The size of many corporations makes them difficult to manage. An individual manager cannot be involved directly with all the decisions made in operating a large organization. Top-level managers depend on low-level managers to make decisions and to keep them informed about a corporations operations. This process is costly because coordination among managers may be difficult to achieve. Moral hazard also exists among managers and employees, not just between managers and investors. Corporate goals and policies provide Read more…
There are several disadvantages to the corporate form of ownership. Most corporations must pay taxes on their incomes. Corporate taxes are separate from the taxes paid by shareholders on dividends received from the company. (Some corporations, however, especially smaller ones, are not taxed separately.) Another disadvantage is that corporations are regulated by various state and federal government agencies. These regulations require corporations to comply with many state and federal rules concerning business practices and reporting of Read more…
A corporate form of organization has several advantages over proprietorships or partnerships.
Corporations have continuous lives apart from those of their owners. If a proprietor or partner sells her or his share of a business or dies, the business ceases to exist as a legal entity. The new owner of the business must reestablish the business as a new legal entity. Most corporations, however, continue unchanged if current owners sell their stock, donate it to charity, give it to relatives, or otherwise dispose of their shares. Read more…
Among the support functions are research and development, product and production design, finance, legal services, accounting, purchasing, and human resources. The chief financial officer (CFO), who also may be the treasurer, is responsible for obtaining financial resources and managing a corporations cash. The controller, as the chief accounting officer, is responsible for accounting and financial reporting, developing and maintaining the accounting information system, and reporting to tax and regulatory authorities. Read more…
Exhibit 7 describes the organizational structure of a typical corporation. A board of directors
oversees the decisions of management and is responsible for protecting the interests of stockholders. Normally, the board is appointed by management with the approval of stockholders. Top managers often serve on the board along with outside directors who are not part of the corporations management. The chairman of the board often holds the Read more…
Shares of stock often are traded in stock markets, such as the New York, London, and Tokyo stock exchanges, which are established specifically for this purpose. These markets facilitate the exchange of stock between buyers and sellers. Therefore, unlike other businesses, ownership in many corporations changes frequently as stockholders buy or sell shares of stock. Major corporations, such as General Motors, Exxon, or IBM, have received billions of dollars from stockholders. Read more…
Many types of decisions are made in organizations. Accounting provides important information to make these decisions. For example, organizations require financial resources
to buy other resources used to produce goods and services. Primary sources of financing for businesses are owners and creditors. Read more…
Moms Cookie Company will be effective if it sells products desired by customers and if the products are made available in locations convenient for customers to purchase them. The company will be efficient if it can keep the costs of resources it consumes low relative to the price of the goods it sells. During January, the company was less effective than Maria and Stan had planned because it sold fewer goods than expected. The company was efficient in controlling the cost of resources consumed because its costs were less than the prices of goods sold, thus permitting the company to earn a profit. Read more…
The amount of return owners receive from a company depends on the companys success in earning a profit. If you are the primary owner of a business, you are actively involved in managing the business, and its success depends largely on your ability and effort. If you are one of many who invest in a company, you probably are not actively involved in the business, and its success depends largely on the abilities and efforts of those who are managing the business. When you invest in a business, you have no guarantee that it will be successful. Read more…
Businesses earn profits by providing goods and services demanded by society. Owners invest in a business to receive a return on their investments from profits earned by their business. By investing in a business, owners are forgoing the use of their money for other purposes. In exchange, they expect to share in a businesss profits. Return on investment (ROI) is the amount of profit earned by a business that could be paid to owners. Return on investment often is expressed as a ratio that compares the amount of profit to the amount invested in a business by its owners: Read more…