ACCY 201 EXAM 1 QUESTIONS & 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
organized by 3 business activities
Annual Report - Answer -public companies are required by law to provided audited
financial statements and other material once/yr
Includes: 4 financial stmts, Management discussion and analysis-liquidity(ability to pay
debt in 1 yr), capital resources(ability to find operations and expansion), results of
operations; Notes to F/S(clarify and expand on info presented, describe accounting
policies, describe uncertainties; Auditors report=certified public accountant CPA, to see
if fair and follows GAAP and if yes -- Unqualified opinion
Classified Balance Sheet - Answer -divides assets and liabilities into current and non-
current
helps users see if company has enough assets to pay liabs
Current Assets - Answer -assets that are expected to be converted to cash or used up
w/in 1 year or one cycle
listed in order of liquidity(how fast converted into cash)
Cash, ST investments, A/R, ST N/R, inventory, supplies, prepaid expenses
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
organized by 3 business activities
Annual Report - Answer -public companies are required by law to provided audited
financial statements and other material once/yr
Includes: 4 financial stmts, Management discussion and analysis-liquidity(ability to pay
debt in 1 yr), capital resources(ability to find operations and expansion), results of
operations; Notes to F/S(clarify and expand on info presented, describe accounting
policies, describe uncertainties; Auditors report=certified public accountant CPA, to see
if fair and follows GAAP and if yes -- Unqualified opinion
Classified Balance Sheet - Answer -divides assets and liabilities into current and non-
current
helps users see if company has enough assets to pay liabs
Current Assets - Answer -assets that are expected to be converted to cash or used up
w/in 1 year or one cycle
listed in order of liquidity(how fast converted into cash)
Cash, ST investments, A/R, ST N/R, inventory, supplies, prepaid expenses
