Cambridge IGCSE Accounting(0452)/O Level Principles of Accounts(7110) Notes Notes: Types of Business Organisations

  • A business can be defined as an economic or commercial activity
  • All business activity can be subdivided into individual and separate transactions
  • A transaction is an event that results in a change in an asset, liability, or net worth of a business
  • In accounting various words are used to refer to a business these include:
    • Entity
    • Organisation
    • Concern
    • Corporation
    • Firm
    • Enterprise
    • Venture
    • Company
  • It is important to note that some of these have very specific meanings
  • There are different types of businesses and businesses can be divided in a number of ways
  • In accounting the most important way to view businesses is by grouping them using:
    1. The ownership structure of the business
    2. The economic sector or type of the business
    3. Size
    4. Purpose

The ownership structure of the business

Sector or type of business

  • There are generally two types of business:
    1. Those that sell goods and
    2. Those that sell services
  • Goods are tangible items that are sold in order to satisfy human needs and wants examples of goods include food, furniture etc
  • Services are intangible items that are sold in order to satisfy human needs and wants examples of services include accommodation, hair cut, teaching, medical check up, car repair etc
  • Examples of business that offer services include hospitals, hotels and garages
  • Businesses especially those that sell goods can also be divided into:
    1. Trading businesses
    2. Manufacturing businesses
  • Trading businesses purchase goods, keep and maintain them as stock and sell them to consumers/other businesses
  • A manufacturing business is any business that uses components, parts or raw materials to make a finished/semi-finished good
  • Business can also be grouped according to the sector they are found in:
  • Primary sector businesses for example mines
  • Secondary sector businesses such as factories
  • Tertiary sector business that sell services for example schools and hospitals
  • These goods are then sold either directly to consumers or other businesses
  • Each type of business demands a different approach in accounting

Size

  • Businesses can also be grouped according to their size
  • There are small simple business operations for example a street vendor
  • There are Small and medium-sized enterprises (SMES)
  • An SME in Zimbabwe is defined as a registered business whose total assets does not exceed US$100 000 or
  • Whose annual turnover/sales does not exceed US$240 000
  • There are large enterprises whose size range from being merely larger than SMEs to being multinational entities
  • Accounting operations vary according to size
  • In large entities accounting is divided into various branches/departments

Purpose

  • Businesses can be divided into two:
  • For profit businesses i.e. businesses that exists primarily to make a profit and
  • Not for profit businesses i.e. non profit organisations whose overriding aim is usually to provide a service to its members
  • Examples of non profits include charities and foundations

 

NB It is not uncommon for a business to be in more than one class e.g. a business that offers both services, manufactures goods and carries out trading (buying and selling)

To access more topics go to the Cambridge IGCSE Accounting(0452)/O Level Principles of Accounts(7110) Notes.