Test 1 Flashcards
What are the three primary forms of business organizations?
- Sole Proprietorship (owned by one person)
- Partnership (owned by two people)
- Corporations (a separate legal entity owned by stockholders)
What are the advantages of Sole Proprietorship?
a. simple to establish
b. owner-controlled
c. profits and losses are part of owners taxable income
What are the disadvantages of Sole Proprietorship?
a. proprietor is personally liable
b. transfer of ownership
What are the advantages of a Partnership?
a. simple to establish
b. shared control– no loss
c. more economic resources and a broader skill set
What are the disadvantages of a Partnership?
a. partners personally liable
b. transfer of ownership
What are the advantages of Corporations?
a. easy to transfer ownership
b. easy to raise money
c. lower legal liablility for “owners”
What is the disadvantage of Corporations?
a. Double taxation: taxed at corporate lvl and individual lvl
What are companies goals?
to earn profits for owners
What is the purpose of financial information?
to provide inputs for decision making
What is accounting?
an information system that identifies, records and communicates economic events of an organization to interested users
Who are considered internal users?
a. proprietors/Partners
b. management
c. board of directors
d. employees
Who are considered external users?
a. investors
b. creditors
c. regulatory and taxing agencies
d. unions
What was the purpose of the Sarbanes-Oxley Act?
to reduce unethical behavior and decrease likelihood of future corporate scandals
What happened after the Sarbanes-Oxley Act was enacted?
certify accuracy of financial information, penalties for fraud became more severe and an increased independence of auditing CPA’s to help avoid conflicts of interest
Define financing activities
getting funds to start of expand buisness
What is debt financing?
borrowing money
What is equity financing?
selling stock