Accounting Flashcards
In ____, Schultz purchased Starbucks. It’s the premier retailer of speciality coffee and there are over _____ stores worldwide
1987
20000
Provides a needed service for a fee (does something for you)
Give an example
Service business
Salon
_______ _____ reports info to outside users- investors, potential loan institutions, gov’t, workers, consumers, etc
Financial Accounting
People are free to produce, sell & buy the goods & services they choose
Free enterprise system
4 Advantages of a corporation
1) Easier to raise money
2) easier to expand
3) easy to transfer ownership
4) losses limited to investment
3 disadvantages of a corporation
1) complex to organize
2) gov’t regulations
3) higher taxes
System where the financial information is recorded by entering it into a computer
Computerized accounting system
After traveling to ___ CEO Schultz brought home a vision to bring ___ style coffee houses to the US.
Italy
Italian
A business organization that is recognized as by law to have a life of its own. Separate legal entity. Can have many owners. Ownership is represented by shares of stock. Needs legal permission- a charter
Corporation
Exists independently of its owner’s personal holdings (can stand on its own)
Business entity
____ _____ reports to internal users: managers who make day to day decisions which affect the profitability of the organization
Management accounting
LLC generally have an ____ ____.
It describes how taxes will be treated and what rules will be followed in governing the business
Operating agreement
Cons of being an entrepreneur
1) you will need to work long hours
2) lose the security of a steady paycheck & benefits
3) must market
4) responsible to pay all operating costs
5) must remain motivated
6) face the possibility of losing money
Important to society, provides goods and services that individuals need, provides employment & is essential for a strong economy
Entrepreneurship
A business owned by one person. Oldest and most common form of business organization
Sole proprietorship
Money supplied by investors, banks or owners of a business
Capital
4 Disadvantages of a sole proprietorship
1) limited expertise
2) difficult to raise capital / money
3) owner assumes all risks
4) hard to attract talented employees
3 advantages to a partnership
1) easy to set up
2) pooled skills & talents
3) more capital available
Legal permission that gives a corporation certain rights & privileges
Charter
4 Advantages of a sole proprietorship
1) easy to set up
2) unlimited profit potential
3) owner has complete control
4) few regulations
Flexible form of enterprise. Blends elements of partnership & corporate structures. Provides limited liability to its creditors. Not recognized in all US jurisdictions.
Limited Liability Company (LLC)
3 advantages of a limited liability company and 1 disadvantage
1) limited liability
2) less paperwork
3) flexibility
1) difficult to raise money
Pros of being an entrepreneur
1) you’re your own boss
2) you create opportunities for earning money
3) you create & control your work schedule
4) you choose the people you serve
5) you select the people who work with you
6) unlimited profit potential; you benefit from the success
The purpose of accounting is to provide ____ _____ about a business or a not for profit organization
Financial information
What are the 6 traits of a successful entrepreneur?
1) self starter
2) creative mind
3) access to capital
4) good communication skills
5) ability to identify a need or solve a problem
6) knowledge or experience in accounting, marketing, & management
Buys finished products & resells them to other individuals & businesses
Give an example
Merchandising Business
Macy’s
In 1982, ___ ___ joined Starbucks & consisted of _ stores and fewer than ___ employees
Howard Schultz
6
100
When a business spends more money than they earn
Loss
A business owned by 2 or more persons, called partners, who agree to operate the business as co-owners. Should have a written legal agreement
Partnership
Selling directly to the consumer
Retail
The amount of money earned over & above the amount spent to keep the business operating
Profit
Takes raw materials & turns them into finished products through the use of labor and capital
Give an example
Manufacturing business
Ford motor company
What is an MBA?
Masters of Business Administration
A business is expected to continue to be able to survive & operate indefinitely
Going concern
System designed to collect, document, and report on financial transactions affecting the business
Accounting system
What does GAAP stand for?
Generally accepted accounting principles
Individual who transforms ideas for products or services into a business (risk taker)
Entrepreneur
A period of time covered by an accounting report (gathering financial info)
Accounting Period
Buying a product and reselling it
Wholesale
2 disadvantages to a partnership
1) partner conflict
2) shared profits
The same set of rules all accountants use to prepare their reports
GAAP
An establishment formed to provide the goods & services that individuals need / want
Business
Summarized information about the financial status of a business
Financial reports
Purchase, sale, or exchange of goods or services that causes a change in the assets, liabilities, or owner’s equity of the business and the accounting equation. Affects at least _ accounts.
