Review
Chapter 1
1. What are the three different forms of business organizations? What are the advantages and the disadvantages to each of these forms?
Sole proprietorship - financial statements prepared for business must not intermingle personal affairs with the affairs of an entity; not a taxable entity; any income earned by the business is taxed on the tax returns of the individual
Partnership - not a taxable entity; the individual partners pay taxes on their proportionate shares of the income of the business
Corporation - possible to raise large amounts of money in a relatively brief period of time If a company goes out of business, the most the shareholder stands to lose is the amount invested - both proprietors and general partners usually can be held personally liable for the debts of the business
2. Define the three business activities of a company and provide examples of each of these activities.
Operating Activities - acquisition and sale of products and services
Financing Activities - raising and repayment of funds in terms of debt and equity
Investing Activities - acquisition and disposal of long-term assets
3. What is the purpose of financial accounting?
Preparation of financial statements for outside users
4. Who are the primary users of accounting information?
Internal and External users
5. What is the purpose of each of the financial statements? How are the financial statements interrelated?
Balance Sheet -summarizes the assets, liabilities and owner's equity at a specific point in time
Income Statement - summarizes the revenues and expenses, hence giving the net income
Statement of Retained Earnings - summarizes the income earned and dividends paid out over the life of a business (Beginning balance + Net income for the period - Dividends for the period = Ending balance)
Net income increases retained earnings, dividends decrease retained earnings, then retained earnings is shown on the balance sheet
6. What is
1. What are the three different forms of business organizations? What are the advantages and the disadvantages to each of these forms?
Sole proprietorship - financial statements prepared for business must not intermingle personal affairs with the affairs of an entity; not a taxable entity; any income earned by the business is taxed on the tax returns of the individual
Partnership - not a taxable entity; the individual partners pay taxes on their proportionate shares of the income of the business
Corporation - possible to raise large amounts of money in a relatively brief period of time If a company goes out of business, the most the shareholder stands to lose is the amount invested - both proprietors and general partners usually can be held personally liable for the debts of the business
2. Define the three business activities of a company and provide examples of each of these activities.
Operating Activities - acquisition and sale of products and services
Financing Activities - raising and repayment of funds in terms of debt and equity
Investing Activities - acquisition and disposal of long-term assets
3. What is the purpose of financial accounting?
Preparation of financial statements for outside users
4. Who are the primary users of accounting information?
Internal and External users
5. What is the purpose of each of the financial statements? How are the financial statements interrelated?
Balance Sheet -summarizes the assets, liabilities and owner's equity at a specific point in time
Income Statement - summarizes the revenues and expenses, hence giving the net income
Statement of Retained Earnings - summarizes the income earned and dividends paid out over the life of a business (Beginning balance + Net income for the period - Dividends for the period = Ending balance)
Net income increases retained earnings, dividends decrease retained earnings, then retained earnings is shown on the balance sheet
6. What is