Chapter 1 - Introduction to accounting Flashcards
What is the 6 types of accounting and the descriptions?
Book keeping - only part of accounting (recording and classifying transactions
Financial accounting - accounting for revenues, expenses, assets and liabilities
Cost accounting - recording, classification, allocation and reporting of costs
Managerial accounting - provide information to enhance controls
Tax accounting - preparation and filing of tax forms
Auditing - reviewing and evaluating documents, records, and control systems
what is the 6 types of organizations?
Sole Proprietorship Partnership Limited Partnership Limited Liability Company (LLC) Corporations S Corporations
what is pros and cons of sole proprietorship?
Owner withdraw $ from the business. Business does not pay income tax but owner will pay income tax on his personal return Legally responsible for all debts
what is pros and cons of partnership?
- Greater financial strength. 2. Owners will pay taxes on their personal income tax return 1. Partners are taxed regardless they withdraw money or not. 2. Decision making can be hard. 3. have unlimited legal liability for the business
what is pros and cons of limited partnership?
Limited liability afforded to limited partners - Liability is limited to their investments but cannot actively participate in managing 1. Limited partners cannot actively participate in managing 2. Must have one general partner who is liable for all debts
what is pros and cons of limited liability company (LLC)?
Limited tax liability with favorable tax treatment of partnership and sole proprietorships May have unlimited number of owners who is not restricted to one class of stock - owner can be one person
what is pros and cons of corporations?
- Shareholders liability is limited to their investment 2. taxed only distributed amount 3. Equity can be raised by selling capital stock to public4. tax rate is lower than individual Double taxation - corporation and individual pay income tax
what is pros and cons of S corporations?
limited liability for owners and no double taxation Must have 1. 100 or less stockholders 2. only one class of stock
What is cost Principle?
Cost Principle - always use amount spent to purchase
what is business entity principle?
Business entity - maintains it’s own set of accounts and separate from the other financial interests of the owners
what is continuity of the business unit (going concern) principle?
Continuity of the business unit (Going concern) - it’s assumed that business will continue indefinitely and liquidation is not a prospect
what is unit of measurement principle?
Unit of measurement - US dollar
what is objective evidence principle?
Objective Evidence - Invoice or canceled check - always have back up
what is full disclosure principle?
Full disclosure - accomplished by reporting information in the body of the financial statements or in the footnotes to the financial statements
what is consistency principle?
Consistency - once one method is adopted, it should be followed unless change is disclosed
