Corporation and Accounting

Corporation and Accounting

            A corporation is a legal entity created by shareholders, individuals or groups of individuals, according the laws of the land. It is business organization that has separate legal entity from its owners who are the shareholders and is considered distinct. This means that the corporation can act as a real person where it can sue or be sued in a law court, can enter into contract with other business organizations or individuals, is obliged to pay tax to the government separately from the shareholders and can conduct any business transaction as a separate entity.

By the fact that it is a separate legal entity, the corporation has the right to own assets and is liable for all it financial obligations and liabilities. This means that the shareholders have limited liabilities and cannot be held responsible for the business organizations debts and liabilities (Emanuel and Emanuel, 2009).

            Unlike sole proprietorship or partnership business organization, the existence of a corporation is independent of who are shareholder is at any time.

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This means that once it is established, it will continue to exist as a legal entity even after the death or transfer of equity by the founding members. Unless the shareholders unanimously agree to dissolve the corporation or form a merger with another entity, the corporation will continue to exist. However, corporations are not only subject to the regulations in the states in which they were incorporated, but also to the legal restrictions that exists in states in which they operates.

Therefore, if a corporation operates internationally or in more than one state, its operations are subject to laws in all states in which it operates. These laws might be different because every state has it own statutes that govern the incorporation and operations of corporations (Emanuel and Emanuel, 2009).

            Like any other business organization, it is important to maintain an accurate accounting report in corporations. These reports should include the capital investment report as well as income and expenditure report. It is important to prepare an accounting report on income and expenditure. This should be done at the corporate level and the account manager needs to identify the types of income and expenditures in the organization. Moreover, the accounting manager needs to develop an accounting method that best work for the corporation according to the nature and size of its operations (Levy, 2007).

            Depending on the size of the corporation, it is always a challenge to maintain an account report for each shareholder’s equity in a corporation. The accounting department should ensure that a meticulous accounting record of the shareholder’s cash or other asset investments is maintained. It is also important to note that the profits in any corporation are strictly divided according to the proportion of the shares held by the owners. The principle accounting equation in corporation accounting is the value of assets and should be equal to the value of shareholders’ equity added to the liabilities held by the corporation. Depending on the nature of the corporation, the shareholders investments may be in form of property or cash injected into the organization. All the accounting records should therefore reflect all the investment by the stockholders on the current basis including the loan that may be advanced to the corporation. This suggests the capital account records should by occasionally be adjusted reflecting any changes in the investment capital (Levy, 2007).

Work Cited

Emanuel, Steven & Emanuel, Lazar. Corporations, New York, Aspen Publishers Online, (2009).

Levy, A. B. Private Corporations and Their Control, ISBN 1406746843, Read Books, (2007).