16 Questions
What is the purpose of accounting in business?
To explain why accounting is critical to business
Which type of business provides specific services and is becoming increasingly more important in the U.S. economy?
Service Firms
What are the 3 main activities that define any business?
Operating, investing, and financing
Which activity involves the sale of products or services?
Operating
What does investing activity primarily involve?
Acquiring long-term assets used for generating revenues
Which type of business transforms raw materials obtained from suppliers into finished products?
Manufacturers / Producers
What is the purpose of acquiring long-lived assets like land, buildings, factories, and equipment?
To generate revenues
In the context of financing operations, what does it mean to issue long-term debt to bondholders?
Borrowing money from bondholders with an agreement to repay it over a long period
What is a disadvantage of a corporation in terms of income taxation?
Income subject to double taxation
In which form of business organization are owners personally responsible for the company’s debts with unlimited liability?
Sole Proprietorship
What is the main advantage of a Limited-liability Company (LLC)?
Business, not the owner, is liable for firm’s debts
Which type of organization is NOT organized for the purpose of earning a profit?
Corporation
What is the role of the Board of Directors in a Corporation?
Making decisions that affect the company
What is the primary advantage of a Sole Proprietorship?
Easy to form
In terms of financing operations, what does it mean when a company sells its own stock (equity) to shareholders?
'Receiving money from shareholders in exchange for ownership in the company'
What is the key advantage of a Partnership?
Profits and losses are divided among the owners
Study Notes
Purpose of Accounting and Business Activities
- The primary purpose of accounting in business is to provide financial information for decision-making.
Business Types and Activities
- Service-based businesses, which provide specific services, are becoming increasingly important in the U.S. economy.
- Three main activities define any business: financing, investing, and operating.
- Operating activities involve the sale of products or services.
- Investing activities primarily involve providing or obtaining cash, such as through the sale of long-lived assets or investments.
- Manufacturing businesses transform raw materials obtained from suppliers into finished products.
Financing Operations
- Acquiring long-lived assets like land, buildings, factories, and equipment is a key aspect of financing operations.
- Issuing long-term debt to bondholders means borrowing money from investors for an extended period.
Business Organizations
- In a corporation, owners have limited liability, but income taxation is a disadvantage.
- In a sole proprietorship, owners are personally responsible for the company's debts with unlimited liability.
- The main advantage of a Limited-liability Company (LLC) is that owners have limited liability.
- A non-profit organization is not organized for the purpose of earning a profit.
Corporate Governance and Financing
- The Board of Directors in a Corporation is responsible for overseeing the management of the company.
- The primary advantage of a Sole Proprietorship is that it is easy to establish and has minimal regulatory requirements.
- When a company sells its own stock (equity) to shareholders, it is a form of financing operations.
- The key advantage of a Partnership is that it allows for shared ownership and decision-making responsibilities.
Test your understanding of key concepts from Chapter 1 on financial statements and accounting principles. Assess your knowledge of accounting's significance in business, application of accounting equation, and construction and analysis of financial statements.
Make Your Own Quizzes and Flashcards
Convert your notes into interactive study material.
Get started for free
