Why It Matters: Accounting for Corporations

Why learn about accounting and reporting concepts unique to corporations?

In 2015, based on data compiled by the IRS, 72% of the 35 million businesses in the US were organized as sole proprietorships, and only five percent were corporations. However, of the $37 trillion in business receipts reported that year, 63% came from corporations, and only a scant four percent of total gross revenues came from sole proprietorships.

Why the huge discrepancy?

In short, sole proprietorships are easy to form and easy to manage and are therefore the favorite way to organize a very small business. However, a corporation has the ability to generate vast sums of capital from the contributions of multiple owners, and because of that, they are also able to borrow large sums of money, often in the billions of dollars.

Two pie charts: one showing business receipts in 2015 and one showing tax returns filed in 2015.   There was $37 Trillion in Gross Business Receipts in 2015. 63 percent from C-Corporations, 20% from S-Corporations, 1% from General Partnerships, 3% from Limited Partnerships, 9% from LLCs, and 4% from Sole Proprietorships.   There were 35 Million Tax returns filed in 2015. 72% from Sole Proprietorships, 7% from LLCs, 1% from Limited Partnerships, 2% from General Partnerships, 13% S-Corporations, and 5% from C-Corporations.

In previous modules, we’ve focused on accounting for small businesses and assuming the sole proprietor form of doing business, but now you are ready to tackle some of the complexities of the corporate form. Although statistically you are more likely to be doing accounting for small businesses and small, closely-held (e.g. privately held) corporations, S-Corps, and LLCs, your knowledge of the broader concepts that apply to the most highly complex, highly scrutinized, publicly-traded C-Corps will serve you well.