acct study guide Flashcards
(36 cards)
Advantages:
o Easy to set-up or form
o Owner controlled
o Tax advantage- individual rate
Sole proprietorship
- bearing the risks and rewards associated
with ownership
Sole proprietorship
Disadvantages
o Personal liability
o Financing more difficult
o Limited Life
Sole proprietorships
– two are more owners (e.g., doctors, lawyers, CPAs
Partnership
Advantages:
o Access to resources and skills of partners
o Tax advantages- net income passes through entity to individual
owners and taxed at individual rates not corporate rates
Disadvantages:
o Personal liability for partners
o Limited Life
o Shared control
Partnership
separate legal entity owned by stockholders (larger companies)
Can be private or public
corperation
Privately Held”- ownership is not available to the general public
o “Publicly Held” – ownership is available to the public at large
Advantages:
o Limited Liability for owners; loss limited to owner’s investment
o Easier to raise money/capital by issuing stock
o Easy to transfer ownership
Disadvantages:
o Unfavorable tax treatment- double taxation; higher tax rates
corperation
The three types of business activities
financing, investing, operations
raising capital such as buying money selling stocks, paying dividends
financial activities
using capital/ cash to buy long term assets in operations to help generate company revenue
investing activates
Buying/selling property equipment or vehicles
examples of investing activities
___ activities are used for day to day activity in a company. Revenues increase assets and expenses decrease assets or create liabilities.
operating activities1
buying/selling inventory, paying wages, using cash, buying supplies, using supplies
examples of operating acvtivities
– shows income generated over a period of time
and sometimes called the Statement of Operations.
income statement
How do you calculate net income/loss
revenues - expenses
– shows the change in the
company’s cumulative earnings kept in the business and not
distributed to shareholders as dividends over a period of time
retained earnings statement
How do you set up a retained earnings statement
1 - Beginning RE
2- Net income/loss
3- Dividends
4- Ending RE
What statement does net income show up on
Income statement
sometimes called statement of financial position -
shows company’s economic resources (assets) and claims to those resources
(liabilities and shareholders’ equity) at a specific point in time
Balance sheet
What is the equation used to balance
assets = liabilities + Stockholders equity
– shows sources and uses of cash over a
period of time among three categories
Statement of cash flow
Three types of cash flow
Cash flow from operating, financing, investing
Analyze the business transaction
Borrowing 100,000 from a bank
Liability
How does the purchase of 30,000 dollars of equipment affect assets if paid in cash .
It doesn’t change
