Accounting Exam #1
Chapter 1

Organizing a business

Proprietorship – proprietor – one, proprietor is personally liable Single owner, small retail stores,

Partnership – Partnerss – two, partners are personally liable Not a taxpaying entity, income passes through to partners Governement by an agreement Mutual agency – each partner can act on behalf of the entity Unlimited liability Involve risk – limited liability partnerships lessen risk

LLC – Members, Members are not personally liable Limited liability
Like a partnership, not a taxpaying entity – income flows through to members
Popular for of a business due to combination of tax status and limited liability

Corporation – Stockholders – usually many, stockholders are personally liable Owned by stockholders
Ability to raise large sums of capital
Larger than proprietor. And partners.
Legally distinct from its owners
Double Taxation – corporate income is taxed and shareholders taxed of dividends Elect board of directors

Assumptions and Principles

Entity assumption – a business is a separate economic unit

Continutiy (going-concern) assumption – entity will continue to exist indefinitely

Historical cost principle – assets recorded at purchase price

Stable monetary unit assumption – stable

Interntional Financial Reporting Standards(IFRS)

Many countries have own versions of generally accepted accounting principles (GAAP)
Reports had to be restated to convert accounting data from one country to another IFRS developed and are used by most countries in the world US still follows on GAAP US GAAP overseen by the Securities and Exchange Commission (SEC) SEC tentaviley set date for U.S adoption of IFRS in 2015 Will make it easier to compare financial statements across the world. Most common accounting practices similar under both U.S GAAP and