Business transaction
2
It is the same thing whether you pay with ____ or a ____
Cash
Check
True or false:
The owner’s personal financial transactions are part of the business’s records
False
A _______ is an economic event that causes a change in assets, liabilities, or owner’s equity
Business transaction
The amount of money owed, or payable, to the creditors of a business (liability)
Accounts payable (A/P)
Anything of value that is owned or controlled (referred to as ASSETS)
Property
True or false:
Both businesses and individuals may own & control property
True
When the owner takes cash or other assets from the business for personal use, a ____ occurs
Withdrawal
An ____ is any property or item of value owned by a business
Asset
The removal of cash or another asset from the business by the owner for personal use. _____ owner’s equity
Withdrawal
Decreases
If a business has assets of $5600 and liabilities of $900, the owner’s equity is
$4700
Amounts owed to creditors; the claims of creditors to the assets of the business
Liabilities
The costs of goods and services to operate a business are _____
Expenses
Legal right, sometimes with restrictions
Owned
Owner’s claims to the assets of the business
Owner’s equity
2nd to the creditor’s claim (owner’s equity)
Owner’s claims
_____ is anything of value that is owned or controlled
Property
Business or person who sells you a product or service & says you can pay later (liabilities)
Creditor’s claims
Checks or cash will always affect ____ __ ____
Cash in bank
True or false:
A business transaction affects at least 2 accounts
True
_____ are the creditor’s claims to the assets of a business
Liabilities
Creditors’ and owners’ financial claims (equities) to the assets of a business
Property rights
If the creditor’s financial claim to property totals $1000 and the owner’s financial claim to property totals $11000, the property value is
$12000
What is the accounting equation?
Assets = liabilities + owner’s equity
An agreement to pay for a purchase at a later time
Credit
True or false:
A person who has control over but does not own an item of property has a legal right to that item
False
A person or business that has a claim to the assets of a business; a business or person to which money is owed
Creditor
The total amount of money owed to a business (asset)
Accounts receivable (A/R)
Give examples of assets
Furniture Cash in bank Computer Equipment Supplies Car
What are 2 possible accounts affected when a payment is made on account?
Accounts payable (A/P) Accounts receivable (A/R)
Property or items of value owned by a business
Assets
The owner’s claims to the total assets of the business are called _____
Owner’s equity
Investments will ____ an asset & ____ owner’s equity
Increase
Increase
When a business or person buys an item on credit
On account
Income earned from the sale of goods & services (company’s earnings). _____ owner’s equity.
Revenue
Increases
____ refers to the dollar amount of the owner’s equity in the business
Capital
What are the 3 accounts possibly affected by a credit transaction?
Accounts payable (A/P) Accounts receivable (A/R) Owner's equity (capital)
True or false:
One of the purposes of accounting is to provide financial information about property and the rights of a business to that property
True
When a payment is made on account, A/R:
_____ because money owed to you is less. Cash ____ because payment is deposited.
Decreases
Increases
The increases or decreases in a specific item caused by business transactions are recorded in an ____
Account
True or false:
The total financial claims do not have to equal the total cost of the property
False
Property) must equal liabilities + owner’s equity (total financial claims
When you sell on account, you will get ___ ___
Paid later
The basis for keeping all accounting records in balance
Accounting equation
How much business is worth. Only affected when transaction changes owner’s investment or claim against the business
Owner’s equity (capital)
Right to use
Controlled
The cost of the goods or services that are used to operate a business (money spent). _____ owner’s equity.
Expense
Decreases
Legal rights to an item
Financial claims
True or false:
The increases and decreases caused by business transactions are recorded in specific accounts
True
True or false:
When you buy property on account, you acquire all of its property rights
False
Analysis of a transaction:
1) ____ accounts affected- must be at least 2
2) ____ accounts affected- asset? liability? owner’s equity?
3) +/- determine amount of ___ or ____. Is the accounting equation still in balance?
Identify
Classify
Increase
Decrease
___ is the total amount of money to be received in the future for goods and services sold on credit
Accounts receivable
When a payment is made on account, A/P:
____ because don’t owe as much, cash ____ because payment is made
Decreases
Decreases
True or false:
The private enterprise system is based on the right to own property
True
The total financial claims to the assets of a business are known as ____
Equity
When you make a payment on account, you are decreasing your ____ (A/P)
Debt
Those assets owned by a business but not used in the operation of the business
Investments
Total financial claims to the assets, or property, of a business
Equity
When you get a loan, the person lending money to you is a _____. They must be paid off before you
Creditor
A person or business that sells property on credit, or any person or business to which money is owed, is called a _____
Creditor
True or false:
An account is a record of only the increase in the balance of a specific item such as cash or equipment
False
The amount of money owed to the creditors of a business is ____
Accounts payable
When you buy on account, you’re incurring a ____
Debt
True or false:
The accounting equation should remain in balance after every transaction
True
Subdivision under 3 sections of the accounting equation used to summarize increases and decreases in assets, liabilities, & owner’s equity (shows the balance of an item)
Account
The ___ is Assets=liabilities + owner’s equity
Accounting equation
True or false:
Assets+Liabilities= owner’s equity is another way to express the accounting equation
False
_____ is income earned from the sale of goods and services
Revenue
