Chapter 1

Question 1

e-commerce

Answer 1

A method of conducting business where companies and consumers buy and sell goods and services over the internet

Question 2

Service business

Answer 2

A business that performs services or activities that benefit individuals or business customers

Question 3

Merchandising business

Answer 3

A business that purchases goods (sometimes referred to as merchandise or products) for resale to its customers

Question 4

Manufacturing business

Answer 4

A business that makes its products and then sells these products to its customers

Question 5

Capital

Answer 5

Funds a business used to operate or expand its operations

Question 6

Entrepreneur

Answer 6

Individual who is willing to risk the uncertainty of starting a business in exchange for the reward of earning a profit (and the personal reward of seeing the business succeed)

Question 7

Solvent

Answer 7

When a business is capable of paying off its debts

Question 8

Sole proprietorship, or sole trader

Answer 8

Business owned by one individual who is the sole investor of capital into the business

Question 9

Unlimited liability

Answer 9

Indefinite or unlimited personal liability for the debts incurred by the business. For a sole proprietorship, this means that the owners personal assets may be at risk if things go wrong in the business

Question 10

Limited life

Answer 10

A business that will cease when the business is sold or when a specific project is completed is said to have a limited life. For example, a sole proprietorship has a limited life because it ceases to exsist if the business is sold

Question 11

Partnership

Answer 11

Business owned by two or more individuals who each invest capital, time and/or talent into the business and share in its profits and losses

Question 12

Partnership agreement

Answer 12

Contract signed by partners of a partnership before the business begins operations

Question 13

Joint ownership

Answer 13

The idea that all partners jointly own all assets owned by a partnership

Question 14

Agent

Answer 14

A person who has the authority to act for another person

Question 15

Equity

Answer 15

Claims by creditors and owners against the assets of a business

Question 16

Company/corporation

Answer 16

A business entity that has been incorporated and registered by the Australian Securities and Investments Commission (ASIC) under the Corporations Act 2001

Question 17

Shareholders

Answer 17

Individuals who own shares (stock) in a company

Question 18

Accounting system

Answer 18

Process used to identify, measure, record and retain information about a business’ activities so that the business can prepare its financial statements

Question 19

Planning

Answer 19

Management activity that establishes a business’ goals and the means of achieving these goals

Question 20

Operating

Answer 20

Management activity that enables a business to conduct its business according to its plan

Question 21

Evaluating

Answer 21

Management activity that measures a business’ actual operations and progress against standards or benchmarks

Question 22

Internal users

Answer 22

Managers within a business who use information about the business for decision making

Question 23

Budgeting

Answer 23

Process of quantifying managers’ plans and showing the impact of these plans on a business’ operating activities

Question 24

Cost analysis, or cost accounting

Answer 24

Process of determining and evaluating the costs of specific products or activities of a business

Question 25

Management accounting

Answer 25

Identification, measurement, recording, accumulation and communication of economic information about a business for internal users in management decision making

Question 26

Financial accounting

Answer 26

Identification, measurement, recording, accumulation and communication of economic information about a business for external users to use in their various decisions

Question 27

External users

Answer 27

Individuals outside of a business who use the business’ information for decision making

Question 28

Generally accepted accounting principles (GAAP)

Answer 28

Currently accepted principles, procedures and practices that are used for financial accounting in many countries of the world, including Australia

Question 29

Profit

Answer 29

Difference between the total revenues of a business and the total costs (expenses) of the business during a specific time period

Question 30

Solvency

Answer 30

Business’ long term ability to pay its debts as they come due

Question 31

Financial statements

Answer 31

Accounting reports used to summarise and communicate financial information about a business

Question 32

Income statement

Answer 32

Accounting report that summarises the results of a business’ operating activities for a specific time period

Question 33

Net income

Answer 33

Excess of a business’ revenues over it expenses from providing goods or services to its customers during a specific time period

Question 34

Net loss

Answer 34

Excess of a business’ expenses over its revenues from providing goods or services to its customers during a specific time period

Question 35

Statement of changes in owners equity

Answer 35

A summary of the changes in the shareholders equity in a company that have occurred during a specific period of time

Question 36

Annual report

Answer 36

Document that includes a business’ income statement, balance sheet and cash flow statement, along with other related financial accounting information

Question 37

Sustainability

Answer 37

The recognition of intergenerational and intergenerational equity, where the meeting of the needs and wants of a person or group now should not compromise the ability of a future person or group to meet their needs and wants