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35 Cards in this Set

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What forms do businesses take and how do they differ?
Sole proprietor
Partnership
Corporation
Limited liability corporation

They differ by
Ease of formation
Legal liability
Taxation
Limited life
Capital access
Proprietorship
Is owned by one individual

Ease of formation-Simple
Legal liability-No Limit
Taxation-NonTaxable
Limited life-Y
Capital access-Limited
Partnership
Is owned by two or more individuals

Ease of formation-Simple
Legal liability-No Limit
Taxation-NonTaxable
Limited life-Y
Capital access-Average
Corporation
Is organized under federal statues as a separate legal entity. The ownership of a corporation is divided into shares of stock. A corporation issues the stock to individuals or other businesses, who then become owners or stockholders of the corporation

Ease of formation-Complex
Legal liability-Limited
Taxation-Taxable
Limited life-N
Capital access-Exstensive
Limited Liability Co.
Combines the attributes of a partnership and a corporation in that it is organized as a corporation, but it can elect to be taxed as a partnership. Its owners' liability is limited to their investment in business.
Ease of formation-Moderate
Legal liability-Moderate
Taxation-NonTaxble
Limited life-Y
Capital access-Average
HOW DO BUSINESSES MAKE MONEY?
-Businesses-
Provide goods and services
-Businesses maximize profits-
Must gain advantage over competitors to maximize profits
How do you make a profit
Revenues-Costs=Profits
Who are stakeholders and how are they related to the corporation?
A business stakeholder is a person or entity that has an interest in the economic performance and well-being of a business.
What are some type of stakeholders
Employees/Managers
Customers
Suppliers
Bank, owners
Government
Capital markets stakeholder
Provides financing
ex:Banks, owners, stockholders
Product/service market stakeholders
Buyers of products, services and vendors
ex:Customers, suppliers
Government stakeholders
Collects taxes, fees from business, employees
ex:Federal, state, city government
Internal stakeholders
People employed by business
ex: Employees, managers
What are the 3 business activities?
Financing activities, Operating activities,and Investing activities.
Financing activities
Borrowing creates a liability
Issuing ownership shares creates capital stock
Investing activities
Obtaining assets to operate business
Operating activities
Offer product, service
Whats the role of accounting
Accounting is “an information system that provides reports to stakeholders about the economic activities and condition of a business.”
Name 4 financial statements
Income, Retained Earnings, Balance sheet, Statement of Cash Flow. All report changes in a financial condition except balance sheet.
Income Statements
The income statement uses the Matching Concept
Expenses for period are Matched against Revenues for same period

Revenue – Expenses = Net Income
Retained Earnings
Reports changes in financial condition due to changes in retained earnings during a period.
Retained earnings is the portion of net income retained by the business.
Balance Sheet
Reports financial condition as of a point in time

Accounting equation
Assets = Liabilities + Stockholders’ Equity
Statement of Cash Flows
Reports change in financial condition from changes in cash during a period that occur due to
Cash flows from operating activities
Cash flows from investing activities
Cash flows from financing activities
INTEGRATED FINANCIAL STATEMENTS
Statement of cash flows linked to cash on balance sheet
Net income from income statement linked to retained earnings statement
Retained earnings linked to balance sheet in stockholders’ equity
Generally accepted accounting principles (GAAP)
8 accounting concepts underlying financial reporting.
GAAP determines the proper content of financial statements. They are necessary so stakeholders can compare the financial condition and operating results across companies and across time.
Business Entity , Cost Concept, Going Concern Concept, Matching Concept, Objectivity Concept, Unit of Measure Concept, Adequate Disclosure Concept, Accounting Period Concept
BUSINESS ENTITY CONCEPT
Applies accounting to a specific entity
Hershey
For profit corporation
Separate from accounting for other entities
COST CONCEPT
Amount initially entered into accounting records for purchases
Cost of Hershey’s land
GOING CONCERN CONCEPT
Business expects to continue in operations for an indefinite period of time
Hershey plans to build on land in future
MATCHING CONCEPT
Expenses for a period are matched with revenue they generate
Hershey subtracts expenses from revenues on income statement
OBJECTIVITY CONCEPT
Entries into accounting records based on objective evidence
Hershey’s bank statements support entries in cash account
UNIT OF MEASURE CONCEPT
All economic data recorded in dollars
Hershey presents financial statements in dollars
ADEQUATE DISCLOSURE CONCEPT
Financial statements include all relevant data needed to understand financial condition and performance
Hershey provides other disclosures in footnotes
ACCOUNTING PERIOD CONCEPT
Economic data collected for a period of time in preparation of
Hershey’s income statement
Hershey’s retained earnings
Hershey’s cash flow statement
RESPONSIBLE REPORTING
Reliability of financial reporting important
To economy
For ability of business to raise money from investors
Stockholders
Creditors
Markup
the percent that a company adds to its cost of sales to determine the selling price

(Sales - Cost of Sales) / Cost of sales = Markup %