Chapter 1

Question 1

forms of business organizations

Answer 1

sole proprietorship, partnership, corporation

Question 2

sole prop

Answer 2

owned by one person
simple to set up, have all control of it
Ex: barber shops, farms, law offices, small retail

Question 3

partnership

Answer 3

2 or more people
formed when one person doesn;t have $
bring unique skills
formalize duties and contributions on partnership agreement
Ex: lawyers, docs, architects, accountants

Question 4

corporation

Answer 4

separate legal entity
owned by stockholders
shares of stock are easier to sell (more attractive than partnership)

Question 5

form of business that is easier to sell/transfer?

Answer 5

corporation

Question 6

form of business that is easier to raise funds?

Answer 6

Corporation because it raises small amounts from stockholders

Question 7

form of business with tax advantages?

Answer 7

sole prop and partnership.

Although sole prop and part have fill liability

Question 8

users of financial information

Answer 8

internal, external, ethics in financial reporting

Question 9

internal

Answer 9

those who plan, organize, and run the business. Ex: managers, supervisors, company officers and finance directors

Question 10

external

Answer 10

investors (to see if they want to buy stock), creditors ( to see if they can pay back),

Question 11

ethics in financial reporting

Answer 11

tax authorities (IRS), customers, labor unions, regulatory agencies

Question 12

sarbanes-oxley Act SOX

Answer 12

passed to reduce corporate corruption. top management must confirm, penalties enforced

Question 13

2 sources for outside funds (for corporations)

Answer 13

borrowing money and issuing stock

Question 14

creditors

Answer 14

person or entity whom corp owes money to

Question 15

liabilities

Answer 15

amounts owed to creditors

Question 16

note payable

Answer 16

money borrowed from bank

Question 17

bonds payable

Answer 17

debt securities sold to investors

Question 18

common stock

Answer 18

total amount paid in by stockholders for the shares they purchase. used to obtain funds. results when company sells stock

Question 19

debt incurred by creditor vs stockholder

Answer 19

creditors come 1st. have the legal right to be paid back after a certain amount of time

Question 20

dividends

Answer 20

payments done by corporation to its stockholders to liquidate debt

Question 21

financing, investing, operation

Answer 21

raising money to start business, investing is buying equipment and buying stocks/bonds with extra cash, operating is the beginning of activities

Question 22

assets

Answer 22

resources owned by a business. Ex: property, plant, equipment

Question 23

revenue

Answer 23

increase in assets due to sale or service

Question 24

Accounts receivable

Answer 24

expecting payment (money) in the future.

Question 25

costs of goods sold

Answer 25

cost to make candy ingredients

Question 26

liabilities can raise form expenses

Answer 26

ex: purchase goods on credit

Question 27

balance sheet

Answer 27

to show what the business owns and what it owes

Question 28

income statement

Answer 28

to show how successful your business was for a period of time, report revenues and expenses

Question 29

retained earnings statement

Answer 29

reports how much of the previous income was distributed to you and the owners in the form of dividends, and how much $ allow for future growth

Question 30

statement cash flow

Answer 30

where your business obtained cash for a period of time and how that cash was used. reports the effects of operating, investing, and financing

Question 31

stockholders equity

Answer 31

money owed to owners

assets= liabilities + stockholders equity

Question 32

stockholders equity is comprised of 2 things

Answer 32

common stock and retained earnings

Question 33

study page 17

Answer 33

order and components of statements

Question 34

auditor’s report

Answer 34

prepared by independent outside auditor. follows CPA rules (certified public accountant