Chapter 1 Quiz: Flashcards
What is a sole priopriotorship?
A form of business in which one person is the owner.
What is a partnership?
A business owned by two or more people associated as partners.
What is a corporation?
A separate legal entity for which evidence of ownership is provided by shares of stock.
What are the advantages & disadvantages of owning a sole proprietorship?
- reduced tax rates
- owner controlled
- simple to establish
(advantages)
—————————————————————
(disadvantages) - proprietor personally liable
- financing may be difficult
- transfer of ownership may be difficult
What are the advantages of owning a coorperation?
- Easy to raise funds
- Easy to transfer ownership
- No personal liability
(advantages)
—————————————————————
(disadvantages) - Unfavored tax treatment
What are the advantages of owning a partnership?
- Simple to establish
- Shared control
- Broader skills and resources
- Tax advantages
(advantages)
—————————————————————
(disadvantages) - Partners personally liable
- Transfer of ownership may be difficult
What is the definition of accounting?
The information system that identifies, records, and communicates the economic events of an organization to interested users.
What is the difference between internal and external users?
Internal: users within the organization.
External: users who are outside the organization.
- both use accounting to make finically informed decisions.
What is an investor?
(owners) use accounting information to make decisions to buy, hold, or sell stock.
What is a creditior?
Such as suppliers and bankers use accounting information to evaluate the risks of selling on credit or lending money.
What is the SOX act?
- Sarbanes-Oxley Act: to reduce unethical corporate behavior and decrease the likelihood of future corporate scandals.
What is financing and why do companies need to finance?
- ## Financing is done to increase a company’s continuous need to expand their financial resources.(This is primarily done through the following ways:
——————————————————————–
1.) Borrowing from creditors: - Liabilities are amounts owed to creditors.
- Note payable (bank loan)
- Bonds payable (debt securities)
- ) Selling shares of stock to investors.
- Common stock (total amount paid in by stockholders for the shares they purchased)
- Dividends (payments to stockholders)
What are the three principle acts of Business?
- ) Financing activities
- ) investing activities
- ) Operating activities
What is investing and why do companies need to invest?
Investing is the purchase of resources that a company needs in order to operate (assets).
- Examples of assets:
- Land
- Building
- Equipment
- Cash
- Investments in debt or equity securities of another company
What is operating and what do companies need to do in order to “operate”?
- Define:
- Revenue:
- Expenses:
- Net Income:
- Net Lose:
- ## Operating activities consist of the primary activities for which the organization is in business.Revenue: is the increase in assets or the decrease in liabilities resulting from the sale of goods or the performance of services in the normal course of business.
Expenses: are the cost of assets consumed or services used in the process of generating revenues.
Net income: When revenues exceed expenses
Net Lose: When expenses exceed revenues
What are the four financial statements, and how are they prepared?
1.) Income Statement: (monthly, quarterly)
*Revenue
(-)
*Expenses:
= Net Income/loss
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2.) Retained Earnings Statement: (monthly, quarterly)
- Net Income
(-)
- Dividends
= retained earnings
——————————————————–
3.) Balance Sheet: ( day)
*Assets: most liquid –> Least
Cash
Accounts receivable
Supplies
Prepaid expenses
Equipment:
- Liabilities:
- Accounts Payable.
- Notes Payable
*Stock Holders equity:
- Common stock
(+)
- Retained Earnings
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4.) Statement of cash flow:
- The statement reports the cash effects of a company’s operating, investing, and financing activities.
what is the basic accounting equation?
- Assets = Liabilities + Stock Holder’s Equity
What is included in the annual report?
- Financial statements
- Management discussion and analysis
- Notes to the financial statements
- Independent auditor’s report
The management discussion and analysis (MD&A) section presents management’s views on the company’s….
- Ability to pay near-term obligations
- Ability to fund operations and expansion
- Result of operations
What is an unqualified opinion by an outside Auditor, WHO HAS AN NO INTREST OR INVOLVEMENT TO THE COMPANY THEY ARE REVIEWING?
If the auditor is satisfied that the financial statements provide a fair representation of the company’s financial position and results of operations in accordance with GAAP, then the auditor expresses an unqualified opinion.
What does the accounting information system do?
It keeps track of the results of each of these business activities. (Financing, operating, and investing)
What information is included in the income statement title for the Sierra corporation for the month of October?
Sierra Corporation
Income Statement
For the Month Ended October 31, 2022
What information is included in the Retained earnings statement title for the Sierra corporation for the month of October?
Sierra Corporation
Retained Earnings Statement
For the Month Ended October 31, 2022
What information is included in the Balance sheet title for the Sierra corporation for the month of October?
Sierra Corporation
Balance Sheet
October 31, 2022
What is within the annual report?
A report prepared by corporate management that presents financial information including financial statements, a management discussion and analysis section, notes and an independent auditor’s report.
