Business Organizations and Accounting

Flashcards about business organizations and accounting.

What are the three forms of business organization?

Sole Proprietorship, Partnership, Corporation

What are the advantages of a corporation?

Separate legal entity, Easier to transfer ownership, Easier to raise funds, No personal liability

What are the disadvantages of a corporation?

Income taxes are higher than proprietorships and partnerships

What are the three types of business activities?

Financing, Investing, and Operating activities

What is debt financing?

Borrowing money to create a liability

Who are creditors?

The party to whom amounts are owed

What is equity financing?

Issuing (selling) shares of stock for cash

What is common stock?

The amount paid by stockholders for shares they purchase

What are dividends?

Payments to stockholders

What are assets?

Resources owned by a business

Give some examples of assets.

Property, plant, and equipment (computers, delivery trucks, furniture, buildings), Cash, Investments in securities (stocks or bonds of other companies)

What are operating activities?

Day-to-day actions to produce and sell a product or provide a service

What is revenue?

Amounts generated from the sale of goods or performance of services

What are expenses?

Costs consumed or services used in the process of generating revenue

Give some examples of operating activities - liabilities.

Accounts payable, Interest payable, Wages payable, Sales taxes payable, property taxes payable, and income taxes payable

What is net income?

Exists when revenues exceed expenses

What is a net loss?

Exists when expenses exceed revenues

What is accounting?

The information system that identifies, records, and communicates the economic events of an organization to interested users.

Name the four financial statements.

Income statement, Retained earnings statement, Balance sheet, Statement of cash flows

What does an income statement show?

Success of the business during a period of time

What does a retained earnings statement show?

How much income was distributed to owners and how much was retained

What does a balance sheet show?

A picture at a point in time of what a business owns and what it owes

What does a statement of cash flows show?

Where a business obtained cash during a period of time and how that cash was used

What is net income?

Results when revenues exceed expenses

What is net loss?

Results when expenses exceed revenues

Give some examples of current assets.

Cash, Investments, Receivables, Inventories, Prepaid expenses

What are long-term investments?

Can be realized in cash, but the conversion is not expected within one year

Give some examples of long-term investments.

Investments in stocks and bonds of other corporations that are held for more than one year, Long-term assets such as land or buildings that a company is not currently using in its operating activities, Long-term notes receivable

What is property, plant, and equipment?

Are assets with relatively long useful lives that are currently used in operations

Give some examples of property, plant, and equipment.

Land, Buildings, Equipment, Delivery vehicles, Furniture

What is book value?

Cost less accumulated depreciation

What is depreciation?

Systematic allocation of cost to expense over a number of years

What are intangible assets?

Assets that do not have physical substance

Give some examples of intangible assets.

Goodwill, patents, copyrights, and trademarks or trade names

What are current liabilities?

Obligations the company is to pay within the next year or operating cycle, whichever is longer

Give some common examples of current liabilities.

Accounts payable, notes payable, salaries and wages payable, interest payable, and income taxes payable

What are long-term liabilities?

Obligations a company expects to pay after one year

Give some examples of long-term liabilities.

Long-term notes payable, bonds payable, mortgages payable, lease liabilities, and pension liabilities

What are the two parts of stockholders’ equity?

Common stock and Retained earnings

What is common stock?

Investments of assets into the business by the stockholders

What is retained earnings?

Income retained for use in the business

What is the accounting equation?

Assets = Liabilities + Stockholders’ Equity

What is analyzing transactions?

The process of identifying the specific effects of economic events on the accounting equation