Section 2 Chapter 1 Flashcards
Accounting is?
An information system
- Measures business activities
- Processes data into reports
- Communicates results to decision makers
- is “the language of business”
Explain why accounting is the language of business
People make decisions > Business transactions occur > Companies report their results > People make decisions etc
How do individuals use accounting information?
- Managing personal bank accounts
- When deciding to buy or rent
- Budgeting monthly income/expenses
How do investors/creditors use accounting information?
Investors want to know how much they can earn on an investment
Creditors want to know when they are going to be paid
How do Regulatory bodies use accounting information?
Internal Revenue Service (IRS) requires businesses, individuals, and other organizations to pay taxes
U.S. Securities and Exchange Commission (SEC) requires public companies to provide financial reports
How do Non-profit Organizations use accounting information?
File period reports with the IRS and state governments
Two Kinds of Accounting
-Financial Accounting-
For decision makers outside the entity Examples include: 1. investors 2. creditors 3. government agencies 4. public
Two Kinds of Accounting
-Managerial Accounting-
information for managers Examples include: 1. Budgets 2. Forecasts 3. Projections
How many owners in a proprietorship and what are their liabilities?
One owner (called a proprietor) & he/she is personally liable for the business
How many owners in a partnership and what are their liabilities?
They are partners (2+ owners) General partners are personally liable whereas limited partners are not
Who are the owner in a LLC and what are their liabilities?
The owners are members and the members are not personally liable as an LLC is a Limited Liability Corporation
Who are the owners of a corporation and what are their liabilities?
A group of people who hold stock in the company known as shareholders are the owners of a corporation and as shareholders are not personally liable
What are the key factor within a proprietorship?
A proprietorship has
- A single owner
- Tends to be small retail stores or solo providers of professional services
- Proprietor is personally liable for all businesses debts
- Business records should not include any of the proprietors personal finances
What are the key factors within a partnership?
A partnership has
- Two or more parties as co-owners
- Income & losses flow through to the partners
- Many include: retail establishments, professional service firms, real estate, and oil and gas exploration companies
- Generally partnerships have mutual agency and unlimited liability
- A limited-liability partnership lessens risk to the partners
What are the key factors within a Limited-Liability Company (LLC)?
A LLC has
- Business (not the owner) is liable for the companies debts
- May have one or many owners (called members)
- Members have limited liability
- LLC’s income flows through to the members just as if they were partners
