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23 Cards in this Set
- Front
- Back
1. What are the three forms of business organizations?
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Sole Proprietorship
Partnership Corporation |
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advantages and disadvantages:Sole Proprietorship
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Advantages:
Simple to establish,owner controlled, tax advantages that are more favorable than a corporation Disadvantages: proprietor personally liable for all business debts, financing may be difficult, transfer of ownership may be difficult |
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advantages and disadvantages:Partnership
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Advantages: simple to establish, shared control, broader skills and resources, tax advantages that are more favorable than a corporation
Disadvantages: Partners personally liable for all business debts, transfer of ownership may be difficult |
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advantages and disadvantages: Corporation
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i. Advantages: easier to transfer ownership, easier to raise funds, lower legal liability-no personal liability for stockholders
ii. Disadvantages: unfavorable tax treatment resulting in higher taxes paid by stockholders |
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2. What are the two main user groups of financial information?
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a. Internal users- marketing, human resources, finance, management
b. External users- investors, creditors, (IRS,SEC,FTC, labor unions, custromers) |
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3. List the four financial statements and the purpose of each
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a. Income statement
b. Retained Earnings Statement c. Balance Sheet d. Statement of Cash Flows |
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a. Income statement
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i. Reports success or failure of the company’s operations during the period
ii. Summarizes all revenue and expenses for period iii. Calculates net income or loss |
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b. Retained Earnings Statement
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i. Indicates amount paid out in dividends and amount of net income or net loss for period
ii. Shows changes in the retained earnings balance during period covered by statement |
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c. Balance Sheet
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i. Shows relationship between assets and equities (liabilities and stockholders’ equity)
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d. Statement of Cash Flows
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i. Provides information about cash receipts and cash payments for accounting period
ii. Reports the cash effects of a company’s operations for a period of time iii. Shows cash increases and decreases from investing and financing activities |
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4. What are the three main categories of business activities
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a. Financing activities
b. Investing activities c. Operating activities |
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a. Financing activities
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- cash is often obtained from outside sources to start or expand a business
i. Borrowing from creditors which creates a liability ii. Issuing ownership interest in the corporation to investors which creates equity |
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b. Investing activities
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cash raised through financing activities is used for investing in resources (assets) needed to operate the business
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c. Operating activities
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once a business has the assets it needs to get started, it begins its operations
i. Revenue and Expenses |
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5. What is the basic accounting equation
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a. Assets= Liabilities + Stockholders’ equity
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6. What are the other elements of the annual report
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a. Management Discussion and Analysis
b. Notes to Financial Statements c. Auditor’s Report |
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a. Management Discussion and Analysis
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i. Its ability to pay near-term obligations (liquidity)
ii. Its ability to fund operations and expansion (capital resources) iii. It results of operations |
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b. Notes to Financial Statements
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i. Clarify information presented in the financial statements
ii. Describe accounting policies or explain uncertainties and contingencies |
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c. Auditor’s Report
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i. An auditor, a CPA, conducts an independent examination of the company’s financial statements
ii. An auditor gives an unqualified opinion if the financial statements present the financial position, results of operations and cash flows in accordance with the GAAP |
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Assets
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resources owned by a company
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liabilities
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the debts and obligations of a business. Liabilities represent the amounts owed to creditors
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Revenue
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The increase in assets that result from the sale of a product or service in the normal course of business
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expenses
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the cost of assets consumed or services used in the process of generating revenues
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