Chapter 1

Question 1

Sole Proprietorship

Answer 1

Individually owned

Question 2

Partnership

Answer 2

Joined with another person

Question 3

Corporation

Answer 3

Receive shares of stock to indicate ownership

Question 4

Benefits of Sole Proprietorship

Answer 4

Simple to set up, Owner controlled, Tax advantages

Question 5

Benefits of partnership

Answer 5

Simple to establish, shared control, broader skills and resources, tax advantages

Question 6

Benefits of Corporation

Answer 6

Easier to transfer ownership (sell stocks), easier to raise funds, No personal liability, separate entity

Question 7

Accounting

Answer 7

The information system that identifies, records, and communicates the economic events of an organization to interested users.

Question 8

Internal users

Answer 8

Those who are within the company that use internal reports to make decisions. Ex: Marketing managers, management, finance, human resources

Question 9

External Users

Answer 9

Those who look at financial statements. Investors, creditors, taxing authorities, customers, labor unions, regulatory agencies

Question 10

Sarbanes Oxley Act of 2002

Answer 10

Law passed to reduce unethical corporate behavior and decrease the likelihood of future corporate scandals.

Question 11

3 types of business activity

Answer 11

1. Financing 2. Investing 3. Operating

Question 12

Financing

Answer 12

Personal savings or banks-anything you do to get cash in company. Liabilities, creditors, common stock, dividends, notes/bonds payable.

Question 13

Creditors

Answer 13

Person or entities to whom a company owes money to

Question 14

Common Stock

Answer 14

Total amount paid in by stockholders for the shares they purchase

Question 15

Dividends

Answer 15

Payments to stockholders as long as there is sufficient cash flow

Question 16

Investing

Answer 16

Purchasing products for business-property, plant, equipment, assets, investments

Question 17

Operating

Answer 17

Making and selling

-expenses, liabilities, net income, net loss, accounts receivable, revenue

Question 18

Assets

Answer 18

Resources owned by a business that can easily be converted to cash

Question 19

Revenue

Answer 19

Increase in assets or decrease in liabilities- NOT net income
3 types- sales, service, interest

Question 20

Supplies

Answer 20

assets used on a day to day basis

Question 21

Inventory

Answer 21

Goods available for future sales

Question 22

Accounts receivable

Answer 22

Right to receive money in the future

Question 23

Expenses

Answer 23

Cost of assets consumed or services used in the process to generate revenue

Question 24

Accounts payable

Answer 24

obligation to pay for goods (Liability)

Question 25

Net income

Answer 25

When revenues exceed expenses (Rev-Exp)

Question 26

Net loss

Answer 26

When expenses exceed revenue

Question 27

Financial Statement

Answer 27

Give information to external users about company

4 Types

Question 28

4 Types of financial statements

Answer 28

1. Income statement 2. Balance sheet 3. Retained earnings 4. Statement of cash flow

Question 29

Income statement

Answer 29

show how successfully your business preformed during a period of time-shows expenses and revenues

Question 30

Retained earnings

Answer 30

Shows how much money is left after paying everything off.

Question 31

Balance sheet

Answer 31

Shows what the business owes and owns-Assets, liabilities, stock holders equity

Question 32

Stockholders equity

Answer 32

Common stock and retained earnings

Retained earnings= revenues, expenses, dividends

Question 33

Basic accounting equation

Answer 33

Assets= Liabilities + Stock holders equity

Question 34

Notes to the financial statement

Answer 34

clarify statement and provide addition notes

Question 35

Auditor

Answer 35

Accounting professional who conducts examinations of companies

Question 36

Auditors report

Answer 36

Statement by auditor about their opinions as to fairness of the presentation of the financial position and results of a company

Question 37

Hybrid Forms

Answer 37

Sole and partnership combined- tax advantages of partnership with limited liability of corporation

Question 38

2 primary sources of outside funds (financing)

Answer 38

1. borrowing money

2. issuing (selling) shares of stock for cash

Question 39

SEC

Answer 39

determine rules to be followed in preparing financial statements by companies whose securities are sold to general public

Question 40

FASB

Answer 40

Set standards

Question 41

Statement of Cash Flows

Answer 41

Only shows cash- categorized by business activity