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Chapter 1

ACC 100 Chapter Notes - Chapter 1: Sole Proprietorship, Financial Statement, Income Statement

Course Code
ACC 100
Else Grech

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Chapter 1:
1) What are the three different forms of business organizations? What are the
advantages and the disadvantages to each of these forms?
Sole proprietorship
2) Define the three business activities of a company and provide examples of
each of these activities.
o Raising funds
o Purchasing equipment
o Buying and selling goods and services
3) What is the purpose of financial accounting?
Branch of accounting that prepares financial statements for outside
4) Who are the primary users of accounting information?
Owners, shareholders, accountants
5) What is the purpose of each of the financial statements? How are the
financial statements interrelated?
Financial statements show the progress or current state of a
company. They are important to provide information to internal and
external users. They are interrelated because they all rely on each
other for information. For example: income statement is needed to
figure out the net income which is used on the statement of
retained earnings which is then shown on the balance sheet
6) What is the accounting equation and how is it connected to the financial
Assets = liabilities + owners equity
7) You are deciding whether to invest in a company shares. Which financial
statement would you want to see, and which areas would you be most
interested in?
Liabilities: to see who else the company owes money to
Income statement: to see if the company is making a net incone
rather than loss
8) What are the assumptions that underlie the financial statements and why are
they important? Name all the assumptions and principles and define them.
Monetary unit
Going concern
Cost principle
Time period
Economic entity
9) Define the cost principle. Give an example of when the cost principle has
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