1. A business owned by one person. It is simple to set up and gives the owner control, and full responsibility.
    Sole Proprietorship
  2. A business owned by two or more persons associated as partners.
  3. A business organized as a separate legal entity having ownership divided
    into transferable shares of stock.
  4. What are advantages of a sole proprietorship?
    • Simple to establish
    • Owner controlled
    • Tax advantages (usually pay less taxes)
  5. What are advantages of a partnership?
    • Simple to establish
    • Shared control
    • Broader skills and resources
    • Tax advantages (usually pay less taxes- like a sole proprietorship)
  6. What are advantages of a corporation?
    • Easier to transfer ownership
    • Easier to raise funds
    • No personal liability
  7. The information system that identifies, records, and communicates the
    economic events of an organization to interested users.
  8. The accounting information system
    keeps track of the results of each of the various business activities ____, _______, ______.

    a.k.a The three principal types of business activity.
    financing, investing, and operating.
  9. The debts and obligations of a business. ______ represent the
    amounts owed to creditors.
  10. Term used to describe the total amount paid in by stockholders for the
    shares they purchase.
    Common Stock
  11. Payments of cash from a corporation to its stockholders.
  12. Resources owned by a business.
  13. The increase in assets that result from the sale of a product or service
    in the normal course of business.
  14. In accounting language, ________
    are the cost of assets consumed or services used in the process of
    generating revenues.
  15. The amount by which revenues exceed expenses.
    Net income
  16. The amount by which expenses exceed revenues.
    Net loss
  17. (Financing Activities)
    To start or expand a business the owner or owners quite often need cash from outside sources. The two primary sources are:
    • Borrowing from creditors
    • -Liabilities are amounts owed to creditors
    • -Note payable (bank loan)
    • -Bonds payable (debt securities)

    • Selling shares of stock to investors
    • -Commong stock (total amount paid in by stockholders for shares they purchased)
    • -Dividends (payments to stockholders)
  18. (Investing activities)
    Investing activities involve the purchase of resources (assets) needed to operate the business. Typical assets include:
    • -Land
    • -Building
    • -Equipment
    • -Cash
    • -Investments in debt or equity securities of another company
  19. _____ comprise the primary activities for which the organization is in business.
    • Operating activities
    • (see other cards for terms to learn: revenue, expenses, net income, net loss).
  20. What are the 4 financial statements?
    Income Statement, Retained Earnings Statement (or Stockholders Equity), Balance Sheet, and Statement of Cash Flows.
  21. A financial statement that reports the assets and claims to those assets
    at a specific point in time.

    -To present a picture at a point in time of what your business owns (its
    assets) and what it owes (its liabilities)...
    -The ____ ____ reports assets and claims to assets at a specific point
    in time. Claims to assets are subdivided into two categories: claims of
    creditors and claims of owners. As noted earlier, claims of creditors
    are called liabilities. Claims of owners are called stockholders' equity.
    Balance Sheet
  22. A financial statement that presents the revenues and expenses and
    resulting net income or net loss of a company for a specific period of

    -To show how successfully your business performed during a period of
    time, you report its revenues and expenses in an ______.
    Income Statement
  23. A financial statement that summarizes the amounts and causes of
    changes in retained earnings for a specific period of time.

    -To indicate how much of previous income was
    distributed to you and the other owners of your business in the form of
    dividends, and how much was retained in the business to allow for future
    growth, you present a ______.
    Retained Earnings Statement
  24. A financial statement that provides financial information about the cash
    receipts and cash payments of a business for a specific period of time.

    -To show where your business obtained cash during a period of time and
    how that cash was used, you present a ______.
    Statement of Cash Flows
  25. (Retained Earnings Statement) Retained Earnings
    The amount of net income retained in the corporation.
  26. (Balance Sheet) Stockholders Equity
    The owners' claim on total assets.
  27. (Balance Sheet) Basic Accounting Equation
    Assets = Liabilities + Stockholders' Equity.

    (Assets must always balance or equal claims to assets).
  28. Stockholders' equity is comprised of two parts:
    • 1. Common Stock
    • 2. Retained earnings

    • (Common stock results when the company sells new shares of stock; retained
    • earnings is the net income retained in the corporation.)
  29. (Statement of Cash Flow) Users are interested in the statement of cash flows because they want to
    know what is happening to a company's most important resource. The
    statement of cash flows provides answers to these simple but important
    • 1. Where did cash
    • come from during the period?
    • 2. How was cash
    • used during the period?
    • 3. What was the
    • change in the cash balance during the period?
  30. Percentage change:

    Change during period
    Previous Value

    • Percentage change in income:
    • Change in income
    • Previous year's income
  31. A report prepared by corporate management that presents financial
    information including financial statements, notes, a management
    discussion and analysis section, and an independent auditor's report.
    Annual report
  32. Management discussion and analysis (MD&A):
    • A section of the annual report that presents management's views on the
    • company's ability to pay near-term obligations, its ability to fund
    • operations and expansion, and its results of operations.
  33. Note to the financial statements...
    • Notes that clarify information presented in the financial statements, as
    • well as expand upon it where additional detail is needed.
Card Set