Chapter 1 Summary Flashcards by Bethany Seagrove

What is an external user?

External users do not directly run the organization and have limited access to accounting information.

Ex. lenders, shareholders, external auditors, non-executive employees, labor unions, regulators, voters, donors, suppliers, and customers.

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Give some examples of external users.

Lenders
Shareholders,
External auditors
Non-executive employees
Labor unions
Regulators
Voters
Donors
Suppliers
Customers

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What are internal users?

Internal users directly manage the organization

Purchasing managers, Human resource managers, Production managers, Distribution managers, Marketing managers, Service managers, and Research & Development managers.
(budgeting, consulting, controller, treasurer, and strategy are examples of managers)

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List examples of Internal Users

CEO and other executives.

Managers such as:
Purchasing managers, Human resource managers, Production managers, Distribution managers, Marketing managers, Service managers, and Research & Development managers.

(budgeting, consulting, CONTROLLER, treasurer, and strategy are examples of managers)

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What is the fraud triange?

Three factors that push a person to commit fraud.

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List the three factors of the fraud triangle

Opportunity: must be able to commit fraud with low risk of being caught
Pressure: must feel pressured or have an incentive to commit fraud.
Rationalization: or attitude. justifies the fraud or does not see it in its criminal nature.

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What are the four business entities?

Sole proprietorship
Partnership
Corporation
Limited Liability Company (LLC)

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Which business entities have additional business income tax?

Only the Corporation has additional business income tax.

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How many owners does sole Proprietorship have?

One.

Sole owner. just one.

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How many owners does a partnership have?

2 or more, called partners.

easy to set up.

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How many owners does a Corporation have?

1 or more called shareholders.

can get many investors by selling stock or shares of corporate ownership.

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How many owners does a Limited Liability Company have (LLC)?

1 or more, called members.

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Business taxation for Sole proprietorship?

NO additional business income tax

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Is there business taxation for Partnership?

NO additional business income tax

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Is there Business taxation for a Corporation?

YES, Additional business income tax!

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Is there Business Income tax for a Limited Liability Company (LLC)?

NO additional business income tax

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What is the owner liability for Sole Proprietorship?

UNLIMITED LIABILITY. The owner is PERSONALLY responsible for proprietorship debts.

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What is the owner liability for a Partnership?

UNLIMITED LIABILITY. Partners are JOINTLY responsible for partnership debts.

What is the owner liability for a Corporation?

Limited Liability. Owners (called, shareholders or stockholders) are NOT liable for corporate acts or debts.

What is the owner liability for a Limited Liability Company (LLC)?

Limited Liability.

Owners, (called Members), are NOT personally liable for LLC debts.

Legal Entity status of a Sole Proprietorship

Sole Proprietorship is NOT a separate legal entity.

Legal Entity status of a Partnership:

NOT a Separate Legal Entity

Legal Entity status of a Corporation

A SEPARATE legal entity with the same rights and responsibilities as a person.

Legal Entity status of a Limited Liability Company (LLC)

A SEPARATE legal entity with the same rights and responsibilities as a person.

What is the business life of a Sole Proprietorship?

Business ends with the owner death or choice.

What is the business life of a Partnership?

Business ends with a partner death or choice.

What is the business life of a Corporation?

The business life is INDEFINITE.

What is the business life of a Limited Liability Company (LLC)?

The business life is INDEFINITE.

Define Assets:

Resources a company owns or controls that are expected to yield future benefits.

Define Liabilities:

Creditors' claims on assets. These are obligations to provide assets, products, or services to others. A "payable" is a liability (Accounts payable, wages when they are "payable", loans etc. Like, it's money owed but not paid.)

Define Equity:

Owners Claim On Assets. | net assets or residual equity

What is the (basic) accounting equation format?

Assets = Liabilities + Equity

When does the accounting equation apply?

The accounting equation applies to all transactions and events, to all companies and organizations, and to all points in time.

What is the Expanded Accounting Equation?

* * * * * * * * * * * * * * * [------------------------------------Equity------------------------------] Assets =Liabilities + Owner, Capital - Owner, Withdraws + Revenues - Expenses

What is categorized under the Owner Capitol in the equation?

Owner investments (these are inflows of cash and other net assets from owner contributions. INCREASES Equity.

What is categorized under the Owner Withdrawals?

Owner withdrawals are outflows of cash and other assets to owners for personal use. REDUCES Equity

What is categorized under the Revenues?

They increase equity (via net income) from sales of products and services to customers. Ex: Sales of Products, Consulting services provided, Facilities rented to others, and commissions from services.

What is categorized under Expenses?

Expenses DECREASE Equity (via Net Income) from THE COSTS of PROVIDING products and services to customers. Ex: cost of employee times, use of supplies, advertising, utilities, and insurance fees.

What is the basic layout of the Income statement?

Revenues - Expenses __________ Net Income

What does the Income statement do? What number order does it come in?

Describes a company's revenues and expenses and computes net income or loss over a period of time. The First statement to generate. Finds the Net Income.

What is the Statement of Owner's Equity basic layout?

Beginning Capitol (if a given year, then subtract year beginning from year end) + Owners investments + Net Income (Retrieved from Income statement) - Withdrawals ___________________ End capitol

What is the Statement of Owner's Equity for? And what statement does this come AFTER?

Explains changes in owner's equity from owner investments, net income (or net loss), and any withdrawals over a period of time. This comes AFTER the income statement (you need the Net Income)

What is the basic layout for the Balance Sheet?

Assets = liabilities -------------+Equity Note how liabilities and equity are under one another!

What is the Balance sheet for? And what statement does this come after?

The Balance sheet describes a company's financial position (types and amounts of assets, liabilities, and equity) AT A POINT IN TIME. This comes AFTER the Statement of owner's equity. YA NEED the CAPITOL for the equity section.