Accounting 101: Exam 1 || with 100% Errorless Solutions.
3 Types of business correct answers Sole Proprietorship, Partnership, Corporation
Sole Proprietorship correct answers One of the three types of business. It is a business owned by
one person.
Pros: You are in control, simple to establish, tax advantages
Cons: Proprietor is liable, financing may be difficult, Transfer of ownership may be difficult.
Partnership correct answers One of the three types of business. It is a business owned by two
people.
Pros: The two people are completely in control, tax advantages, simple to establish, broader
skills and resources.
Cons: Liable for all business debts/claims, transfer of ownership may be difficult.
Corporation correct answers One of the three types of business. Company is controlled by people
with the most stock. Public company.
Pros: Easier to finance, lower liability, easier to change ownership
Cons: unfavorable tax treatment
Unlimited vs. Limited Liability correct answers
Assets correct answers Resources owned by the entity
Liabilities correct answers Amounts owed to creditors, obligations of the entity.
Stockholders' Equity correct answers Common Stock - amount paid in by stockholders for stock.
Retained Earnings - profit retained in the corporation.
Revenue correct answers Increases in assets resulting from sell of products or services
Expenses correct answers Costs for use of assets or services in the revenue generating process
Net Income or Loss correct answers Revenues less Expenses
Financing Activities correct answers A business activity. It includes: borrowing money, selling
stock, paying dividends to stockholders...
Affects Liabilities (notes payable), Stockholders' Equity (retained earnings)
Investing Activities correct answers A business activity. Invest in assets necessary to operate
business. Ex: buying a factory/machinery. Most affects assets, PPE, Investments.
Operating Activities correct answers A business activity. Use of assets to earn revenue. Costs
(expenses) associated with generating revenue. Most affects: assets, liabilities, expenses,
revenue, accounts receivable/payable.
, Balance Sheet Components (Simple) correct answers Report of a company's assets, liabilities,
and stockholders' equity at a specific point in time. Assets = Liabilities + Stockholders' Equity
Single-Step Income Statement correct answers Report of net income over a period of time.
Revenues - Expenses = Net Income
Retained Earnings Statement correct answers Shows amounts of retained earnings through
causes and changes over time. Retained earnings (beg.) + Net Income - Dividends = Retained
earnings (end)
Statement of Cash Flow correct answers Shows info about cash receipts and payments over a
period of time. Cash flow from Operating, Investing, and Financing activities.
Interrelationships of the Financial Statements correct answers Retained Earnings Statement relies
on info from the Income Statement (Net Income)
Balance Sheet and Retained Earnings are interrelated
Balance Sheet and Statement of Cash Flow are interrelated
Internal Users of Financial Statements correct answers People who are directly involved inside
the company: Management, Employees, Owners.
External Users of Financial Statements correct answers People who are not member of the
company, but deal with it in some way: Customers, Creditors, Tax Authorities, Investors,
Regulatory Authorities.
Current Assets vs. Long-term Assets correct answers
Current Liabilities vs. Long-Term Liabilities correct answers
Generally Accepted Accounting Principles (GAAP) correct answers How does a company
decide on the amount and type of financial information to disclose? What reporting format
should a company use?
How should a company measure assets, liabilities, revenues, and expenses?
The rules of accounting.
FASB correct answers Primary Accounting Setting Body in the US: Financial Accounting
Standards Board.
Makes the rules of accounting (GAAP).
SEC correct answers US government agency that oversees financial markets. Securities
Exchange Commission.
Enforces the rules of accounting.
3 Types of business correct answers Sole Proprietorship, Partnership, Corporation
Sole Proprietorship correct answers One of the three types of business. It is a business owned by
one person.
Pros: You are in control, simple to establish, tax advantages
Cons: Proprietor is liable, financing may be difficult, Transfer of ownership may be difficult.
Partnership correct answers One of the three types of business. It is a business owned by two
people.
Pros: The two people are completely in control, tax advantages, simple to establish, broader
skills and resources.
Cons: Liable for all business debts/claims, transfer of ownership may be difficult.
Corporation correct answers One of the three types of business. Company is controlled by people
with the most stock. Public company.
Pros: Easier to finance, lower liability, easier to change ownership
Cons: unfavorable tax treatment
Unlimited vs. Limited Liability correct answers
Assets correct answers Resources owned by the entity
Liabilities correct answers Amounts owed to creditors, obligations of the entity.
Stockholders' Equity correct answers Common Stock - amount paid in by stockholders for stock.
Retained Earnings - profit retained in the corporation.
Revenue correct answers Increases in assets resulting from sell of products or services
Expenses correct answers Costs for use of assets or services in the revenue generating process
Net Income or Loss correct answers Revenues less Expenses
Financing Activities correct answers A business activity. It includes: borrowing money, selling
stock, paying dividends to stockholders...
Affects Liabilities (notes payable), Stockholders' Equity (retained earnings)
Investing Activities correct answers A business activity. Invest in assets necessary to operate
business. Ex: buying a factory/machinery. Most affects assets, PPE, Investments.
Operating Activities correct answers A business activity. Use of assets to earn revenue. Costs
(expenses) associated with generating revenue. Most affects: assets, liabilities, expenses,
revenue, accounts receivable/payable.
, Balance Sheet Components (Simple) correct answers Report of a company's assets, liabilities,
and stockholders' equity at a specific point in time. Assets = Liabilities + Stockholders' Equity
Single-Step Income Statement correct answers Report of net income over a period of time.
Revenues - Expenses = Net Income
Retained Earnings Statement correct answers Shows amounts of retained earnings through
causes and changes over time. Retained earnings (beg.) + Net Income - Dividends = Retained
earnings (end)
Statement of Cash Flow correct answers Shows info about cash receipts and payments over a
period of time. Cash flow from Operating, Investing, and Financing activities.
Interrelationships of the Financial Statements correct answers Retained Earnings Statement relies
on info from the Income Statement (Net Income)
Balance Sheet and Retained Earnings are interrelated
Balance Sheet and Statement of Cash Flow are interrelated
Internal Users of Financial Statements correct answers People who are directly involved inside
the company: Management, Employees, Owners.
External Users of Financial Statements correct answers People who are not member of the
company, but deal with it in some way: Customers, Creditors, Tax Authorities, Investors,
Regulatory Authorities.
Current Assets vs. Long-term Assets correct answers
Current Liabilities vs. Long-Term Liabilities correct answers
Generally Accepted Accounting Principles (GAAP) correct answers How does a company
decide on the amount and type of financial information to disclose? What reporting format
should a company use?
How should a company measure assets, liabilities, revenues, and expenses?
The rules of accounting.
FASB correct answers Primary Accounting Setting Body in the US: Financial Accounting
Standards Board.
Makes the rules of accounting (GAAP).
SEC correct answers US government agency that oversees financial markets. Securities
Exchange Commission.
Enforces the rules of accounting.
