Shared Flashcard Set


Ch.2 Acct.
Study Questions
Undergraduate 2

Additional Accounting Flashcards




What are the 3 main forms of business?
The three main forms of businesses are 1) sole proprietorships, where there is one owner, 2) partnerships, where ownership is spread over two or more people, and 3) corporations, where a separate legal entity is established in a state and ownership is spread over investors.
What are the advantages and siadvantages to each from of business?

The advantages of a sole proprietorship are the owner maintains complete control of the business and reaps all of the profits.  A disadvantage is that the owner bears all the risks of failure.


The advantages of a partnership are expanded expertise through pooled skills, additional capital for the business, and spreading of the financial risk among several people.  Disadvantages include shared ownership and decision-making and personal liability for the debts of the business.

The advantages of a corporation include the ability to raise capital through the sale of ownership interests and limited liability of the owners for the corporation’s debts.  The disadvantages are ownership is spread among owners, the business is subject to government regulations, and profits are taxable to the corporation and to the owners if distributed as dividends.

What does the term GAAP refer?
GAAP refers to Generally Accepted Accounting Principles, which are those accounting standards, terms, methods, principles, etc. that have been accepted and used over time by the accounting profession.
Who has the authority to determine what GAAP is?
GAAP are determined by a number of institutions such as the Securities and Exchange Commission, the Financial Accounting Standards Board, and the American Institute of Certified Public Accountants.
How are accounts classified in a classified balance sheet?
The main classifications on a classified Balance Sheet are as follows:

Assets:  current assets, long-term investments, fixed assets, intangible assets, and other assets.
Liabilities:  current liabilities and long-term liabilities.
Equity:  capital stock and retained earnings
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