Accounting midterm

• amount of money earned over and above the amount spent to keep the business operating.
• is when revenue is greater than expenses

• Businesses that spend more money than they earn
• when expenses are greater than revenue

a business owned by one person

• . easy to set up
• · all profits go to owner
• · owner has total control.
• · Few regulations to follow.
• · e being your own boss
• · pride of ownership no special taxes

• . Limited expertise
• · Hard to raise money
• · Owner has all the risks
• · Hard to attract talented employers
• · overwhelming time commitment limited life span

a business owned by two or more persons who agree to operate the business as co-owners

• · Easy to start
• · Skills and talents are pooled.
• · More money available.
• · Shared management and pooled knowledge.
• · Longer survival.

• · Conflict between partners
• · Profits must be shared
• · Owners share all the risks (unlimited liability)
• · Difficult to terminate.

a business organization that is recognized by law to have a life of its own

• Easier to raise money
• Easy to expand
• Easy to transfer ownership
• Losses limited to investment
• Perpetual life (Can live forever)
• Size
• Ease of drawing talented employees
• Separation of ownership from management

• · Costs more to start up
• · Complex to organize
• · More regulations
• · Higher taxes
• · Paperwork
• · Two tax returns
• · Size
• · Difficult to terminate
• · Double taxation
• · Possible conflict with broad directions

a legal right to an item

property or items of value owned by a business

The owners claims to the assets of the business

the creditor claims to the assets of the business

The accounting relationship between assets and the two types of equities

Assets= liabilities + owners equity

is the basis for keeping all accounting records In balance.

the total amount of money owed to a business

is the amount owed or payable to the creditors of a business

is a system of record keeping in which each business transaction affects at least two accounts

accounting period that goes along with the calendar

Business chooses the accounting period

accountants must assume that the business has the ability to survive and operate indefinitely