acct study guide Flashcards
Advantages:
o Easy to set-up or form
o Owner controlled
o Tax advantage- individual rate
Sole proprietorship
- bearing the risks and rewards associated
with ownership
Sole proprietorship
Disadvantages
o Personal liability
o Financing more difficult
o Limited Life
Sole proprietorships
– two are more owners (e.g., doctors, lawyers, CPAs
Partnership
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
Partnership
separate legal entity owned by stockholders (larger companies)
Can be private or public
corperation
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
corperation
The three types of business activities
financing, investing, operations
raising capital such as buying money selling stocks, paying dividends
financial activities
using capital/ cash to buy long term assets in operations to help generate company revenue
investing activates
Buying/selling property equipment or vehicles
examples of investing activities
___ activities are used for day to day activity in a company. Revenues increase assets and expenses decrease assets or create liabilities.
operating activities1
buying/selling inventory, paying wages, using cash, buying supplies, using supplies
examples of operating acvtivities
– shows income generated over a period of time
and sometimes called the Statement of Operations.
income statement
How do you calculate net income/loss
revenues - expenses
– 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
retained earnings statement
How do you set up a retained earnings statement
1 - Beginning RE
2- Net income/loss
3- Dividends
4- Ending RE
What statement does net income show up on
Income statement
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
Balance sheet
What is the equation used to balance
assets = liabilities + Stockholders equity
– shows sources and uses of cash over a
period of time among three categories
Statement of cash flow
Three types of cash flow
Cash flow from operating, financing, investing
Analyze the business transaction
Borrowing 100,000 from a bank
Liability
How does the purchase of 30,000 dollars of equipment affect assets if paid in cash .
It doesn’t change
How are current assets listed on the balance sheet listed
Nearness to cash
How are property plants and equipment listed on the balance sheet
Permeance
Current and long term liabilities typically are listed in
maturity
What are 2 ways to measure a companies liquidity
Current ratio, working capital
current assets - current liabilities
working capital
current assets divided by current liabilities
current ratio
Company name
Income statement
For the year ended 12/31/209 ( over a period of time)
income statement format
What does an income statement include
revenues and expenses
What does a multi step income statement have that a single doesnt.
Gross margin, income from operations, and non operating income and expense items
Company name
Statement of retained earnings
For the year ended 12/31/2019 ( over a period of time)
Statement of retained earnings format
Company’s name
statement of cash flows
For the year ended December 31, 2019 ( over a period of time)
Statement of cash flows format
Though they do not show up on the balance sheet, how does revenue, expenses, and dividends affect the balance sheet
Retained earnings accounts
