Chapters 1-2 Flashcards
What Are the different Forms of business?
Sole Proprietorship
Partnership
Corporation
What is a Sole Proprietorship?
A business that is easy to set up and gives you lots of control. This also means you take on full liability
What is a partnership?
This are formed because one individual does not have enough economic resources. Some partners have unique skills that help.
What is a corporation?
company is owned by stockholders. The shares are easier to sell than a partnership.
What are the two main users of financial information?
Internal and External
What does external use encompass and who uses it?
External use is considered the secondary users of accounting. They include creditors, tax authorities, investors, customers, and regulatory authorities. External users are communicated accounting information usually in the form of financial statements.
What does internal use encompass and who uses it?
Internal use is considered the primary use of accounting. Those who use it are as follows: Management, employees, business owners. The purpose of this Accounting information is presented to internal users usually in the form of management accounts, budgets, forecasts
What are the different types of business activities?
Financing Activities
Investing Activities
Operating Activities
What is a Financing Activity?
This includes A category in a company’s cash flow statement that accounts for external activities that allow a firm to raise capital and repay investors, such as issuing cash dividends, adding or changing loans or issuing more stock.
This includes your Liabilities, Common stock, and dividends.
Financing is where you get the money to start your business and keeping track of where the money comes from to keep things running each year.
What is an investing activity?
This involves the purchasing of resources a company needs in order to operate. Computers, trucks, buildings, etc.
Basically investing activities is what creates a companies assets
What is an Operating activity?
The daily, weekly, yearly activities and transactions made to keep a business running. Your revenue and how you are making it.
What is revenue?
The increase in assets or decrease in liabilites
What are the four types of financial statements?
Balance sheet
Income statement
Cash flow statement
Retained earnings statement
What is a Balance sheet and its purpose?
it reports assets and claims to assets at a specific point in time.
Remember: Assets=Liabilities+stockholders Equity
What is a retained earnings statement?
This shows the amounts and cause of changes in retained earnings for a specific time period. This analyzes the net income of the company and the amount of dividends paid out
What is an income statement?
This reports a companies revenues and expenses and resulting net income or loss for a period of time.
What is a statement of cash flows?
This is made in order to provide financial information about the cash receipts and cash payments of a business for a specific period of time. It analyzes a companies cash position, and directly affects the companies operating, investing and financing activities.
What are the three types of ratios?
Profitability Ratio
Liquidity Ratio
Solvency Ratio
What is a profitability Ratio?
This measures the income or operating success of a company for a given period of time.
How do you find Earnings per share?
Net Income - Preferred Dividends / Average Common Shares Outstanding
What is a Liquidity Ratio?
Measures Short term ability of the company to pay its maturing obligations and to meet unexpected needs for cash
What is a Solvency Ratio?
Measures the ability of the company to survive over a long period of time.
What are the qualities of useful accounting information?
Relevance (how it relates to the business)
Timeliness (Presenting it in a timely manor)
Reliable (need to trust the information / needs to be correct)
Consistency (must be recorded the same each time)
Comparability (need to be able to compare it to past statements)
How do you find the current ratio?
Current Assets / Current Liabilities
