Card Set Information
Accounting 1 midterm
amount of money earned over and above the amount spent to keep the business operating.
is when revenue is greater than expenses
Businesses that spend more money than they earn
when expenses are greater than revenue
a business owned by one person
Advantages of sole proprietorship
. easy to set up
· all profits go to owner
· owner has total control.
· Few regulations to follow.
· e being your own boss
· pride of ownership no special taxes
Disadvantages of sole proprietorship
. Limited expertise
· Hard to raise money
· Owner has all the risks
· Hard to attract talented employers
· overwhelming time commitment limited life span
a business owned by two or more persons who agree to operate the business as co-owners
Advantages of partnership
· Easy to start
· Skills and talents are pooled.
· More money available.
· Shared management and pooled knowledge.
· Longer survival.
Disadvantages of partnership
· Conflict between partners
· Profits must be shared
· Owners share all the risks (unlimited liability)
· Difficult to terminate.
a business organization that is recognized by law to have a life of its own
Advantages of Corporation
Easier to raise money
Easy to expand
Easy to transfer ownership
Losses limited to investment
Perpetual life (Can live forever)
Ease of drawing talented employees
Separation of ownership from management
Disadvantages of Corporation
· Costs more to start up
· Complex to organize
· More regulations
· Higher taxes
· Two tax returns
· Difficult to terminate
· Double taxation
· Possible conflict with broad directions
a legal right to an item
property or items of value owned by a business
The owners claims to the assets of the business
the creditor claims to the assets of the business
The accounting relationship between assets and the two types of equities
Assets= liabilities + owners equity
is the basis for keeping all accounting records In balance.
the total amount of money owed to a business
is the amount owed or payable to the creditors of a business
Double entry accounting
is a system of record keeping in which each business transaction affects at least two accounts
accounting period that goes along with the calendar
Business chooses the accounting period
accountants must assume that the business has the ability to survive and operate indefinitely