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13 Cards in this Set
- Front
- Back
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Sole proprietorship |
A business owned by one person and operated for his or her own profit. Raises capital by personal resources. |
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Unlimited liability |
The condition of a sole proprietorship (or general partnership) giving creditors the right to make claims against the owner's personal assets to recover debt owed by the business. |
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Partnership |
A business owned by two or more people and operated for profit. Ex: public accounting and law partnerships. Each partner is liable for all of the debts of the partnership. |
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Articles of partnership |
The written contract used to formally establish a business partnership. |
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Corporation |
An entity created by law. It can sue and be sued, acquire property, and be party to contracts. Owned by stockholders. |
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Limited liability |
A legal provision that limits that stockholders' liability for a corporations debt to the amount they initially invested in the firm by purchasing stock. |
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Board of directors |
Group elected by the firm's stockholders and typically responsible for approving strategic goals and plans, setting general policy, and approving major expenditures. |
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Timing (rule) |
The receipt of funds sooner than later is usually preferred. |
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Risk |
The chance that actual outcome may differ from those expected.Profit maximization fails to account for risk. A trade-off exists between return (cash flow) and risk. Risk and return are the key determinants of share price, which represents the wealth of the owners in the firm. |
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Risk averse |
Requiring compensation to bear risk. Investors expect to earn higher returns on riskier investments. |
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Stakeholders |
Groups such as employees, customers, suppliers, creditors, owners, and other who have a direct economic link to the firm. |
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Accrual basis |
In preparation of financial statements, recognizes revenue at the time of sale and recognizes expenses when they are incurred. |
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Cash basis |
Recognizes revenues and expenses only with respect to actual inflows and outflows of cash. The financial manager places primary emphasis on cash flows. |
