Accounting 201 Exam 1 Questions and
All Correct Answers.
Sole Proprietorship - Answer business owned by one person
simple to establish
owner controlled
tax advantages
owner personally liable
financially difficult
Partnership - Answer 2 or more owners
simple to establish
shared control
broader skills and resources
tax advantages
personally liable
Corporation - Answer separate legal entity owned by stockholders
easy to transfer ownership
greater capital raising potential
unfavorable tax treatment
lower legal liabilities for owners
Internal Users of Financial Info - Answer Managers
-Finance borrow $ or issue stock?
-Marketing advertising costs
-HR hire or lay off ppl?
-Management expand busi? sell off parts?
External Users of Financial Info - Answer -Investors who should I invest in?
-Creditors should I loan them $?
-Others regulatory agencies, tax authorities, customers, labor
Types of Business Activities - Financing - Answer get large sums of $ from 2 sources:
1. Creditors- borrowing creates liabilities(things the company owes)
, 2. Owners- selling/issuing stock to shareholders(shareholders equity-how much of a company a
stockholder owns)
Types of Business Activities - Investing - Answer obtaining resources or assets(things that
have value to the company) to operate a business
e.g. buying and selling land, buildings, equipment, vehicles
Types of Business Activities - Operating - Answer primary activities of business - normal
activities the company performs to run their business
e.g. selling goods, providing services, paying employees, advertising, paying utilities
1. Revenues - increase assets resulting from the sale of g&s
2. Expense - cost of assets consumed or services used to generate revenue
Accounting - Answer info system that identifies, records, and communicates the economic
events of an organization to interested users.
uses 4 financial statements
Income Statement - Answer reports operating success or failure for a period of time
summarizes revenues and expenses
Statement of Retained Earnings - Answer income the company has earned over its life and
kept in the company (not paid to owners in dividends)
over a period of time
Balance Sheet - Answer reports asses and claims to assets at one point in time
assets- resources owned by the company
=cash, a/r, inventory, investments, furniture, equipment, and supplies
liabilities- obligations or debts of the company
=a/p(verbal promise to pay), n/p(written promise to pay), interest payable(we owe interest from
borrowing $), salaries payable, unearned revenue
stockholder's equity- owner's claims on assets
=common stock or PIC($ contributed by owners when they buy stock), RE
Basic Accounting Equation - Answer Assets = Liabilities + Stockholder's Equity
Statement of Cash Flows - Answer Shows where cash came from and where cash went for a
period of time
All Correct Answers.
Sole Proprietorship - Answer business owned by one person
simple to establish
owner controlled
tax advantages
owner personally liable
financially difficult
Partnership - Answer 2 or more owners
simple to establish
shared control
broader skills and resources
tax advantages
personally liable
Corporation - Answer separate legal entity owned by stockholders
easy to transfer ownership
greater capital raising potential
unfavorable tax treatment
lower legal liabilities for owners
Internal Users of Financial Info - Answer Managers
-Finance borrow $ or issue stock?
-Marketing advertising costs
-HR hire or lay off ppl?
-Management expand busi? sell off parts?
External Users of Financial Info - Answer -Investors who should I invest in?
-Creditors should I loan them $?
-Others regulatory agencies, tax authorities, customers, labor
Types of Business Activities - Financing - Answer get large sums of $ from 2 sources:
1. Creditors- borrowing creates liabilities(things the company owes)
, 2. Owners- selling/issuing stock to shareholders(shareholders equity-how much of a company a
stockholder owns)
Types of Business Activities - Investing - Answer obtaining resources or assets(things that
have value to the company) to operate a business
e.g. buying and selling land, buildings, equipment, vehicles
Types of Business Activities - Operating - Answer primary activities of business - normal
activities the company performs to run their business
e.g. selling goods, providing services, paying employees, advertising, paying utilities
1. Revenues - increase assets resulting from the sale of g&s
2. Expense - cost of assets consumed or services used to generate revenue
Accounting - Answer info system that identifies, records, and communicates the economic
events of an organization to interested users.
uses 4 financial statements
Income Statement - Answer reports operating success or failure for a period of time
summarizes revenues and expenses
Statement of Retained Earnings - Answer income the company has earned over its life and
kept in the company (not paid to owners in dividends)
over a period of time
Balance Sheet - Answer reports asses and claims to assets at one point in time
assets- resources owned by the company
=cash, a/r, inventory, investments, furniture, equipment, and supplies
liabilities- obligations or debts of the company
=a/p(verbal promise to pay), n/p(written promise to pay), interest payable(we owe interest from
borrowing $), salaries payable, unearned revenue
stockholder's equity- owner's claims on assets
=common stock or PIC($ contributed by owners when they buy stock), RE
Basic Accounting Equation - Answer Assets = Liabilities + Stockholder's Equity
Statement of Cash Flows - Answer Shows where cash came from and where cash went for a
period of time
