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35 Cards in this Set
- Front
- Back
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What forms do businesses take and how do they differ?
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Sole proprietor
Partnership Corporation Limited liability corporation They differ by Ease of formation Legal liability Taxation Limited life Capital access |
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Proprietorship
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Is owned by one individual
Ease of formation-Simple Legal liability-No Limit Taxation-NonTaxable Limited life-Y Capital access-Limited |
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Partnership
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Is owned by two or more individuals
Ease of formation-Simple Legal liability-No Limit Taxation-NonTaxable Limited life-Y Capital access-Average |
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Corporation
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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 |
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Limited Liability Co.
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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 |
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HOW DO BUSINESSES MAKE MONEY?
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-Businesses-
Provide goods and services -Businesses maximize profits- Must gain advantage over competitors to maximize profits |
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How do you make a profit
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Revenues-Costs=Profits
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Who are stakeholders and how are they related to the corporation?
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A business stakeholder is a person or entity that has an interest in the economic performance and well-being of a business.
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What are some type of stakeholders
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Employees/Managers
Customers Suppliers Bank, owners Government |
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Capital markets stakeholder
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Provides financing
ex:Banks, owners, stockholders |
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Product/service market stakeholders
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Buyers of products, services and vendors
ex:Customers, suppliers |
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Government stakeholders
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Collects taxes, fees from business, employees
ex:Federal, state, city government |
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Internal stakeholders
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People employed by business
ex: Employees, managers |
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What are the 3 business activities?
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Financing activities, Operating activities,and Investing activities.
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Financing activities
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Borrowing creates a liability
Issuing ownership shares creates capital stock |
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Investing activities
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Obtaining assets to operate business
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Operating activities
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Offer product, service
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Whats the role of accounting
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Accounting is “an information system that provides reports to stakeholders about the economic activities and condition of a business.”
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Name 4 financial statements
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Income, Retained Earnings, Balance sheet, Statement of Cash Flow. All report changes in a financial condition except balance sheet.
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Income Statements
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The income statement uses the Matching Concept
Expenses for period are Matched against Revenues for same period Revenue – Expenses = Net Income |
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Retained Earnings
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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. |
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Balance Sheet
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Reports financial condition as of a point in time
Accounting equation Assets = Liabilities + Stockholders’ Equity |
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Statement of Cash Flows
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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 |
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INTEGRATED FINANCIAL STATEMENTS
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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 |
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Generally accepted accounting principles (GAAP)
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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 |
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BUSINESS ENTITY CONCEPT
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Applies accounting to a specific entity
Hershey For profit corporation Separate from accounting for other entities |
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COST CONCEPT
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Amount initially entered into accounting records for purchases
Cost of Hershey’s land |
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GOING CONCERN CONCEPT
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Business expects to continue in operations for an indefinite period of time
Hershey plans to build on land in future |
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MATCHING CONCEPT
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Expenses for a period are matched with revenue they generate
Hershey subtracts expenses from revenues on income statement |
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OBJECTIVITY CONCEPT
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Entries into accounting records based on objective evidence
Hershey’s bank statements support entries in cash account |
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UNIT OF MEASURE CONCEPT
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All economic data recorded in dollars
Hershey presents financial statements in dollars |
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ADEQUATE DISCLOSURE CONCEPT
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Financial statements include all relevant data needed to understand financial condition and performance
Hershey provides other disclosures in footnotes |
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ACCOUNTING PERIOD CONCEPT
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Economic data collected for a period of time in preparation of
Hershey’s income statement Hershey’s retained earnings Hershey’s cash flow statement |
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RESPONSIBLE REPORTING
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Reliability of financial reporting important
To economy For ability of business to raise money from investors Stockholders Creditors |
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Markup
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the percent that a company adds to its cost of sales to determine the selling price
(Sales - Cost of Sales) / Cost of sales = Markup % |
