ZIMSEC O Level Principles of Accounting 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:
- The ownership structure of the business
- The economic sector or type of the business
- Size
- Purpose
The ownership structure of the business
- Businesses can classified according to who owns and operates them
- This results in various forms of business:
- Sole Trader Business/Sole Proprietor
- Partnership
- Limited Liability Companies (Companies) which come in the form of:
Sector or type of business
- There are generally two types of business:
- Those that sell goods and
- 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:
- Trading businesses
- 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 Principles of Accounts Notes.