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The Differences in Accounting Processes between Partnerships and Corporations - Case Study Example

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This paper "The Differences in Accounting Processes between Partnerships and Corporations" focuses on the fact that companies exist under different forms which include partnerships and corporations. A partnership exists when individuals or associates carry out a non-corporate business for profit. …
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The Differences in Accounting Processes between Partnerships and Corporations
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Download file to see previous pages Corporations typically have unlimited life and ease of ownership transferability in addition to owners limited liability. Examples of such companies are Microsoft and HP (Brigham & Ehrhardt, 2008).

The accounting treatment of partnership takes the company as an entity which is separate from partners’ personal affairs (Horngren, Bamber, & Harrison, 2005). The major difference in the accounting of corporations and partnership is the calculation and disclosure of the capital of the organization. Corporations are required to prepare and publish audited annual and quarterly reports which could be accessed by shareholders. These annual reports contain statements including income statement, balance sheet, cash flow and changes in shareholders’ equity. Financial reports are not published for external users by partnership and tax return is submitted as part of individual tax forms.

There are different ways of identifying whether a company is a partnership or corporation. Firstly, partnerships and corporations fall in different tax regimes. In partnership, an entity is not liable for tax and it is deducted from the owner’s personal income. IRS has set out guidelines for distinguishing between partnership and corporation. In addition to the characteristics discussed above if one partner has the power to dissolve the company then the characteristics of a corporation is absent. Shareholders of corporations can sell their stock to the third party however in partnerships there is a general lack of transferability. There is also centralization of management in partnership whereas in corporations there is a board of directors which comprise of company’s shareholders (Brickman, 1991).

 What does a statement of cash flows tell us about the short and long term prospects of the firm? How does an outside review use a statement of cash flows and other financial statements to assess the viability of the firm?

Companies prepare a cash flow statement on a periodic basis for both internal and external users.     ...Download file to see next pagesRead More
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