Equity

Question 1

Equity

Answer 1

Financial stake and ownership interest of the owner(s) in the business

Question 2

How do you calculate net income?

Answer 2

Total revenue - all expenses

Question 3

Retained earnings

Answer 3

Accumulated net income from previous years minus any dividends paid to shareholders

Question 4

Dividends

Answer 4

What a business pays out to shareholders from business earnings

Question 5

Sole proprietorship

Answer 5

-one owner has complete control of the business and provides capital from their own equity
-unlimited personal liability

Question 6

Owner’s draw

Answer 6

when a sole proprietor takes money out of the business

Question 7

Partnership

Answer 7

Two or more owners work together and contribute partner equity to build the business
-unlimited personal liability

Question 8

Partner’s draws

Answer 8

In a partnership, when the owners want to take money out of the business

Question 9

LLC

Answer 9

“Limited Liability Company”
-owned by one or more people
-owners contribute their own equity as members of the business
-no personal liability

Question 10

Distributions

Answer 10

When LLC members withdraw funds from the business

Question 11

How is distribution amount calculated?

Answer 11

Based on the member’s ownership percentage

Question 12

Membership units

Answer 12

The equity belonging to individual members of an LLC
-like stocks
-also called capital interest

Question 13

Common stock

Answer 13

Capital received in exchange for issuing of stock to shareholders

Question 14

C corporation

Answer 14

-owned by one or more shareholders
-no personal liability
-shareholders pay in capital and receive common stock
-shareholders can elect and remove directors and make business decisions

Question 15

Shareholder equity

Answer 15

The dollar amount that would be returned to shareholders if the business were liquidated and all outstanding debts were paid

Question 16

S corporation

Answer 16

-business with 1-100 owners, all of which must be US citizens
-must maintain a board of directors
-owners do not carry any personal liability
-has tax advantages

Question 17

Non-profit

Answer 17

-mission-driven organization
-has founders or a board instead of owners or shareholders
-use earnings to fulfill their mission; does NOT distribute money to its members

Question 18

Net assets

Answer 18

Non-profit’s version of equity

Question 19

Capital contributions

Answer 19

Funds or assets that owners/investors contribute to a business for operations and growth
-can be cash, property, equipment

Question 20

How do you calculate total owner’s investments?

Answer 20

Owner investments - owner draws

Question 21

How do you calculate owner’s equity?

Answer 21

Total owner’s investments + retained earnings + net income

Question 22

Which business type(s) pay(s) dividends?

Answer 22

S- and C-corps

Question 23

Capital

Answer 23

Financial monies the business uses for operations and growth