3.1 - Financial Statements Flashcards
how do taxes work for a sole proprietorship?
owners report business income on their personal tax returns - no separate taxes are filed for business
in a sole proprietorship, can creditors go after personal assets of owner?
yes bc unlimited liability
in a general partnership, can creditors go after personal assets of owners?
yes bc unlimited liability
how do taxes work for a general partnership?
gp itself isn’t subject to income tax, each partner must claim business income/loss on their personal income tax
what is a limited partnership?
company made out of general and limited partners - LIMITED are limited in what they can do and have no right to take part in day-to-day operations
what is the difference in liability for general vs limited partners in an LP?
general - unlimited liability
limited - liability limited to their investments
how does tax work for an LP?
all partners claim income/lies according to their share in the company - partners have the same income tax status.
LP itself is not subject to income tax
what are the 2 types of corporations?
public and private
what is the liability like for a corporation?
limited to corporation. can sue or be sued.
is a corporation subject to income tax?
yes. its a taxable entity with its own income status
what are 4 main benefits of PREC?
- business taxation (better business accounting/expenses)
- income splitting (non-voting shares to spouse + kids)
- tax deferral (keep $ in company)
- lower tax rates for corporations
is licensee liable for actions related to provision of real estate services if they’re a PREC?
yes, but they may be covered by E&O insurance
what are the main costs of being a PREC?
double the real estate licensing fees
double the E&O insurance
what is the historic cost principle?
record cost of item as what you PAID for it at time of purchase
what is the revenue recognition principle?
recognize revenue when EARNED, not received. (when work is done)
