acct study guide

Question 1

˜ Advantages:
o Easy to set-up or form
o Owner controlled
o Tax advantage- individual rate

Answer 1

Sole proprietorship

Question 2

• bearing the risks and rewards associated

with ownership

Answer 2

Sole proprietorship

Question 3

˜ Disadvantages
o Personal liability
o Financing more difficult
o Limited Life

Answer 3

Sole proprietorships

Question 4

– two are more owners (e.g., doctors, lawyers, CPAs

Answer 4

Partnership

Question 5

Advantages:
o Access to resources and skills of partners
o Tax advantages- net income passes through entity to individual
owners and taxed at individual rates not corporate rates
˜ Disadvantages:
o Personal liability for partners
o Limited Life
o Shared control

Answer 5

Partnership

Question 6

separate legal entity owned by stockholders (larger companies)
˜ Can be private or public

Answer 6

corperation

Question 7

Privately Held”- ownership is not available to the general public
o “Publicly Held” – ownership is available to the public at large
˜ Advantages:
o Limited Liability for owners; loss limited to owner’s investment
o Easier to raise money/capital by issuing stock
o Easy to transfer ownership
˜ Disadvantages:
o Unfavorable tax treatment- double taxation; higher tax rates

Answer 7

corperation

Question 8

The three types of business activities

Answer 8

financing, investing, operations

Question 9

raising capital such as buying money selling stocks, paying dividends

Answer 9

financial activities

Question 10

using capital/ cash to buy long term assets in operations to help generate company revenue

Answer 10

investing activates

Question 11

Buying/selling property equipment or vehicles

Answer 11

examples of investing activities

Question 12

___ activities are used for day to day activity in a company. Revenues increase assets and expenses decrease assets or create liabilities.

Answer 12

operating activities1

Question 13

buying/selling inventory, paying wages, using cash, buying supplies, using supplies

Answer 13

examples of operating acvtivities

Question 14

– shows income generated over a period of time

and sometimes called the Statement of Operations.

Answer 14

income statement

Question 15

How do you calculate net income/loss

Answer 15

revenues - expenses

Question 16

– shows the change in the
company’s cumulative earnings kept in the business and not
distributed to shareholders as dividends over a period of time

Answer 16

retained earnings statement

Question 17

How do you set up a retained earnings statement

Answer 17

1 - Beginning RE
2- Net income/loss
3- Dividends
4- Ending RE

Question 18

What statement does net income show up on

Answer 18

Income statement

Question 19

sometimes called statement of financial position -
shows company’s economic resources (assets) and claims to those resources
(liabilities and shareholders’ equity) at a specific point in time

Answer 19

Balance sheet

Question 20

What is the equation used to balance

Answer 20

assets = liabilities + Stockholders equity

Question 21

– shows sources and uses of cash over a

period of time among three categories

Answer 21

Statement of cash flow

Question 22

Three types of cash flow

Answer 22

Cash flow from operating, financing, investing

Question 23

Analyze the business transaction

Borrowing 100,000 from a bank

Answer 23

Liability

Question 24

How does the purchase of 30,000 dollars of equipment affect assets if paid in cash .

Answer 24

It doesn’t change

Question 25

How are current assets listed on the balance sheet listed

Answer 25

Nearness to cash

Question 26

How are property plants and equipment listed on the balance sheet

Answer 26

Permeance

Question 27

Current and long term liabilities typically are listed in

Answer 27

maturity

Question 28

What are 2 ways to measure a companies liquidity

Answer 28

Current ratio, working capital

Question 29

current assets - current liabilities

Answer 29

working capital

Question 30

current assets divided by current liabilities

Answer 30

current ratio

Question 31

Company name
Income statement
For the year ended 12/31/209 ( over a period of time)

Answer 31

income statement format

Question 32

What does an income statement include

Answer 32

revenues and expenses

Question 33

What does a multi step income statement have that a single doesnt.

Answer 33

Gross margin, income from operations, and non operating income and expense items

Question 34

Company name
Statement of retained earnings
For the year ended 12/31/2019 ( over a period of time)

Answer 34

Statement of retained earnings format

Question 35

Company’s name
statement of cash flows
For the year ended December 31, 2019 ( over a period of time)

Answer 35

Statement of cash flows format

Question 36

Though they do not show up on the balance sheet, how does revenue, expenses, and dividends affect the balance sheet

Answer 36

Retained earnings accounts