Ch. 1 - Accounting as a Form of Communication

Question 1

What are the three different kinds of business entities that exist.

Answer 1

1. Sole proprietorship
2. Partnership
3. Corporation

Question 2

How do sole proprietorships and partnerships differ substantially from corporations?

Answer 2

The Internal Revenue Service (IRS) does not recognize the separate existence of a proprietorship or partnerships from its owner. It is thus not a taxable entity; the business’s profits are taxed on the individual’s return.

Question 3

What are the three types of activities conducted by a business?

Answer 3

1. Financing activities
2. Investing activities
3. Operating activities

Question 4

What is The Accounting Equation?

Answer 4

Assets = Liabilities + Owner’s Equity

Question 5

What does The Balance Sheet summarise?

Answer 5

The assets, liabilities, and owners’ equity of a company

Question 6

What does The Income Statement summarise?

Answer 6

The revenues and expenses of a company for a period of time

Question 7

What is retained earnings?

Answer 7

The accumulated earnings of a corporation less the amount paid in dividends to stockholders