • Toy stores • Electronic stores • Apparel stores • Online stores such as Amazon, iTunes, Audible, eBay, etc. 3. Manufacturing Business This type of business operation converts basic inputs, such as materials, labor and overhead, into finished products which are sold to customers. It includes, but not limited, to the following: • Computer and electronic manufacturer • Car, trucks and vans manufacturer • Shoe and clothes manufacturer • Canned goods manufacturer • Soda or beverage manufacturer Types of Business Organizations Once you’ve identified the nature and type of operation the business runs, the next thing you need to know is what type of organization the business was formed. Manufacturing, merchandising and service businesses are commonly organized and formed as either of the following: 1. Proprietorship It’s a type of business organization that is owned by a single individual. The individual or person who owns this type of business is referred to as Proprietor. It is the most common and popular type of business organization because it is easier and cheaper to organize. However, the primary disadvantage of proprietorship is that the business resources are limited to the single owner’s resources. Also, the owner assumes all the risk, liability and decision making of the business. Small businesses like repair shops, laundries, restaurants, and professional services are organized as proprietorship. 2. Partnership As a business grows bigger, it needs more financial, people and managerial resources. Two or more individuals may join together and form a business called partnership. The group of individuals who own the partnership business is referred to as Partners. Partnership is a type of business organization that is owned by two or more individuals. It is a little harder and more expensive to organize than the proprietorship. The benefit, however, is that the risk, liability and management is shared by group of individuals, depending on the percentage of ownership agreed upon. There are many small and medium-size businesses such as repair shops, laundries, and professional firms that are organized as partnership. The difference it has from proprietorship is that it is owned by more than one individual and the requirements of organizing a partnership is more tedious than a proprietorship. 3. Corporation It’s a type of business organization that is owned by shareholders and it is structured as a separate legal entity under the operation of law. The ownership of a corporation is divided into shares of stock. A corporation issues the stock to individuals or other businesses, who then become owners or stockholders, of the corporation. The benefit of the corporation is that the risk and liability is not shouldered by the owners called as stockholders. And the management or decision making is shared by the board of directors. Also, it is easier to increase resources of the business by means of issuing stock. Large size businesses usually form a corporation because of its complexity and high need of resources. I hope this article has been helpful for you to learn and understand the different types of business operations and organizations. You may share your thoughts, additional knowledge, questions or concerns via comment box below.
Posted on: Wed, 09 Jul 2014 10:25:23 +0000
Trending Topics
Recently Viewed Topics
© 2015