Chapter 1: basic accounting

Question 1

Sole Proprietorships

Answer 1

• One owner
• Owner has unlimited personal liability
• No legal distinction between owner ad business but separate accounting records
  -> most common but least common to generate high revenue
  eg. small shops

Question 2

Partnership

Answer 2

• Divided among partners
• All partners have unlimited personal liability
• No legal distinction between owner ad business but separate accounting records
  eg. law firms

Question 3

Limited partnership

Answer 3

• Subtype of partnership
• Limited partners only liable for the amount up to the value of their investement

Question 4

Corporation

Answer 4

• Stockholders
• corporations are separate legal entities Owners are not liable
• Generate the highest revenue
  -> least common form

Question 5

historical cost principle

Answer 5

dictates that companies records asset at their costs

Question 6

Fair Value Principle

Answer 6

states assets and liabilities should be reported at fair value

Question 7

Monetary unit Assumption

Answer 7

requires that companies include in the accounting records only transaction data that can be expressed in money terms

Question 8

Economic Entity Assumption

Answer 8

Activities of the entity be kept separate and distinct from the activities of its owner and all other economic entities

Question 9

Elements of the Financial Statement

Answer 9

• Assets
• Liabilities
• Equity (Share Capital-Ordinary and Retained Earnings -> revenues, expenses, dividends)

Question 10

Accounting Equation

Answer 10

Assets = Liabilities + Equity

Question 11

Assets Account + Depreciation

Answer 11

Asset: Increase in Dr and decrease in Cr
Depreciation: Decrease in Dr and Increase in Cr

Question 12

Account Liabilities

Answer 12

decrease in Dr. and increase in Cr

Question 13

Account Share Capital

Answer 13

Decrease in Dr and Increase in Cr.

Question 14

Account in retained earnings

Answer 14

Decrease in Dr and Increase in Cr.

Question 15

Account Revenue

Answer 15

Decrease in Dr and Increase in Cr.

Question 16

Account Dividend

Answer 16

Increase in Dr and decrease in Cr

Question 17

Income statement

Answer 17

measures company’s performance from operationg and non-operating activities over a certain period of time
-> Sales, selling, General and Admistrative and Expenses, Interest EXpenses, net income

Question 18

Retained Earnings Statement

Answer 18

changes in retained earnings over a certain period of time
-> equity beginning of the year, net income, equity at the end of the year

Question 19

Balance sheet

Answer 19

assets, liabilities, equity at specific point in time
-> cash, inventory, short-term debt, equity, RE

Question 20

Cash Flow statement

Answer 20

cash inflows and outflows from operating, investing, financing activities over a certain time period
->net income, neet borrowing, cash beg of the year, equity at the end of the year