Exam (elaborations) MGT8803

A business owned by a single owner - ANSWER proprietorship A business owned by more than one owner - ANSWER partnership In ___ & ___, the business and the owner(s) are legally one entity - there is unlimited liability and no taxation. - ANSWER proprietorship and partnership What does unlimited liability mean? - ANSWER The obligations of the business are the same as the obligations of the owners; i.e., a bank can go after the owners if the business defaults on its loan What does "no taxation" mean with regard to proprietorships and partnerships? - ANSWER The business itself is not taxed, but its owners pay income tax T/F: A corporation is a legally separate entity from its owners. - ANSWER True Corporations have ___ liability, which means ___. - ANSWER limited; the business is legally a separate entity from its shareholders, and they cannot be held accountable for defaulted loans opened under the business How does taxation work with regard to corporations and shareholders? - ANSWER The corporation pays taxes AND the shareholders pay taxes as individuals What are the 5 key assumptions of financial accounting? - ANSWER 1. Separate entity 2. Unit of measurement 3. Going concern 4. Periodicity 5. Materiality Explain the separate entity assumption of financial accounting. - ANSWER We treat the business and the owners as separate entities, focusing on the accounting for the businesses, not the owners. Explain the unit of measurement assumption of financial accounting. - ANSWER We'd like to pick a unit of measure to aggregate all the different things we have (in the business) so there is one common unit of measure. This is typically the currency in which the company operates