Chapter 5
Recognizing the Legal and Accounting Entity
IN THIS CHAPTER
Taking stock of the basic business legal structures
Comparing partnerships, limited liability companies, and sole proprietorships
Expanding on business corporations and classes of stock
The enterprise being accounted for is called the accounting entity. An accounting entity can be a business, a not-for-profit (NFP) association, a church, a social club, a government organization, or what have you. There are many kinds of accounting entities. In this chapter, we focus on profit-motivated business entities, although other types of accounting entities are interesting creatures that have unique features and accounting issues. But let’s get back to business here.
Chapter 3 explains the accounting equation and notes that this accounting axiom is echoed in the balance sheet of a business — assets on one side, liabilities plus owners’ equity on the other. This chapter, along with Chapter 18, which dives into capitalizing a business, explains the right side of the balance sheet, emphasizing owners’ equity. Every business entity has an owners’ equity structure of some sort. Financial report readers should definitely know ...
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