Chapter 1 Flashcards
(30 cards)
What is the definition of Accounting?
The language of business that is used to report financial happenings of a business in currency values
What is Accounting used for?
Used to analyze, record, and summarize business activities
What are the four ways to organize a business?
Sole Proprietorship, Partnership, Limited-liability Company(LLC), and Corporation
What is the benefit of a Partnership?
Businesses don’t pay tax, the tax is split between the owners on their personal statement
What is the down side of a Partnership?
Liable for the debt of the business
Why is LLC(Limited-liability Company) the most popular way to organize a business?
It takes the benefits of a Partnership and Corporation. It has limited liability without double taxation, and the taxes are split among owners on their personal statements.
What is the benefit of a Corporation?
The business is a separate legal entity, and the owners are shareholders. Limited liability: the shareholders are not responsible for the business’s debt.
What is the downside of a Corporation?
The corporation is charged double taxation.
What is a Sole Proprietorship?
A way to organize a business where there is one owner who also operates the business.
What are the two kinds of Accounting?
Financial and Management
What is the difference of the two types of Accounting?
Financial- Preparing information for external users
Management- Preparing information for internal users
Who are the four Users of Financial information?
Individuals, Investors and Creditors, Regulators, and Management
What are the three Business Activities?
Financing, Investing, and Operating
What does Financing include?
Where do you get money for your business?
Stock or Debt
What does Investing include?
What “investments” does this business make?
Property, Plant, and Equipment(PPE) or Investments
What does Operating include?
What are the daily business activities?
Collecting Revenue or Paying rent, salaries, utilities, etc
What are the four types of financial statements?
Income Statement, Statement of Retained Earnings, Balance Sheet, Statement of Cash Flows
Does the order of the financial statements matter?
Yes, and all of the statements are related and interact to form one final financial statement.
What does the Income Statement Report?
Revenues and expenses for a period of time
What are revenues?
Amounts earned from providing goods/services
Sales Revenue(most common)
Service Revenue(most common)
What are expenses?
Amounts incurred in an attempt to provide goods/services
PPE (Depreciation Expense)
Salary/Wage Expense
Inventory Expense (Cost of Goods Sold(COGS))
What is the formula for the Income Statement?
Revenues - Expenses = Net Income/ Net Loss
What is the Statement of Retained Earnings?
Reports the proportion of net income retained or kept in the company over a period of time
What are dividends
Payment of equity to shareholders
Usually very small
Not considered when investing
Not expenses
