Accounting 101

Question 1

Accounting

Answer 1

process of identifying, measuring, recording, and communicating financial information about a company’s business activities

Question 2

Why is Accounting useful?

Answer 2

it helps people answer questions and make better decisions

Question 3

What is the difference between how managers and employees use accounting information

Answer 3

managers use this info to help predict consequences and decide what to do

Employees uses them to judge prospects of their company

Question 4

Sole Proprietorship

Answer 4

unincorporated business owned by one person.

usually small businesses

Question 5

Why are sole proprietorships popular

Answer 5

simple to set up and give the owner control

Question 6

True or False.

A sole proprietorship is a separate entity from its owner

Answer 6

True, however the owner is still responsible for the debt of the business

Question 7

Partnership

Answer 7

business owned jointly by two or more individuals
small businesses and professional practices are organized as a partnership

Question 8

What happens when one of the owners of a partnership leaves the company

Answer 8

It is automatically dissolved when any partner leaves

Question 9

Corporation

Answer 9

business organized under the laws of a particular province

owned by one or more individuals called shareholders , whose ownership is represented by shares

Question 10

What is an advantage of a corporation

Answer 10

the ability to raise large amounts of money by issuing shares

the limited legal liability of the owners

Question 11

what determines a shareholder’s legal responsibility of the corporation

Answer 11

a shareholder’s legal responsibility is limited by the amount they invested in the business

Question 12

disadvantages of a corporation

Answer 12

the requirement to start a corporation is more complex than the other forms of businesses

Question 13

what are the three types of businesses

Answer 13

sole proprietorship, partnership, corporation

Question 14

revenue

Answer 14

increase in assets that result from sales of products or services

Question 15

Expenses

Answer 15

the cost of assets used or liabilities created

Question 16

dividends

Answer 16

corporation’s distributing a portion of earnings to its shareholders

Question 17

net income

Answer 17

revenue > expenses

Question 18

net loss

Answer 18

expenses > revenue

Question 19

financial statements

Answer 19

used to communicate a company’s financial activities, including transactions

Question 20

What are the four basic financial statements

Answer 20

statement of financial position (aka balance sheet)

statement of comprehensive income (aka statement of income)

statement of changes in equity

statement of cash flow

Question 21

Common types of common assets

Answer 21

cash, short-term investments (insurance), accounts receivable (right to collect amount owed by customers), inventories

Question 22

non-current assets

Answer 22

long term investments, property, plant and equipment, intangible asset

Question 23

Current liabilities

Answer 23

must be payed within one year of operating cycle

accounts payable (repay vendor/supplier), salaries payable, unearned revenue (owing service when company already payed, interest payable, income taxes

Question 24

long term liabilities

Answer 24

obligations a company owes beyond one year of operating cycle

Question 25

statement of financial position

Answer 25

conveys important info about structure of assets, liabilities, and shareholder’s equity, that is ultimately used to judge a company’s financial health

Question 26

statement of earnings

Answer 26

reports results of a company’s operations, the sale of goods and services and associated expenses

Question 27

major elements of statement of earnings

Answer 27

revenues and expenses

Question 28

statement of changes in equity

Answer 28

how much a company’s net earnings was retained in business, dividends distributions

Question 29

statement of cash flows

Answer 29

sources and uses of a company’s cash over a period of time