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AU / Accounting / ACCT 2110 / What are the different forms of a business organization?

What are the different forms of a business organization?

What are the different forms of a business organization?

Description

School: Auburn University
Department: Accounting
Course: Principles of Financial Accounting
Professor: Elizabeth miller
Term: Fall 2015
Tags: Accounting and the Financial Statements; The Accounting Information System; Miller, financial accounting, and auburn
Cost: 50
Name: Test 1 Study Guide (Chapters 1 and 2)
Description: Study guide for Chapters 1 and 2: 1- Accounting and the Financial Statements 2- The Accounting Information System
Uploaded: 01/27/2016
3 Pages 51 Views 1 Unlocks
Reviews


Test 1 Study Guide


What are the different forms of a business organization?



Forms of Business Organization

∙ Sole Proprietorship

o Advantages: easily to form; control all operations; pay less taxes than corporations o Disadvantages: personally liable for any debt; life of business is only equal to the life  of the owner  

∙ Partnership

o Advantages: increased financial resources; more skills between two people; pay less  taxes than corporations

o Disadvantages: control of operations is shared; two owners liable for any debt; life of  business is only equal to the life of the partners  

∙ Corporation  

o Advantages: raise large amounts of money; transferrable ownership (by stock);  owners' only liable for the amount they invest in the business


What are the financial statement time periods?



o Disadvantages: formation of business is complex; high taxes

Financial Statement Time Periods

∙ Balance sheet at beginning of period

∙ Period-of-time Statements

o Income statement

o Retained earnings statement

o Statement of cash flows

∙ Balance sheet at end of period

See other notes for details on the 4 Types of Financial Statements  

∙ Who uses this information? The government, investors, owners, and creditors  ∙ Balance sheet- assets, liabilities, and stockholders' equity (at a specific point in time) ∙ Income statement- revenues, expenses, and net income/loss (over a period of time) ∙ Retained earnings statement- retained earnings at the start, net income, and dividends (over  a period of time)


What are the 4 types of financial statements?



We also discuss several other topics like What is the molecular structure of water?

∙ Statement of cash flows- operating, investing, and financing activities (over a period of  time)

Some Useful Formulas

∙ Stockholder's equity = common stock + retained earnings

∙ Change in stockholders' equity = change in common stock = change in retained earnings ∙ Change in retained earnings = net income - dividends

∙ Change in stockholders' equity = change in common stock + net income - dividends  

Simple Accounting Vocabulary and Concepts

∙ Revenue- assets from the sale of goods or services (increase)

∙ Expense- assets consumed in the operation of a business (the costs)

∙ Net income (loss)- revenues minus expenses

∙ Dividend- distribution of earnings to stockholders

∙ Asset- the resources of a company

∙ Liability- resources of a company that are claimed by creditors If you want to learn more check out What is descriptive research?

∙ Stockholders' equity- owner's (stockholder's) claim on resources  

∙ Receivable- the right to collect from customers; an asset  

∙ GAAP- generally accepted accounting principles- rules and conventions of accounting ∙ SEC- Securities and Exchange Commission- holds the power to set rules of accounting for  publicly traded companies  

∙ Operating Cycle- company purchasing goods --> reselling the goods --> collecting the cash  from the goods  

∙ Liquidity- the ability for a company to pay short-term debts on time (measured by working  capital and the current ratio)

Net Profit Margin

∙ Net Income/Net Sales produces a percentage We also discuss several other topics like What are military weaknesses?

∙ Compare percentage to recent years or other markets of competitors to see how well the  company is going

Business Activities (Cash Flow) We also discuss several other topics like Why did the habsburgs fail?

∙ Operating- any inflow or outflow directly relating to operations; what money is directly  used in a business in order to earn a profit

o Inflow- cash collections from customers, account receivables, cash sale (not sales on  account), insurance settlement money

o Outflow- payments on supplies, salaries, utilities, rent, advertising, accounts payable,  inventory

∙ Investing- relating to the acquisition or sale of investments (assets or equipment) that will  later be used to generate revenues We also discuss several other topics like What is the meaning of hominins?

o Inflow- sale of long-term assets

o Outflow- purchases of long-term assets

∙ Financing- relating to getting capital of the company or getting the funds to start a business o Inflow- selling stock, borrowing money (loans)

o Outflows- repaying loans, pay dividends to stockholders  

Items in the Annual Report and Professional Ethics

∙ All four financial statements make up annual reports

∙ Notes to the financial statements (footnotes)- clarify information in statements o The info can be numerical or qualitative

∙ Management's discussion and analysis- management's explanation to expand on favorable  and unfavorable trends

o Also expand on any risks that the company may be facing (or soon to face) ∙ Audit report- here is where the auditor's opinion is given

o Best opinion- "unqualified" (basically everything looks good)

o Okay opinion- "everything looks good except for _______"

o Worst opinion- no opinion is given

∙ Essentially this tells investors that the company has many issues and should  steer clear of it  

Professional Ethics We also discuss several other topics like Where can you get omega 3 fatty acids?

∙ Validity of financial statements comes from professional ethics

∙ Ethics ensures that managers can trust their employees; investing public must trust  accountants and ensure all formal codes are followed  

∙ Remember, all of the Financial Accounting PowerPoints can be found on Canvas ∙ I also highly recommend looking at pages 26 and 29-31 in the textbook for quick reviews  and summaries of the key points in this chapter!

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