Accounting 2101 Chapter 1 Questions:

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What are the three basic forms of business organizations?

1. Sole Proprietor 2. Partnership 3. Corporation

What are the advantages to a business of being formed as a corporation? What are the disadvantages?

Advantages: 1. No Liability 2. Easier to raise funds 3. Easier to transfer ownership Disadvantages: 1. Less favorable tax treatment 2. Less control

Who are the external users of accounting data? Give examples.

- Investors, auditors/tax authorities, customers, regulatory agencies

Who are the internal users of accounting data? How does accounting provide relevant data to the internal users?

- They are managers who plan, organize, and run a business. Example: Marketing Managers, Production supervisors, Finance Directors, etc. - Provides detailed information that allows for internal decisions to be made. Example: the internal reports allow for projections of income from new sales campaigns to be made or forecasts of cash needs for the next year.

What are the three main types of business activity? Give examples of each activity.

1. Finance - Debt Financing (Borrowing money) and Equity Financing (Selling Stock) 2. Investing - Cash flow and assets: Purchasing buildings, trucks for transport, investing in securities (stocks or bonds) 3. Operation - manufacturing (paying for labor), distributing, marketing, and selling a product or service

Presented below are a number of transactions. Determine whether each transaction affects common stock (C), dividends (D), revenues (R), expenses (E), or does not affect stockholders' equity (NSE). Provide titles for the revenues and expenses. (a) Costs incurred for advertising. (b) Cash received for services performed. (c) Costs incurred for insurance. (d) Amounts paid to employees. (e) Cash distributed to stockholders. (f) Cash received in exchange for allowing the use of the company's building. (g) Costs incurred for utilities used. (h) Cash purchase of equipment. (i) Cash received from investors.

A - B - C - D - E - F - G - H - I -

Listed here are some items found in the financial statements of Finzelberg. Indicate in which financial statement(s) each item would appear. (a) Service revenue. (b) Equipment. (c) Advertising expense. (d) Accounts receivable. (e) Common stock. (f) Interest payable.

A. B. C. D. E. F.

What are the advantages to a business of being formed as a partnership or sole proprietorship? What are the disadvantages?

Advantages: 1. Simple to establish 2. Owner/Shared Control 3. More favorable tax treatment 4. Broader skills and resources Disadvantages: 1. Harder to raise funds 2. Liability

What is the basic accounting equation?

Assets = Liabilities + Stockholders' Equity

What are the three main categories of the statement of cash flows? Why do you think these categories were chosen?

What is retained earnings? What items increase the balance in retained earnings? What items decrease the balance in retained earnings?

"Accounting is ingrained in our society and is vital to our economic system." Do you agree? Explain

Yes. Accounting provides crucial financial information that allows for decision making. Without accounting we would not have the records to explain, identify, and predict past, present, of future economic events. Resulting an unpredictable economic system.


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