Chapters 1-2

Question 1

What Are the different Forms of business?

Answer 1

Sole Proprietorship
Partnership
Corporation

Question 2

What is a Sole Proprietorship?

Answer 2

A business that is easy to set up and gives you lots of control. This also means you take on full liability

Question 3

What is a partnership?

Answer 3

This are formed because one individual does not have enough economic resources. Some partners have unique skills that help.

Question 4

What is a corporation?

Answer 4

company is owned by stockholders. The shares are easier to sell than a partnership.

Question 5

What are the two main users of financial information?

Answer 5

Internal and External

Question 6

What does external use encompass and who uses it?

Answer 6

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.

Question 7

What does internal use encompass and who uses it?

Answer 7

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

Question 8

What are the different types of business activities?

Answer 8

Financing Activities
Investing Activities
Operating Activities

Question 9

What is a Financing Activity?

Answer 9

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.

Question 10

What is an investing activity?

Answer 10

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

Question 11

What is an Operating activity?

Answer 11

The daily, weekly, yearly activities and transactions made to keep a business running. Your revenue and how you are making it.

Question 12

What is revenue?

Answer 12

The increase in assets or decrease in liabilites

Question 13

What are the four types of financial statements?

Answer 13

Balance sheet
Income statement
Cash flow statement
Retained earnings statement

Question 14

What is a Balance sheet and its purpose?

Answer 14

it reports assets and claims to assets at a specific point in time.
Remember: Assets=Liabilities+stockholders Equity

Question 15

What is a retained earnings statement?

Answer 15

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

Question 16

What is an income statement?

Answer 16

This reports a companies revenues and expenses and resulting net income or loss for a period of time.

Question 17

What is a statement of cash flows?

Answer 17

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.

Question 18

What are the three types of ratios?

Answer 18

Profitability Ratio
Liquidity Ratio
Solvency Ratio

Question 19

What is a profitability Ratio?

Answer 19

This measures the income or operating success of a company for a given period of time.

Question 20

How do you find Earnings per share?

Answer 20

Net Income - Preferred Dividends / Average Common Shares Outstanding

Question 21

What is a Liquidity Ratio?

Answer 21

Measures Short term ability of the company to pay its maturing obligations and to meet unexpected needs for cash

Question 22

What is a Solvency Ratio?

Answer 22

Measures the ability of the company to survive over a long period of time.

Question 23

What are the qualities of useful accounting information?

Answer 23

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)

Question 24

How do you find the current ratio?

Answer 24

Current Assets / Current Liabilities

Question 25

How do you find the working capital ratio?

Answer 25

current assets - current liabilities

Question 26

How do you find the debt to asset ratio?

Answer 26

Total liabilities / total assets

Question 27

How do you find free cash flow?

Answer 27

Net cash provided by operating activities - capital expenditures - cash dividends

Question 28

What are the four assumptions of financial reporting?

Answer 28

Monetary Unit Assumption
Economic Entity Assumption
Periodicity Assumption
Going Concern Assumption

Question 29

What is the monetary unit assumption?

Answer 29

This requires that only those things that can be expressed in money are included in the accounting records. This means things such as costumer satisfaction is not included

Question 30

What is the economic Entity Assumption

Answer 30

Every economic entity can be separately identified and accounted for. can not blur company and personal transactions together.

Question 31

What is a periodicity Assumption?

Answer 31

This means the life of a business can be divided into artificial time periods and that useful reports covering periods can be prepared for business.

Question 32

What is the going concern assumption?

Answer 32

Assumption that a business plans to operate in the future

Question 33

What are the four principles of financial reporting?

Answer 33

Measurement
Historical Cost
Fair Value
Full Disclosure

Question 34

What is the the measurement principle?

Answer 34

Things accounted for must have relevance and a way to be measured

Question 35

What is the historical cost principle?

Answer 35

Companies must report / record assets at their original cost

Question 36

What is the fair value principle?

Answer 36

reporting assets and liabilities at a fair value. This is the price to sell an asset or settle a liability / making everything agreeable

Question 37

Full Disclosure principle

Answer 37

This requires companies to disclose all circumstance and events that would make a difference to financial statement users.

Question 38

Study standard classificaltions on classified balance sheet

Answer 38

Like current assets ya dinkus