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Questions and Answers
What are the four principal activities of business firms?
What are the four principal activities of business firms?
What are the three principal financial statements?
What are the three principal financial statements?
Balance sheet, Income statement, Statement of cash flows
Which activity involves acquiring raw materials for use or products for sale?
Which activity involves acquiring raw materials for use or products for sale?
The balance sheet represents information about a company's performance over a period of time.
The balance sheet represents information about a company's performance over a period of time.
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What is the Basic Accounting Equation?
What is the Basic Accounting Equation?
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The results of the operating activities of a firm for a specific time period are reflected in the __________.
The results of the operating activities of a firm for a specific time period are reflected in the __________.
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Which of the following is a role of financial reporting?
Which of the following is a role of financial reporting?
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Study Notes
Business Activities
- Businesses engage in four primary activities:
- Establishing goals and strategies
- Obtaining financing
- Making investments
- Conducting operations
Establishing Goals and Strategies
- Businesses aim to:
- Maximize returns for owners
- Provide a positive and stable work environment for employees
- Contribute to and align with national goals and policies
Financing
- Two main sources of financing:
- Owners: provide funds and receive a claim on future value increases.
- Creditors: provide funds and expect periodic payments, including interest.
Investing
- Investments are essential for business activities.
- Investments can be tangible (e.g., land, buildings, equipment, inventories) or intangible (e.g., patents, licenses, rights).
- Other examples include shares of other companies, customer receivables, and cash.
Operations
- Operating activities include:
- Purchasing: acquiring raw materials or products for sale.
- Production: combining resources to create output.
- Marketing: selling and distributing the product.
- Administration: supporting operational activities.
Financial Statements
- Three main financial statements provide insights into a company's financial health:
- Balance Sheet
- Income Statement
- Statement of Cash Flows
Balance Sheet
- A snapshot of the company's financial position at a specific point in time.
- Highlights the relationship between investments and financing:
- Assets = Liabilities + Shareholders' Equity
- Resources = Sources of Resources
- Resources = Claims on Resources
Income Statement
- Represents the results of a company's operational activities over a specific time period.
- Displays revenue, expenses, and net income.
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