Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

Accounting 1 > Chapter 1 > Flashcards

Chapter 1 Flashcards

1
Q

Ways a business can be organized

A

sole proprietorship
partnership
corporation

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

sole proprietorship

A

a business owned by one person (ex: hair salon, auto repair shop, free lance editors)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

advantages of sole proprietorship

A

simple to establish
owner controlled
tax advantages that are more favorable than corp.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

disadvantages of sole proprietorship

A
  • proprietor personally liable for all business debts – they can come after all of my assets
  • financing (raising money, how you come up with cash) may be difficult
  • transfer of ownership may be difficult ex: retiring doctor trying to find someone to take his patients
  • Taxes –> Income x 35% = individual taxes
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

partnership

A

a business owned by two or more people (Examples include retail and service type businesses including professional practices (lawyers, doctors, etc.)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

advantages of partnership

A
  • simple to establish
  • shared control
  • broader skills and resources
  • tax advantages that are more favorable than a corporation
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

disadvantages of partnership

A
  • partners personally liable for all business debts
  • transfer of ownership may be difficult
  • taxes –> Income x 35% = partner’s taxes
  • (some try a limited liability partnership (LLP) to try to protect themselves a little bit)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

corporation

A

a separate legal entity owned by stockholders (ex: coca cola, exxon-mobil, citigroup, microsoft)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

advantages of corporation

A
  • easier to transfer ownership (easily buy/sell stock)
  • easier to raise funds (Corporations can either borrow money or sell stock to finance their projects)
  • no personal liability for stockholders
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

disadvantages of corporation

A

-unfavorable tax treatment resulting in higher taxes paid by stock holders (see below for explanation…)

  • corporation income x 35% = corporate income tax
  • dividend = distribution of income that goes to shareholders
  • dividends x 35% = individual tax return
  • ex: income of $100,000 x 35% = $35,000 corporate tax  dividends of $100,000 x 35% = $35,000
  • double taxation - taxed once at the corporate level and again at the individual level
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

accounting

A

information system that identifies, records, and communicates the economic events of an organization to interested users

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

types of users of accounting information

A

internal and external

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

internal users

A

users withing the organization.

  • marketing: what price will maximize the company’s net income
  • HR: can we afford to give employees pay raises?
  • finacnce: is cash sufficent to pay dividends to stockholders?
  • Management: which product is most profitable? what should be eliminated
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

external users

A

users who are outside the organization

  • investors (current and potential): Is the company earning satisfactory income? HOw does the company compare in size and profitability with competitors? Should I buy, sell, or hold this stock?
  • creditors: Will the co. be able to pay its debts as they come due? How risky is the co.?
  • IRS SEC, FTC, labor unions, customers: is the co. complying with rules and regulations? Is co. properly paying its taxes? Can the co. afford to pay increased wage and salaries? Will co. be able to stand behind its warranties?
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

creditors

A

suppliers and bankers; anybody who a co. owes money to

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

Sarbanes-Oxely Act (SOX)

A

passed in 2002 by Congress to reduce unethical corporate behavior and decrease the likelihood of future corporate scandals (in response to Enron and Worldcom scandal)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

results of SOX

A
  • Top management must now certify the accuracy of financial information
  • Penalties for fraudulent financial activity are much more severe

On a lesser note…

  • increased independence of the outside auditor who review the accuracy of corporate financial statements
  • increased the oversight of role of boards of directors
18
Q

steps for solving ethical dilemmas

A
  1. Recognize an ethical situation and the ethical issues involved.
  2. Identify and analyze the principal elements in the situation.
  3. Identify the alternatives, and weigh the impact of each alternative on various stakeholders.
19
Q

types of business activity

A

financing activities
investing activities
operating activities

20
Q

financing activities

A

cash is often obtained from outside sources to start of expand a business (also includes using cash to pay dividends to stockholders)

21
Q

primary sources of financing activity

A
  • borrowing from creditors which creates liabilities

- issuing ownership interests in the corp. to investors (selling common stock to shareholders)

22
Q

examples of borrowing which leads to liabilities

A 
bank loan (note payable)
debt securities (bonds payable)
goods on credit from suppliers (accounts payable)
23
Q

investing activities

A

cash raised through financing activities is used for investing in resources (assets) needed to operate the business (i.e. land, buildings, delivery trucks, equipment, computers, furniture)
-buying and selling big assets for themselves to improve their company

24
Q

operating activities

A

– Once a business has the assets it needs to get started, it begins its operations. Operating activities involve revenue and expenses.

