NAF Accounting Study Guide Exam
Questions and Answers
accounting - correct answer-The established system of keeping track of economic
resources such as money, buildings, equipment, and products. Also, accounting records
the results of the operations of a business to show managers and owners if a business
is worth continuing.
financial statement - correct answer-A report that tells a story about economic resources
coming in and going out of a business. No one report tells the whole story.
stakeholder - correct answer-Anyone who can be affected by an organization's actions,
including managers, employees, customers, vendors, creditors, owners, and even the
general public.
taxonomy - correct answer-A categorized list of terms that is related to a particular topic.
business forms (also called business structures) - correct answer-The particular ways a
business can be set up legally. These include sole proprietorship, partnership,
corporation, and limited liability company (LLC).
business types - correct answer-The industries in which businesses operate. These
include manufacturing, merchandising, and service.
corporation - correct answer-A business that is separate and apart from any other
business or person. One or more people may own a corporation. The owners are
protected from personal liability.
entity - correct answer-A distinct thing such as a company, a firm, or a business.
limited liability company (LLC) - correct answer-A business form that combines the
limited personal liability of a corporation with the tax benefits of a partnership or a sole
proprietorship.
manufacturing company - correct answer-A company that produces goods. Usually
manufacturers produce wholesale goods to sell to retailers (or merchandisers) who then
sell the goods to the public for a markup.
merchandising company - correct answer-A company that sells ready-made products
purchased from a manufacturer to its customers.
, partnership - correct answer-A business that is owned by two or more people. The
owners have personal liability for the actions of the company. Partnership income is
taxed at the partner level, with each partner including his or her share of partnership
income on a personal tax return. The partnership does not pay a separate income tax.
service company - correct answer-A company that sells a service rather than a tangible
product to its customers.
sole proprietorship - correct answer-A business that is owned by one person or a
married couple. The owner has personal liability for the company.
Sole Proprietorship advantages - correct answer-Easy and inexpensive to form and
dissolve, No profit sharing, Complete control of company, Independence of owner(s),
Few government regulations, and Business profits taxed at personal level.
Sole Proprietorship disadvantages - correct answer-Unlimited personal liability, Limited
management expertise, Limited access to capital, Extensive time commitments, Difficult
to sell, and Limited life.
Partnership advantages - correct answer-Easy to form, Access to more capital more
management expertise, Few government regulations, business profits taxed at partner
level, and Easy to change owners.
Partnership disadvantages - correct answer-Unlimited personal liability, Profit sharing,
Potential disagreements among partners, Difficult to sell, and Limited life.
Corporation advantages - correct answer-Limited personal liability, management
expertise, Easier to raise capital, Easy to sell, and Unlimited life.
Corporation disadvantages - correct answer-More government regulations: complicated
formation, may need attorney or accountant to set up, Double taxation: once on
corporate profits and again on profits distributed as dividends, and Absentee owners.
LLC (limited liability company) advantages - correct answer-Limited personal liability,
management expertise, Unlimited life, and Business profits taxed at personal level.
LLC (limited liability company) disadvantages - correct answer-More government
regulations: complicated formation, may need attorney or accountant to set up, and
Absentee owners.
What types of businesses are there and what is the difference in them? - correct
answer-Manufacturer makes something, be it an oil refinery or factory of some type. A
merchandiser buys the product from the manufacturer and sells it to the customer. Ex)
Hot Topic, Kroger, Walmart. A service company provides a service instead of an object
that you can touch. Ex) gymnastic studio, they may sell a few items but their main
business is to teach gymnastics.
Questions and Answers
accounting - correct answer-The established system of keeping track of economic
resources such as money, buildings, equipment, and products. Also, accounting records
the results of the operations of a business to show managers and owners if a business
is worth continuing.
financial statement - correct answer-A report that tells a story about economic resources
coming in and going out of a business. No one report tells the whole story.
stakeholder - correct answer-Anyone who can be affected by an organization's actions,
including managers, employees, customers, vendors, creditors, owners, and even the
general public.
taxonomy - correct answer-A categorized list of terms that is related to a particular topic.
business forms (also called business structures) - correct answer-The particular ways a
business can be set up legally. These include sole proprietorship, partnership,
corporation, and limited liability company (LLC).
business types - correct answer-The industries in which businesses operate. These
include manufacturing, merchandising, and service.
corporation - correct answer-A business that is separate and apart from any other
business or person. One or more people may own a corporation. The owners are
protected from personal liability.
entity - correct answer-A distinct thing such as a company, a firm, or a business.
limited liability company (LLC) - correct answer-A business form that combines the
limited personal liability of a corporation with the tax benefits of a partnership or a sole
proprietorship.
manufacturing company - correct answer-A company that produces goods. Usually
manufacturers produce wholesale goods to sell to retailers (or merchandisers) who then
sell the goods to the public for a markup.
merchandising company - correct answer-A company that sells ready-made products
purchased from a manufacturer to its customers.
, partnership - correct answer-A business that is owned by two or more people. The
owners have personal liability for the actions of the company. Partnership income is
taxed at the partner level, with each partner including his or her share of partnership
income on a personal tax return. The partnership does not pay a separate income tax.
service company - correct answer-A company that sells a service rather than a tangible
product to its customers.
sole proprietorship - correct answer-A business that is owned by one person or a
married couple. The owner has personal liability for the company.
Sole Proprietorship advantages - correct answer-Easy and inexpensive to form and
dissolve, No profit sharing, Complete control of company, Independence of owner(s),
Few government regulations, and Business profits taxed at personal level.
Sole Proprietorship disadvantages - correct answer-Unlimited personal liability, Limited
management expertise, Limited access to capital, Extensive time commitments, Difficult
to sell, and Limited life.
Partnership advantages - correct answer-Easy to form, Access to more capital more
management expertise, Few government regulations, business profits taxed at partner
level, and Easy to change owners.
Partnership disadvantages - correct answer-Unlimited personal liability, Profit sharing,
Potential disagreements among partners, Difficult to sell, and Limited life.
Corporation advantages - correct answer-Limited personal liability, management
expertise, Easier to raise capital, Easy to sell, and Unlimited life.
Corporation disadvantages - correct answer-More government regulations: complicated
formation, may need attorney or accountant to set up, Double taxation: once on
corporate profits and again on profits distributed as dividends, and Absentee owners.
LLC (limited liability company) advantages - correct answer-Limited personal liability,
management expertise, Unlimited life, and Business profits taxed at personal level.
LLC (limited liability company) disadvantages - correct answer-More government
regulations: complicated formation, may need attorney or accountant to set up, and
Absentee owners.
What types of businesses are there and what is the difference in them? - correct
answer-Manufacturer makes something, be it an oil refinery or factory of some type. A
merchandiser buys the product from the manufacturer and sells it to the customer. Ex)
Hot Topic, Kroger, Walmart. A service company provides a service instead of an object
that you can touch. Ex) gymnastic studio, they may sell a few items but their main
business is to teach gymnastics.
