Chapter 1

Question 1

Sole Proprietorship

Answer 1

• Simple to establish
• Owner controlled
• Tax Advantages

Question 2

Partnership

Answer 2

• Simple to establish
• Shared control
• Broader skills and resources
• Tax Advantages

Question 3

Corporation

Answer 3

• Easier to transfer ownership
• Easier to raise funds
• No personal Liability

Question 4

Who are the external users

Answer 4

Creditors

Investors

Question 5

How will the study of accounting help you?

Answer 5

A working knowledge of accounting is desirable for virtually every field of business. Some examples of how accounting is used in business careers include the following:

- General management 
- Marketing

Question 6

The ______ _____ ____ keeps track of the results of each of these business activities.

Answer 6

accounting information system.

Question 7

Two primary sources of outside funds are

Answer 7

1. Borrowing money

2. Issuing (selling) shares of stock for cash

Question 8

Borrowing money

- Amounts owed are called ______.

Answer 8

Liabilities

Question 9

Borrowing money

- Party to whom amounts are owed are _______.

Answer 9

Creditors.

Question 10

Borrowing money

- ______ _____ and _____ _____ are different types of liabilities.

Answer 10

Notes payable and bonds payable.

Question 11

Issuing

Answer 11

(selling) shares of stock for cash

Question 12

_____ _____ is the term used to describe the amount paid by stockholders for shares they purchase

Answer 12

Common stock

Question 13

Payments to stockholders are called _____.

Answer 13

dividends.

Question 14

Purchase of resources a company needs to operate

Answer 14

Computers, delivery trucks, furniture, buildings.

Question 15

Resources owned by a business are called _____.

Answer 15

assets

Question 16

______ are another example of an investing activity.

Answer 16

Investments.

Question 17

Once a business has the assets it needs, it can begin its ______.

Answer 17

operations

Question 18

Amounts earned from the sale of products and other sources

Answer 18

Revenues

Question 19

Types of revenues

Answer 19

Sales revenue, service revenue, and interest revenue.

Question 20

Inventory

Answer 20

goods available for sale to customers.

Question 21

Accounts receivables

Answer 21

Right to receive money from a customer as the result of a sale.

Question 22

_____ - Cost of assets consumed or services used. (Cost of goods sold, selling, marketing, administrative, intereset, and income taxes expense).

Answer 22

Expenses

Question 23

Liabilities arising from expenses include what?

Answer 23

accounts payable, interest payable, wages payable, sales taxes
payable, and income taxes payable.

Question 24

____ ____ - when revenues exceed expenses.

Answer 24

Net income

Question 25

_____ ____ - when expenses exceed revenues.

Answer 25

Net loss.

Question 26

Reports revenues and expenses for a specific _______,

Answer 26

period of time

Question 27

Past net income provides information for _______.

Answer 27

predicting future net income.

Question 28

Net income is needed to determine the ____ in ____.

Answer 28

ending balance and retained earnings.

Question 29

Statements shows amounts and ______ in retained earnings during the period

Answer 29

Causes of changes

Question 30

______ as that covered by the income statemente.

Answer 30

Time period is the same

Question 31

Users can ______ payment practices.

Answer 31

evaluate dividend.

Question 32

Ending balance in ____ is needed in preparing the _____.

Answer 32

retained earnings; balance sheet

Question 33

Reports assets and claims to assets at a specific _______.

Answer 33

point in time.

Question 34

Assets = _____ + ______.

Answer 34

Liabilities + Stockholders’ Equity.

Question 35

Lists ____, followed by liabilities and stockholders’ equity.

Answer 35

assets first.

Question 36

Assets

Answer 36

Resources that should provide a future

economic benefit

Question 37

Liabilities

Answer 37

Resources (money, services or assets) OWED to others.

Question 38

Shareholders Equity

Answer 38

The amount of resources available to
shareholders after all assets have
been used to pay off all liabilities

Question 39

U.S. companies that are publicly traded must provide

shareholders with an _______.

Answer 39

annual report.

Question 40

The annual report always includes:

Answer 40

 Financial statements
 Income, Retained Earnings, Balance Sheet, Cash Flows
 Notes to the Financial Statements:
 Management discussion and analysis.
 Notes to the financial statements.
 Auditor's report.

Question 41

______ - opinion as to the fairness of the presentation
of the financial position and results of operations and
their conformance with generally accepted accounting
principles.

Answer 41

Auditor’s

Question 42

Only certified public accountants (CPA) may perform

____.

Answer 42

audits

Question 43

Only _______ may perform

audits.

Answer 43

certified public accountants (CPA)