question

sole proprietorship

answer

a business owned by one person; small owner-operated businesses such as barber shops, law offices and auto repair shops

question

advantages of a sole proprietorship

answer

1. simple to establish 2. total control 3. tax advantages

question

disadvantages of a sole proprietorship

answer

1. greater personal liability 2. less start-up capital

question

partnership

answer

a business owned by two or more persons; often formed because one individual does not have enough money to expand the business; may formalize duties of both parties in a written agreement; includes retail and service-type businesses like professional practices (lawyers, doctors and CPAs)

question

advantages of a partnership

answer

1. simple to establish 2. shared control 3. broader skills and resources 4. tax advantages

question

disadvantages of a partnership

answer

1. greater personal liability

question

corporation

answer

a business organized as a separate legal entity owned by stockholders; investors receive shares of stock to indicate their ownership claim

question

advantages of a corporation

answer

1. easier to transfer ownership 2. easier to raise funds 3. no personal liability

question

disadvantages of a corporation

answer

1. little to no control 2. higher taxes

question

assets = liabilities + stockholder's equity

answer

the basic accounting equation; closely related to the balance sheet

question

current assets

answer

assets that a company expects to convert to cash or use up within one year or its operating cycle, whichever is longer; must be listed in the order in which the company expects to convert them into cash; important in assessing a company's short-term debt-paying ability includes: 1. cash 2. short-term investments/trading securities 3. accounts recievable 4. notes recievable 5. inventory 6. supplies 7. prepaid expenses like insurance

question

long-term investments

answer

1. investments in stocks and bonds of other corporations that are held for more than one year 2. long-term assets such as land or buildings that a company is not currently using in it's operating activities 3. long-term notes receivable (ex: investments in securities, stocks and bonds)

question

property, plant and equipment (PPE)

answer

assets with relatively long useful lives that are currently used in operating the business includes: 1. land and land improvements 2. buildings 3. equipment 4. vehicles 5. furniture reported at historical cost

question

accumulated depreciation

answer

a contra-account to PPE; the total amount of depreciation (the allocation of the cost of an asset to a number of years) that the company has expensed thus far in the asset's life

question

intangible assets

answer

assets that do not have physical substance and yet are very valuable 1. goodwill 2. patents 3. copyrights 4. trademarks / trade names

question

current liabilities

answer

obligations that a company is to pay within the next year or operating cycle, whichever is longer 1. accounts payable / notes payable 2. interest payable 3. income taxes payable 4. current liabilities on long-term maturities (payments to be made within the next ear on long-term obligations) 5. salaries and wages payable

question

long-term liabilities

answer

obligations that a company expects to pay after one year 1. bonds payable 2. mortgages payable 3. long-term notes payable / accounts payable 4. lease liabilities 5. pension liabilities

question

stockholder's equity

answer

consists of common stock and retained earnings

question

historical cost principle

answer

AKA cost principle; dictates that companies record assets at their ORIGINAL cost preferred by FASB for the majority of accounts

question

fair value principle

answer

indicates that assets and liabilities should be reported at the price received to sell an asset or settle a liability; it's CURRENT market value used for assets that are actively traded like investment securities

question

classified balance sheet

answer

used to improve user's understanding of a company's financial position; groups together similar assets and similar liabilities, using a number of standard classifications and sections; items within a group generally have similar economic characteristics help to determine: 1. whether the company has enough assets to pay its debts as they come due 2. the claims of short and long-term creditors on the company's total assets

question

classified balance sheet form

answer

company name balance sheet date assets - current assets long-term investments PPE intangible assets total assets = liabilities and stockholder's equity - current liabilities long-term liabilities total liabilities = stockholder's equity (RE and common stock) total stockholder's equity = total liabilities and stockholder's equity = (look at pg. 49!)

question

current ratio

answer

current assets / current liabilities the amount of current assets per dollar of current liabilities (like 1.25:1) measure of liquidity that aims to determine the short-term ability of a company to pay its maturing obligations and to meet unexpected needs for cash; does not take into account the composition of the current assets (money VS inventory)

question

generally accepted accounting principles

answer

GAAP; a set of accounting principles that have authoritative support

question

securities and exchange commission

answer

SEC; given power by congress in the 1930s; the agency of the US government that oversees US financial markets and accounting standard-setting bodies; used for PUBLICLY-TRADED companies

question

financial accounting standards board

answer

FASB; the primary accounting standard-setting body currently responsible for writing pronouncements constituting GAAP in the US

question

international accounting standards board

answer

IASB; located in London, England; writes IFRS

question

international financial reporting standards

answer

IFRS; used by over 100 countries including the European Union and Canada; only PRIVATELY-TRADED companies in the US may use IFRS

question

public company accounting oversight board

answer

PCAOB: to determine auditing standards and review the performance of auditing firms

question

conceptual accounting framework

answer

states that the primary objective of financial reporting is to provide financial information that is useful to investors and creditors for making decisions about providing capital two fundamental qualities of accounting information: relevance and faithful representation

question

relevance

answer

information that would make a difference in a business decision; must have predictive value (helps provide accurate expectations about the future) and/or confirmatory value (confirms or corrects prior expectations)

question

faithful representation

answer

information accurately depicts what really happened; must be complete, neutral and free from error

question

debit

answer

the left side of an account (DR)

question

credit

answer

the right side of an account (CR)

question

DEALER

answer

normal debit balance: dividends expenses assets normal credit balance: liabilities stockholder's equity (retained earnings and common stock) revenues

question

debiting

answer

increase accounts with a normal debit balance by...

question

crediting

answer

decrease accounts with a normal debit balance by...

question

crediting

answer

increase accounts with a normal credit balance by...

question

debiting

answer

decrease accounts with a normal credit balance by...

question

using a t-account to determine an account balance

answer

debits on the left side and credits on the right side normal debit balance: add debits and subtract credits normal credit balance: subtract debits and add credits write the total under the side with the greater amount

question

the effect of accounting transactions on the financial statements

answer

1. each transaction is analyzed in terms of its effect on assets, liabilities and stockholders equity 2. the two sides of the equation must always be equal 3. the cause of each change in stockholder's equity must be indicated balance sheet: assets (DR), liabilities (CR) and stockholders equity (CR) income statement: revenues (CR) and expenses (DR) statement of retained earnings: retained earnings (CR) plus net income less dividends

ACC 201, Ch. 1 – 3 (FINAL) – Flashcards

Unlock all answers in this set

Haven't found what you were looking for?

Search for samples, answers to your questions and flashcards