Chapter 1

Question 1

What is a business?

Answer 1

A business is a legal organization that attempts to create value by exchanging products with customers for money

Question 2

What is a proprietorship?

Answer 2

-(oscluo)
-Owned by one person
-Simple to set up
-Owner has control over business
-Limited life
-Unlimited liability
-income tax paid by owner

Question 3

What is a corporation?

Answer 3

-(sicecpp)
-owned by shareholders (owners of shares)
-Indefinite life
-Ease of raising capital
-Shareholders enjoy limited liability
-Corporation pays income tax
May be public or private:
i) Public if shares are publicly traded
ii) Private if shares are not available to the general public

Question 4

What is a partnership?

Answer 4

-(mfluip)
-Owned by more than one person
-Formalized in a written agreement
-Limited life
-Each partner has unlimited liability
-Income tax paid by individual partners

Question 5

What does IFRS stand for?

Answer 5

International Financial Reporting Standards

Question 6

What does ASPE stand for?

Answer 6

Accounting Standards for Private Enterprises

Question 7

What standard do Publicly-traded corporations use?

Answer 7

International Financial Reporting Standards (IFRS)

Question 8

Which standard do Private corporations use?

Answer 8

Private corporations may use IFRS or ASPE

Question 9

Proprietorships and partnerships generally follow which standard?

Answer 9

Proprietorships and partnerships generally follow ASPE for external reporting - no legal requirement

Question 10

What are some examples of internal users?

Answer 10

-Manage companies, not-for-profit, & government organizations
-Company officers, managers and directors in finance, marketing, human resources, production and other functional areas

Question 11

What are some examples of external users?

Answer 11

Do not work for the company. This includes:
–Investors, lenders, and other creditors
–Customers, employees, labour unions
–Taxing authorities and regulators

Question 12

What are the 3 types of business activities?

Answer 12

1.) Financing
2.) Investing
3.) Operating

Question 13

What is financing?

Answer 13

Obtaining (and repaying) funds to finance the operations of the business

Question 14

What is investing?

Answer 14

Purchase or sale of long-lived assets needed to operate the company

Question 15

What is operating?

Answer 15

Operating activities are the main day-to-day activities of the business

Question 16

What is the formula for profit/net income?

Answer 16

Net Income (loss) = Revenues − Expenses

Question 17

What are the 4 financial statements?

Answer 17

1.) Statement of income
2.) Statement of changes in equity
3.) Statement of financial position
4.) Statement of cash flows

Question 18

What is the purpose of the income statement?

Answer 18

Reports revenues and expenses for a specific period of time

Question 19

What is the purpose of the statement of changes in equity?

Answer 19

-Reports the changes in each component of shareholders’ equity during a period of time
-Mainly = Share capital and Retained Earnings

Question 20

What is the purpose of the Statement of Financial Position (Balance Sheet)?

Answer 20

Shows the assets, liabilities and shareholders’ equity at a specific point in time

Question 21

What is the purpose of the Statement of cash flows?

Answer 21

Shows, for a specific period of time, how a company obtained cash and how that cash was used.

Question 22

What is the order of financial statements?

Answer 22

1.) Income statement
2.) Statement of changes in equity
3.) Statement of financial position
4.) Statement of cash flows

Question 23

What is the “Accounting Equation”?

Answer 23

Assets = liabilities + shareholders’ equity

Question 24

What is share capital?

Answer 24

Amounts contributed by shareholders

Question 25

What is retained earnings?

Answer 25

Cumulative net income retained in the corporation LESS any dividends paid to shareholders