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
