Business Organizations Flashcards
What is Accounting?
This is the process of identifying, measuring, recording, classifying, summarizing and communicating financial information to make informed decisions by the users of the information.
List 5 objectives of accounting.
Making a profit or loss, provide information for decision making, how much cash they have, how much the business is worth and how much they owe.
What are the types of business organizations?
Sole Proprietorship, Partnership and Corporation.
What is another name for corporation?
Limited company.
Explain the difference among the business organizations.
A Sole Proprietorship is owned by one person or a married couple, a Partnership is owned by two or more persons and a Corporation is a legal entity owned by shareholders.
Explain the Legal difference of Liability among the 3.
Sole Proprietorship and partnership have unlimited liability while corporation have limited liability.
Explain the Legal difference of Structure among the 3.
Corporations have a structure concisting of shareholders, directors, officers and employees, whereas, S.P. and Partnership have an informal structure.
Explain the Legal difference of Taxation among the 3.
S.P and Partnership report their company’s profit and loses directly in their personal income tax return. Corporations pay double taxes from the company itself and the shareholders.
Explain the Legal difference of Formalities among the 3.
Corporations are required to have at least one annual meeting and have to keep strict financial records for the company, whereas SP and Partnership do not have these formalities.
List 2 advantages of each organization.
SP - Simple to establish, Owner controlled.
Partnership - Simple to establish, broader skills and resources.
Corporations - No personal liability, easier to transfer ownership.
List 2 disadvantages of each organization.
SP - Unlimited liability, Raising capital is limited.
Partnership - Unlimited liability, High risk of disagreements.
Corporations - Expensive to establish, Affairs in the company are public.
What are the types of business activities?
Financing, Investing and Operating
Explain each type of business activities with examples.
Financing must have source(s) o funds to finance its operations. eg. loans, shares and bank overdraft.
Investing is the money raised through financing activities used to purchase resources for the company. eg. land, building and equipment.
Operating is using the assets to generate revenue.
