chapter 1

Question 1

Sole proprietorship

Answer 1

A business owned by one person

simple to set up and gives control

more favorable tax treatment

More liability

Question 2

Partnership

Answer 2

A business owned by two or more persons

Simple to establish

Broader skills and resources

Tax advantages

More liability

Question 3

Corporation

Answer 3

A business organized as a seperate legal entity owned by stockholders

Easier to transfer ownership

Easier to raise funds

No personal liability

Question 4

Accounting

Answer 4

The information system that identifies, records, and communicates the economic events to interested users

Question 5

Internal users

Answer 5

Managers who plan, organize, and run a business

ex. marketing manager, production supervisor, comapny officer, finance director

Question 6

External users

Answer 6

Investors

Creditors

Taxing authorities

Customers

Labor unions

Regulatory agencies

Question 7

Investors

Answer 7

use accounting info to make decisions about stocks

Question 8

Creditors

Answer 8

use accounting info to evalulate the risks of selling on credit or lending money

Question 9

Taxing authorities

Answer 9

want to know whether a comapny is following tax laws

Question 10

creditors

Answer 10

people to whom money is owed

Question 11

Bonds payable

Answer 11

Debt securities sold to investors that must be repaid at a particular date some years in the future

Question 12

Liablities

Answer 12

Amounts owed to creditors-in the form of debt and other obligations

Question 13

common stock

Answer 13

the total amount paid in by stockholders for the shares they purchase

Question 14

Dividends

Answer 14

Payments to stockholders

Question 15

assets

Answer 15

Resources owned by a business

Question 16

Revenue

Answer 16

The increase in assets resulting from the sale of a product or service

Question 17

Inventory

Answer 17

Goods available for future sales to customers

Question 18

Account receivable

Answer 18

The right to receive money in the future

Question 19

Expenses

Answer 19

The cost of assets consumed or services used in the process of generating revenues

Question 20

Net income

Answer 20

When revenue exceeds expenses

Question 21

Net loss

Answer 21

When expenses exceed revenues

Question 22

income statement

Answer 22

Reports the success or failure of the company’s operations for a period of time

Question 23

Retaind earnings

Answer 23

The net income retained in the corporation

Question 24

Retained earnings statement

Answer 24

Shows the amounts and causes of changes in retained earnings during the period

Question 25

Balance sheet

Answer 25

Reports assets and claims to assets at a specific point in time

Question 26

Stockholders’ equity

Answer 26

Claims of owners

Question 27

Basic accounting equation

Answer 27

assets = liabilities + stockholders’ equity

Question 28

statement of cash flows

Answer 28

provides financial information about the cash receipts and cash payments of a business for a specific period of time

Question 29

Anual report

Answer 29

Provided by shareholders by publicly traded companies including financial statements

Question 30

Management discussion and analysis (MD&A)

Answer 30

Covers the companies ability to pay near-term obligations, its ability to fund operations and expansion, and its results of operations

Question 31

Notes to the financial statements

Answer 31

Clarify the financial statements and provide additional detail

Question 32

Auditor’s report

Answer 32

States the auditor’s opinion as to the fairness of the presentation of the financial position of the company

Question 33

auditor

Answer 33

an accounting professional who conducts an independent examination of a compnay’s financial institutions

Question 34

unqualified opinion

Answer 34

If the auditor is satisfied that the financial statements provide a fair representation of the company’s financial position and is accepted in accounting principles

Question 35

Certified Public Accountant

Answer 35

An individual who has met certain criteria and is thus allowed to perform audits of corporations

Question 36

Sarbanes-Oxley Act

Answer 36

Regulations passed by Congress in 2002 to try to reduce unethical corporate behavior