TAMU ACCT 229 - Exam 1 Questions and Answers

TAMU ACCT 229 - Exam 1 Questions and Answers 3 types of businesses -Answer-sole proprietorship, partnership, corporation unlimited liability -Answer-sole proprietorship & partnership limited liability -Answer-corporation Sole Proprietorship -Answer-one owner advantage: easy to form separate entity for accounting purposes not a separate entity for legal purposes or tax purposes Partnership -Answer-two or more owners separate entity for accounting purposes not a separate entity for legal or tax purposes Corporations -Answer-business incorporated under the laws of a particular state. Advantages: limited liability, continuity of life, ease in transfer of stock (ownership), opportunity to raise large amounts of money by selling shares of stock to a large number of people. 3 types of business activities -Answer-financing, investing, operating Operating Activities -Answer-everyday activities -sell inventory, pay employees Investing Activities -Answer-how you grow your company -buying building, equipment, vehicles, fixtures Financing Activities -Answer-how you pay for your growth -borrow money: temporary financing -issue stock: permanent 4 financial statements -Answer-Income statement Statement of Retained Earnings Balance Sheet Statement of Cash Flows What does a balance sheet show? -Answer-Shows the financial position of a company at a point in time. A = L + SHE Assests -Answer-what a company owns, or what is owed to a company Laiabilities -Answer-what the company owes Stockholders Equity -Answer-ownership. (common stock & retained earnings) Monetary Unity Assumption -Answer-Only transactions that can be expressed in terms of money can be included in the accounting records Economic Entity Assumption -Answer-Activities of the business are separate from activities of the owners Time Period Assumption -Answer-The long life of a company can be reported over a series of shorter time periods. Makes it possible to prepare the Income Statements for a specific time period