chapter 1 Flashcards
What is the purpose of accounting?
To identify, record, and communicate the economic events of an organization to interested users.
Who are the internal users of financial statements?
Senior management such as CEO, COO, and President.
Who are the external users of financial statements?
Investors, creditors, employees outside senior management, customers, and tax authorities.
Why is ethical behavior important in accounting?
Ensures that financial information is prepared legally, responsibly, and considers the organization’s interests.
What are the four types of data analytics?
Descriptive, diagnostic, predictive, and prescriptive analytics.
What is a proprietorship?
A business owned by one person with unlimited liability and taxed as personal income.
What are the advantages of a proprietorship?
Easiest and cheapest to set up.
What are the disadvantages of a proprietorship?
Limited capital raising options and unlimited liability.
What is a partnership?
A business owned by two or more people with shared objectives and unlimited liability.
What are the advantages of a partnership?
Shared skills, resources, and workload.
What are the disadvantages of a partnership?
Unlimited liability, meaning one partner’s decisions can risk others’ assets.
What is a corporation?
A separate legal entity owned by shareholders with an indefinite life and limited liability.
What are the advantages of a corporation?
Limited liability and ease of raising capital through shares or loans.
What are the disadvantages of a corporation?
High setup and maintenance costs, regulatory requirements.
What are Generally Accepted Accounting Principles (GAAP)?
Rules governing the preparation of financial statements.
What are IFRS and ASPE?
IFRS is used by public companies; ASPE is an option for private companies.
What are the three types of business activities?
Operating, investing, and financing activities.
What are operating activities?
Day-to-day activities such as selling goods, services, and paying employees.
What are investing activities?
Buying and selling long-term assets like land, equipment, or shares in another company.
What are financing activities?
Raising capital by issuing shares, taking loans, or paying dividends.
What are the four financial statements?
Income statement, statement of changes in equity, statement of financial position, and statement of cash flows.
What does the income statement show?
How much money the company made (revenues - expenses).
What are revenues?
Income from selling goods or services, often labeled as Sales, Fees, or Revenue.
What are expenses?
Costs incurred to generate revenue, usually labeled as Expenses.
