Chapter 1: Definition to Type of Business Ownership Flashcards
Definition, Three Activities of Accounting, Users of Accounting, Types of Business Ownership
What are the three activities of accounting?
- Identification
- Recording
- Communication
Why is accounting important in economics?
Accounting enables units to make choices in the allocation of scarce resources.
What is accounting?
Accounting is a set of concepts and techniques used to measure and report financial information of an economic unit.
The process of selecting and realizing economic events relevant to a business
Identification
The process which involves the retention of a systematic, chronological diary of events (in monetary units)
This also entails in the classification and summarization of economic events.
Recording
This process involves sharing the collected information to the interested users through accounting reports, which are known as financial statements.
Communication
This process also involves the analyzation and interpretation of the reported information through the use of rations, percentages, and chart.
Interpretation also entails explaining the uses, meaning and limits of the data.
Communication
Accounting involves the entire process of ____, _____, and ________ economic events
Identifying, Recording, and Communicating
What are the two broad groups of users of financial information?
Internal and External Users
_____ users of accounting information are those who are within businesses.
Internal
_______ Accounting provide internal reports to assist users within companies to make decisions.
Managerial
What type of user does the following fall under?
Finance
Internal User
What type of user does the following fall under?
Marketing
Internal User
What type of user does the following fall under?
Human Resources
Internal User
What type of user does the following fall under?
Management
Internal Users
____ Users are units outside a company who seek financial information of said company.
External Users
______ accounting provide economic and financial information to recognize the company’s financial state and examine the company’s compliance with standardized accounting regulations and ethics.
Financial
What type of user does the following fall under?
Investors
External User
What type of user does the following fall under?
Creditors
External User
_____, also known as Equity Investors, are those who utilize accounting information to decide whether to buy, hold, or sell ownership shares of a company.
Investors
_____, also known as Debt Investors, are those who utilize accounting information to scrutinize the risk of granting or lending money.
Creditors
One owner is solely responsible for all business decisions. They will reap both the profits and the losses, with a small capital being needed to start a business.
Their personal transactions are not included, and their liabilities include the assets of the owner/s.
Sole Proprietorship
Two or more people are involved in the business decisions. A contract will set the terms, duties, and division of net income or loss of each partner.
Liabilities will be answered by at least one of the persons involved.
Partnership
A type of business which is a separate legal entity under state law and are divided by shares. The holders (shareholders) have limited liability, where the owner can choose to transfer part of their ownership to others.
This type of business often enjoys long/unlimited life.
Corporation