  • Day-to-day business activities
  • Assets that result from operating activities include supplies, inventory, and accounts receivable.
25
Q

revenue

A
  • the increase in assets resulting from the sale of goods or the performance of services
  • Sources of revenue common to many businesses are sales revenue, service revenue, and interest revenue.
26
Q

expenses

A
  • the cost of assets consumed or services used in generating revenues
  • Expenses take their name from the type of asset consumed or service used. (ex: COST OF GOODS SOLD, selling expenses, marketing expenses, administrative expenses, interest expense, and income taxes are common types of expenses.
27
Q

income statement equation

A

revenue - expenses = net income/loss

28
Q

income statement

A
  • Reports the success or failure of the company’s operations for a period of time.
  • Summarizes all revenue and expenses for period—month, quarter, or year.
  • If revenues exceed expenses, the result is a net income. If expenses exceed revenue (negative), the result is a (net loss).
  • DIVIDENDS ARE PAYMENTS TO THE STOCKHOLDERS AND ARE NOT EXPENSES. (not an expense!!! Once companies figure out income, they can decide if they wish to distribute dividends)
  • amounts received from issuing stock or obtaining loans are not revenues.
29
Q

retained earnings statement

A
  • Reports the amount paid out in dividends and the amount of net income or net loss for a specific period of time.
  • Shows changes in the retained earnings balance during period covered by statement.
  • ending retained earnings represents net income since the inception of the business that has not been paid out as dividends.
  • Beginning Retained earnings + Net income – Dividends = Ending Retained Earnings
  • Shows how much earnings they’ve obtained since the company began; it’s a rolling amount
30
Q

how is accounting communicated?

A

through different financial statements

31
Q

balance sheet

A

-Shows the relationship between assets and claims on assets which include liabilities (claims of the creditors) and stockholders’ equity (claims of the owners) at a specific point in time..
-Assets and claims (liabilities and stockholders’ equity) must balance.
-The basic accounting equation; Assets = Liabilities + Stockholders’ Equity. The accounting equation is just that. It is an equation. The components can be moved in the same way the components of an algebraic equation can be moved.
-Assets = liabilities + equity
-

32
Q

assets

A
  • resources owned by the business (things of value)

- Assets: Cash, accounts receivable (money they’re waiting to receive/collect), inventory, land, equipment, buildings

33
Q

liabilities

A
  • creditors claims on total assets (obligation or debts of the business)
  • -Accounts payable (money that you will have to pay, opposite of accounts receivable), notes payable, mortgage payable (something you have to pay, something you OWE)
34
Q

stockholder’s equity

A

ownership claim on total assets

-Stockholder Equity: common stock, retained earnings ending

35
Q

statement of cash flows

A

-Provides information about cash receipts and cash payments for a specific period of time.
-Reports the cash effects of a company’s operations for a period of time.
-Shows cash increases and decreases from investing and financing activities.
-Indicates the increase or decrease in cash as well as the ending cash balance.
-Provides answers to three important questions:
(Where did the cash come from during the period? How was cash used during the period? What was the change in the cash balance during the period?)

36
Q

interrelationships of statements

A
  • Retained earnings statement uses the results of the income statement.
  • Balance sheet and retained earnings statement are also interrelated. The retained earnings amount on the balance sheet is the ending amount on the retained earnings statement.
  • Statement of cash flows relates to balance sheet information. It shows how the Cash account changed during the period.
37
Q

annual report

A
  • must be provided by all publicly traded US Companies to shareholders
  • always includes financial statements, MDA, Notes to the Financial Statements, and Auditor’s Report
38
Q

Management Discussion and Analysis

A

Covers three aspects of a company:

  • Its ability to pay near-term obligations
  • Its ability to fund operations and expansion
  • Its results of operations
39
Q

Notes to the financial statements

A
  • Clarify information presented in the financial statements
  • Provide additional detail (i.e. Describe accounting policies or explain uncertainties and contingencies)
40
Q

auditor’s report

A
  • (outside CPA firm comes in to check to make sure they information represented in the report is accurate, fair, and done correctly)
  • An auditor, a CPA, conducts an independent examination of the company’s financial statements.
  • The auditor gives an opinion if the financial statements provide a fair representation of the firm’s financial position and results of operations in accordance with generally accepted accounting principles. If they do, the auditor expresses an UNQUALIFIED OPINION.
  • If the auditor doesn’t express an unqualified opinion, users of the financial statements are skeptical that the statements give an accurate picture of the firm’s financial health.
41
Q

Ash Giffen what needs to be known about IFRS

A

IFRS - push to have international standards (international financial reporting standards)

Accounting 1 (4 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions