Business and Accounting Principles

Flashcards related to business and accounting principles.

Main Goal of a Business

To provide goods/services and earn profit through value creation.

For-profit Business

A business that aims to earn money for its owners/investors.

Not-for-profit Business

A business that operates to serve communities.

Service Company

A company that provides services (e.g., consulting, banking).

Merchandising Company

A company that buys products to resell (wholesale or retail).

Manufacturing Company

A company that produces goods from raw materials.

Financial Services

Businesses that deal with money (e.g., banks, investment firms).

Sole Proprietorship

A business with one owner; simple to start, but carries personal liability.

Partnership

A business with multiple owners; shared control and profits, but owners are personally liable.

Corporation

A separate legal entity with limited liability; can raise capital through selling stock, but subject to double taxation.

LLP (Limited Liability Partnership)

A business form that combines liability protection of corporations with tax benefits of partnerships.

LLC (Limited Liability Company)

A business form that combines liability protection of corporations with tax benefits of partnerships.

Operating Activities

Day-to-day business operations (sales, wages, rent).

Investing Activities

Buying/selling assets (equipment, land).

Financing Activities

Raising capital (issuing stock, borrowing).

Internal Users of Accounting Information

Management (for decision-making).

External Users of Accounting Information

Investors/Creditors, Regulators, Tax Authorities, Others (Employees, labor unions, advisors).

Income Statement

Financial statement showing revenues - expenses = net income over a time period.

Statement of Changes in Shareholders’ Equity

Financial statement showing changes in Contributed Capital and Retained Earnings.

Balance Sheet

Financial statement showing Assets = Liabilities + Shareholders’ Equity at a specific date.

Statement of Cash Flows

Financial statement summarizing cash inflows and outflows from operating, investing, and financing activities over a period.

Single-step Income Statement

Total revenues – total expenses = Net income.

Multi-step Income Statement

Breaks down into Gross Margin, Operating Income, Income Before Taxes, etc.

Classified Balance Sheet

Groups assets into Current, long-term, other and liabilities into Current and long-term.

SEC (Securities & Exchange Commission)

U.S. government agency overseeing financial reporting.

FASB (Financial Accounting Standards Board)

Sets U.S. accounting rules (GAAP).

IASB (International Accounting Standards Board)

Develops IFRS (global standards).

Strategic Risks

Risks associated with poor decisions.

Operating Risks

Risks associated with supply chain issues, poor quality, theft.

Financial Risks

Risks associated with poor credit, debt.

Information Risks

Risks associated with inaccurate or misleading financial data.

Controls

Activities to reduce or eliminate risks.