Chapter 1 Flashcards
What is a sole proprietorship?
A business owned by one person
What are the advantages of a sole proprietorship?
- Simple to set up
- Gives you control
- Tax advantages
What is a partnership?
A business owned by two or more people.
What are the advantages of a partnership?
- easier initial start up due to money
- having two people would bring different skills
- Tax advantages
What is a corporation?
A business organized as a separate legal entity owned by stockholders
What are the advantages of a corporation?
- simple to transfer ownership
- Easier to raise funds
- no liability
What is accounting?
The information system that identifies, records, and communicates the economic events of an organization to interested users?
What two groups can users of accounting information be divided into?
Internal and external users
What are internal users?
Managers, production supervisors, finance directors, and company officers
What does accounting provide for internal users?
Internal reports, such as financial comparisons of operating alternatives, projected income, forecasts of cash needs, financial statements
What are external users?
Investors (owners) and Creditors
What does the Sarbanes-Oxley Act do?
- Management must certify the accuracy of financial info
- Much higher penalties
What are the 3 types of business activities?
Financing, investing, and operating
What is financing?
This is when a person uses personal savings or a loan
What is investing?
This is when money is used to purchase equipment to run the business
What is operating?
Activities of making and selling a product
What is the accounting information system?
This keeps track of the results of each of the various business activities
What are creditors?
Persons or entities that a company owes money to
What are liabilities?
The amount owed to creditors
What is a note payable?
Money owed to a bank
What are Bonds Payable?
debt securities sold to investors that must be repaid at a particular date
What is common stock?
Term used to describe the total amount paid in by stockholders for the shares they purchased
What are dividends?
Cash payments to stockholders
What are assets?
Resources owned by a business
What is revenue?
The increase in assets or decrease in liabilities resulting from the sale of goods
What are accounts receivable?
The right to receive money from a customer at a later time
What are expenses?
Costs inquired when purchasing items when generating revenue
When does net income happen?
When revenue exceeds expenses
When does net loss happen?
When expenses exceed revenue
What are the four types of financial statements?
- Income statement
- Retained earnings
- Balance sheet
- Statement of cash flows
What is an income statement?
This is used to show how successfully a business performed during a period of time
What is a retained earnings statement?
This is used to indicate how much of previous income was distributed to you and other owners in the form of dividends
What is a balance sheet?
This is used to present a picture at a point of time of what your business owns and owes
What is a statement of cash flows?
Used to show where your business obtained cash during a period and how that cash was used
What are retained earnings?
The net income retained in the corporation
What is stockholder’s equity?
The owners claim to assets. Consists of retained earnings and common stock
What is the basic accounting equation?
Assets = Liabilities + Stockholders Equity
What are the notes to the financial statements?
These clarify the financial statements and provide additional detail
What is an auditor’s report?
It states the auditor’s opinion as to the fairness
What is the formula for Ending Stock Holder’s Equity?
Beginning SE + Revenue - Expense (Net Income) - Dividends
