Understanding Business Structures, Economic Systems, and Financial Statements, Exercises of Business Finance

Download Understanding Business Structures, Economic Systems, and Financial Statements and more Exercises Business Finance in PDF only on Docsity! Business 101 Midterm Exams Questions and Correct Answers. sole proprietorship - a business owned (and usually managed) by one person. (most common). unlimited liability partnership - 2 or more people legally agree to become co-owners corporation - a legal entity with authority to act and have liability apart from its owners general partnership - all owners share in operating the business and in assuming liability for the business's debts limited partnership - has one or more general partners and one or more limited partners master limited partnership (MLP) - a partnership that looks much like a corporation (in that it acts like a corporation and is traded on a stock exchange) but is taxed like a partnership (avoids the corporate income tax) limited liability partnership (LLP) - A partnership that limits partners' risk of losing their personal assets to only their own acts and omissions and those people under their supervision. (good for doctors, lawyers, etc.) limited partner - an owner who invests money in the business but does not have any management responsibility or liability for losses beyond his or her investment limited liability - the partner’s liability for the debts is limited to the amount they put into the company (their personal assets are not at risk) conventional corporation - a state charged legal entity with authority to act and have liability separate from its owners (stockholders are not liable for the debts or other problems of the corporation beyond the money they invest in it). s corporation - looks like a corporation but is taxed like sole proprietorships and partnerships (for new businesses. tax is too high for c-corps to turn into s-corps) limited liability companies (LLC) - similar to an s crop (without all the restrictions). can choose how to be taxed (good for construction companies, doctors, etc.) merger - the result of 2 firms joining to form one company acquisition - one company's purchase of the property and obligations of another company vertical merger - joins 2 firms operating in different stages of related business horizontal merger - joins 2 forms in the same industry and allows them to diversify or expand their products (ex. soft drink & mineral water) conglomerate merger - joins 2 firms in completely unrelated industries leveraged buyout (LBO) - an attempt by management, employees, or a group of investors to buy out the stockholders in a company and become the owners franchise - the right to use a specific business's name and sell its products or services in a given territory franchise agreement - the franchisor sells the right to use the businesses name and sell a product or service to others in a given territory cooperatives (co-op) - a business owned and controlled by the people who use it collateral - anything of significant value that a borrower puts up as security for a loan (forfeited if the loan is not repaid) economics - the study of how society chooses to employ resources to produce goods and services and distribute them for consumption among various competing groups and individuals macroeconomics - looks at the operation of a nation's economy as a whole microeconomics - looks at the behavior or people and organizations in particular markets resource development - the study of how to increase resources and to create the conditions that will make better use of those resources invisible hand - describes the process that turns self-directed gain into social and economic benefits (Adam Smith) capitalism - all or most of the factors of production and distribution are privately owned and operated for profit four basic rights of capitalism - 1. to own private property 2. to own a business and keep that business's profits 3. to freedom of competition 4. to freedom of choice free market - one in which decisions about what and how much to produce are made by the market (buyers and sellers) 3. depression (a period of extended recession) 4. recovery fiscal policy - the federal government's efforts to keep the economy stable by increasing or decreasing taxes or government spending national deficit - the amount of money the federal government spends beyond what it gathers in taxes for a given fiscal year national debt - the sum of government deficits over time national surplus - if the government takes in more money than it spends Keynesian economic theory - a government policy of increasing spending and cutting taxes could stimulate the economy in a recession monetary policy - the fed's control over interest rates and the money supply accounting - the recording, classifying, summarizing, and interpreting of financial events and transactions to provide management and other interested parties the information they need to make good decisions managerial accounting - accounting used to provide information and analyses to managers inside the organization to assist them in decision making (prepare budgets, design strategies to minimize taxes, make sure units stay within their budgets) financial accounting - accounting information and analysis prepared for people outside of the organization annual report - a yearly statement of the financial condition, progress, and expectations of an organization public accountant - provides accounting services to individuals or businesses on a fee basis certified public accountant (CPA) - an accountant who passes a series of exams established by the AICPA auditing - reviewing and evaluating the information used to prepare a company's financial statements independent audit - an evaluation and unbiased opinion about the accuracy of a company's financial statements certified internal auditor (CIA) - an accountant who has a bachelor's degree, two years’ experience in internal auditing, and passes an exam tax accountant - an accountant trained in tax law and responsible for preparing tax returns or developing tax strategies accounting cycle - a six step procedure that results in the preparation and analysis of the major financial statements bookkeeping - the recording of business transactions double-entry bookkeeping - the practice of writing every business transaction in two places journal - the record book or computer program where accounting data are first entered ledger - a specialized accounting book or computer program where information from accounting journals is accumulated into specific categories and posted so that managers can find all the information about one account in the same place trial balance - a summary of all the financial data in the account ledgers that ensures the figures are correct and balanced accountants - classify and summarize financial data provided by bookkeepers and then interpret the data and report the information to management financial statement - a summary of all the transactions that have occurred over a particular period key financial statements of a business - 1. balance sheet 2. income statement 3. statement of cash flows balance sheet - reports the firm’s financial condition on a specific date income statement - summarizes revenues, cost of goods, and expenses for a specific period and highlights the total profit or loss the firm experienced during that period statement of cash flow - highlights the difference between cash coming in and cash going out of the business fundamental accounting equation - assets=liabilities owners' equity assets - economic resources owned by a firm (equipment, buildings, etc.) liquidity - how fast an asset can be converted into cash current assets - items that can be converted into cash within one year (ex. accounts receivable) fixed assets - long term assets that are relatively permanent (land, buildings, equipment, etc.) intangible assets - long term assets that have no physical form but do have value (patents, trademarks, copy rights, etc.) liabilities - what the business owes to others (debts) accounts payable - current liabilities or bills the company owes to others notes payable - short term or long term liabilities that a business promises to repay by a certain date bonds payable - long term liabilities (money leant to a firm that it must pay back owners' equity - the amount of the business that belongs to the owners minus any liabilities owed by the business (owners' equity=assets-liabilities) retained earnings - the accumulated earnings from a firm's profitable operations that were reinvested into the business and not paid out to stockholders in dividends income statements - financial statement that shows a firm's profit after costs, expenses, and taxes net income or net loss - revenue left over after all costs and expenses (including taxes) are payed costs of goods sold - a measure of the cost of merchandise sold or cost of raw materials and supplies used for producing items for resale gross profit - how much a firm earned by buying (or making) and selling merchandise operating expenses - costs involved in operating a business (ex. rent, utilities, salaries) depreciation - the systematic write off of the cost of a tangible asset over its estimated useful life (assets eventually become worthless to companies over time. ex. old cars) statement of cash flows - financial statement that reports cash receipts and disbursements related to a firm's three major activities 1. operations 2. investments 3. financing