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A business owned by one person. It is simple to set up and gives the owner control, and full responsibility.
A business owned by two or more persons associated as partners.
A business organized as a separate legal entity having ownership divided
into transferable shares of stock.
What are advantages of a sole proprietorship?
- Simple to establish
- Owner controlled
- Tax advantages (usually pay less taxes)
What are advantages of a partnership?
- Simple to establish
- Shared control
- Broader skills and resources
- Tax advantages (usually pay less taxes- like a sole proprietorship)
What are advantages of a corporation?
- Easier to transfer ownership
- Easier to raise funds
- No personal liability
The information system that identifies, records, and communicates the
economic events of an organization to interested users.
The accounting information system
keeps track of the results of each of the various business activities ____, _______, ______.
a.k.a The three principal types of business activity.
financing, investing, and operating.
The debts and obligations of a business. ______ represent the
amounts owed to creditors.
Term used to describe the total amount paid in by stockholders for the
shares they purchase.
Payments of cash from a corporation to its stockholders.
Resources owned by a business.
The increase in assets that result from the sale of a product or service
in the normal course of business.
In accounting language, ________
are the cost of assets consumed or services used in the process of
The amount by which revenues exceed expenses.
The amount by which expenses exceed revenues.
To start or expand a business the owner or owners quite often need cash from outside sources. The two primary sources are:
- Borrowing from creditors
- -Liabilities are amounts owed to creditors
- -Note payable (bank loan)
- -Bonds payable (debt securities)
- Selling shares of stock to investors
- -Commong stock (total amount paid in by stockholders for shares they purchased)
- -Dividends (payments to stockholders)
Investing activities involve the purchase of resources (assets) needed to operate the business. Typical assets include:
- -Investments in debt or equity securities of another company
_____ comprise the primary activities for which the organization is in business.
- Operating activities
- (see other cards for terms to learn: revenue, expenses, net income, net loss).
What are the 4 financial statements?
Income Statement, Retained Earnings Statement (or Stockholders Equity), Balance Sheet, and Statement of Cash Flows.
A financial statement that reports the assets and claims to those assets
at a specific point in time.
-To present a picture at a point in time of what your business owns (its
assets) and what it owes (its liabilities)...
-The ____ ____ reports assets and claims to assets at a specific point
in time. Claims to assets are subdivided into two categories: claims of
creditors and claims of owners. As noted earlier, claims of creditors
are called liabilities. Claims of owners are called stockholders' equity.
A financial statement that presents the revenues and expenses and
resulting net income or net loss of a company for a specific period of
-To show how successfully your business performed during a period of
time, you report its revenues and expenses in an ______.
A financial statement that summarizes the amounts and causes of
changes in retained earnings for a specific period of time.
-To indicate how much of previous income was
distributed to you and the other owners of your business in the form of
dividends, and how much was retained in the business to allow for future
growth, you present a ______.
Retained Earnings Statement
A financial statement that provides financial information about the cash
receipts and cash payments of a business for a specific period of time.
-To show where your business obtained cash during a period of time and
how that cash was used, you present a ______.
Statement of Cash Flows
(Retained Earnings Statement) Retained Earnings
The amount of net income retained in the corporation.
(Balance Sheet) Stockholders Equity
The owners' claim on total assets.
(Balance Sheet) Basic Accounting Equation
Assets = Liabilities + Stockholders' Equity.
(Assets must always balance or equal claims to assets).
Stockholders' equity is comprised of two parts:
- 1. Common Stock
- 2. Retained earnings
- (Common stock results when the company sells new shares of stock; retained
- earnings is the net income retained in the corporation.)
(Statement of Cash Flow) Users are interested in the statement of cash flows because they want to
know what is happening to a company's most important resource. The
statement of cash flows provides answers to these simple but important
- 1. Where did cash
- come from during the period?
- 2. How was cash
- used during the period?
- 3. What was the
- change in the cash balance during the period?
Change during period
- Percentage change in income:
- Change in income
- Previous year's income
A report prepared by corporate management that presents financial
information including financial statements, notes, a management
discussion and analysis section, and an independent auditor's report.
Management discussion and analysis (MD&A):
- A section of the annual report that presents management's views on the
- company's ability to pay near-term obligations, its ability to fund
- operations and expansion, and its results of operations.
Note to the financial statements...
- Notes that clarify information presented in the financial statements, as
- well as expand upon it where additional detail is needed.