Lesson 1 Accounting

Question 1

Name the three forms of businesses and an example of each.

Answer 1

Corporation - Tim Hortons
Partnership - Law Firm
Proprietorship - Hair Salon

Question 2

What are the two criteria in why a business would set itself up in a certain form? (Why would a business choose corporation or partnership etc.?)

Answer 2

1. Mitigate operational risk

2. Ease of capital formation

Question 3

Advantages and Disadvantages of a Proprietorship

Answer 3

Ad: Easy to set up, no legal requirements, business can start immediately
Dis: Owner personally responsible for all debt and losses, life of the business determined by the life of the owner.

Question 4

Advantages and Disadvantages of a Partnership

Answer 4

Ad: More resources, more people, higher chances of success
Dis: Each partner can bind all others by their individual actions. Rarely see this business unless required by law.

Question 5

Advantages and Disadvantages of a Corporation

Answer 5

Ad: Limited liability protects individual owners from the co-owners or managers.
Dis: More requirements, more paperwork, and legal formalities.

Question 6

Name the Two types of Corporations

Answer 6

Private: Do not invite general public to buy, cannot sell its ownership into any public stock exchange, restricted by its own rules and regulations.
Public: General public can invest in ownership, ease in buying and selling shares to the public.

Question 7

Proprietorship

Answer 7

One owner
Legal Status: Not separate from that of its owner.
Responsibility of owners for debts of business entity: Unlimited legal liability.

Question 8

Partnership

Answer 8

Two or more owners
Legal Status: Not separate from that of its owners. Responsibility of owners for debts of business entity: Unlimited legal liability.

Question 9

Corporation

Answer 9

Many Owners
Legal Status: Separate Legal Entity
Responsibility of owners for debts of business entity: Owner’s liability limited to their investment