Basics of Accounting

Chapter # 1

1) Organization
An ‘organization’ is a group of individuals working together to achieve one or more objectives.
Features of organization:
1. Composed of individuals and groups of individuals
2. Oriented towards achieving collective goals
3. Consist of different functions
4. Functions need to be coordinated
5. Exist independently of individual members who may come and go.
1.1 Non-Profit Organization
An organization for purposes other than generating profit. Such originations work for social welfare
of the society.
Purpose of such organizations may be as:
 Charities
 Education promotion
 Religious
 Public service etc

Examples
 Edhi foundation (For rescue services, old age house, orphan house etc)
 Akhoat foundation (For interest free loan to individuals)
 Jamia-Ashrafia (Religious education, religious promotion, Islamic research and
development, Religious advise, tableeg, etc )
 Sundas Foundation (Collection of blood for Thalassemia patients)
 Mughal Eye hospital (For poor and needy people’s treatment)

1.2 Profit Organization or Business

An organization that aims to make a profit from its operations.
An integrated set of activities and assets that is capable of being conducted and managed for the
purpose of providing a return to investors or other owners.
Businesses vary from very small businesses (the local shopkeeper or plumber) to very large ones
(Apple, Honda, PEPSI). However, all of them want to earn profits.
 Examples
o Cocacola o Gourmet restaurants
o Toyota o PEL
o Microsoft o Fatima fertilizer
o Walmart o Behria town
o Uber o Hameed Latif hospital

There are a number of different ways of looking at a business. Some ideas are listed below:
• A business is a commercial or industrial concern which exists to deal in the
manufacture, resale or supply of goods and services.
• A business is an organisation which uses economic resources to create
goods or services which customers will buy.
• A business is an organisation providing jobs for people.
• A business invests money in resources (for example buildings, machinery,
employees) in order to make even more money for its owners.

2 Types of Business (With respect to activity)

2.1 Trading business

Trading Business are businesses working with different kinds of products which are purchased for
reselling, within the country or outside the country.
Examples:

 Retailers (Who buy and sell goods individually or in small quantity to end consumer)
o Medical stores
o Departmental stores
o Garments shops
o Shoes shops etc
 Wholesalers (Who buy and sell goods in bulk but not individually mostly to retailers)
o Medical agency
o Garment agency etc

2.2 Manufacturing business

Manufacturing business is the business that uses raw materials to produce finished goods. It sale
the own manufactured goods to wholesalers, retails and consumers.

Accounting of manufacturing business is not part of syllabus.

Examples:
 Manufacturing Businesses Industry
o Orient refrigerators (Home Appliances)
o Honda cars (Automobile)
o Gourmet bakers (Food)
o Salt’s and pepper (Food)
o Nestle (Food and water)
o Interwood etc (Furniture)

2.3 Service Business

A service business is a business model that offers intangible value (Services) instead of physical
product.
Examples
Service Businesses Service sector
o SMART Accountancy learning (Education )
o Daewoo Express (Transportation)
o AF Ferguson (Audit and consulting )
o CNN (Media )
o National Hospital (Medical)

3 Forms of Business
3.1 Sole proprietor.
A business owned and run by one individual. The individual enjoy profits, may suffer loss and
can be sued (case by other party) by his own name.
3.2 Partnerships.
The relationship between persons who have agreed to share the profits of a business carried on
by all or any of them, acting for all.
These are arrangements between individuals to carry on business in common with a view to
profit.
Persons who have entered into partnership with one another are individually called "partners"
and collectively" a firm"
Examples
o AF Ferguson (Audit firm)
o KPMG (Audit firm)
o Delloitte Yousuf Adil (Audit firm)
o
3.3 Companies.
The business where investment made by shareholders (owners) and run by management
(Employees).
The shareholders (Owners) and Company are separate legal persons, hence if other person
want to file suit (Case) against the owners, he cannot but he can only sue the company.
Examples
o Sitara Chemical Industries Limited
o ICI Pakistan Limited
o Ittehad Chemicals Limited
o Berger Paints Pakistan Limited