Accounting - Ch. 1 Quiz

Who is responsible for business debts if firm is unable to pay in a sole proprietorship?

the owner

How many owners for a partnership?

two or more owners

What is the purpose of Regulatory Agencies?

- Securities and Exchange Commission (SEC) is the federal agency that oversees the financial information of public corporations - Public corporations are those whose stock is traded on the stock exchange and over-the-counter markets

What are the EXTERNAL users of financial information?

- Tax Authorities - Suppliers - Regulatory Agencies - Unions - Banks - Investors & Potential Investors - Customers

What 3 areas in which an Accountant can practice

1. Auditing 2. Tax accounting 3. Management advisory services

What are the 5 functions of accounting?

1. Classified 2. Recorded 3. Summarized 4. Interpreted 5. Communicated

What are 4 accounting proffesions?

1. Public Accounting 2. Managerial Accounting 3. Governmental Accounting

What is one accounting firm that lost it's standing and why?

Arthur Andersen; because of the Enron scandal

How many owners for a sole proprietorship?

One owner

How many owners for a corporation?

One owner or thousands

What are the INTERNAL users of financial information?

Owners; managers; employees

Who is responsible for business debts if firm is unable to pay in a partnership?

Partners individually and jointly

What are the 4 big accounting firms?

PwC Deloitte Ernst and Young KPMG

Who is in charge of the GAAP?

SEC which delegates authority to the Financial Accounting Standards Board (FASB) that creates and manages the GAAP

What is the act that changed the accounting landscape in 2002? Why was it created?

Sarbanes-Oxley Act; the act led to a major change in the regulatory environment. The act was designed as a regulatory crackdown on a corporate fraud and corruption scandal.

What are generally accepted accounting principles (GAAP)?

They are accounting standards developed and applied by professional accountants

When does a sole proprietorship end?

When to owner: - is unable to carry on - dies -closes the firm

What do suppliers do?

assess the firms ability to pay it's bills & sets credit limit for the firm

What do tax authorities do?

decide on taxation policies; income tax, sales tax, and property tax

What do banks do?

decide whether to make a loan determine the terms of the loan

What do customers do?

determine the economic health of the business & the likelihood that the firm will remain in business

When does a corporation end?

Continues indefinitely Ends when: - Business goes bankrupt - Stockholders vote to liquidate

When does a partnership end?

Ends when partner(s): - Withdraws - Dies - Closes the firm

Who is responsible for business debts if firm is unable to pay in a corporation?

Stockholders can lose only the amount invested