Quiz 1 Flashcards
Sole proprietorship
business owned by one person
Sole proprietorship advantages
easy to establish
owner controlled
tax advantages
Sole proprietorship disadvantages
unlimited liability for debts of the business
partnership
business owned by 2 or more persons
partnership advantages
easy to establish
shared control (more skills and resources)
tax advantages
partnership disadvantages
unlimited liability for the debts of the business
corporation
business organized as a separate legal entity owned by stockholders
corporation advantages
easy to transfer ownership
corporation disadvantages
double taxation
external users
people outside of the corporation that want to know whats going on inside
- investors, creditors, govt agencies, etc.
balance sheet
reports amount of assets, liabilities, and stockholder’s equity at a point in time
A = L + SE
Assets are investing activities
Liabilities and SE are financing activites
income statement
summarizes revenue and expenses over a period of time
- shows how profitable during specific time
- revenue > expenses = net income
- expenses > revenue = net loss
statement of retained earnings
shows how the prior income was distributed to the owners (dividends) vs. reinvested
- shows CHANGES in retained earnings during period of time
statement of cash flows
shows where cash came from and how it was used during the preceding period
- inflows and outflows of cash
- separates cash into operating, investing, and financing activities
operating activities
cash flows directly relate to earning income (revenue and expenses)
investing activities
cash flows related to acquisition or sale of companies productive assets
financing activites
cash flows directly related to the receipt of money from investors/ creditors and the payment of money to investors/ creditors
balance sheet equation
assets = liabilities + stockholder’s equity
income statement equation
revenue - expenses = net income
statement of retained earnings equation
beginning retained earnings + net income - net loss - dividends = ending retained earnings
statement of cash flows equation
+/- cash from operating
+/- cash from investing
+/- cash from financing
= net change in cash
Elements to a public company’s annual report (10K)
financial statements
management discussion and analysis
notes to financial statements
auditor’s report
financial statements
balance sheet, income statement, statement of retained earnings, statement of cash flow
management discussion and analysis
management explains trends, significant events, etc.
notes to financial statements
provide additional detail for account balances
auditors report
independent 3rd party offering assurance that info is correct
