QUESTIONS

1. Definition of Operating - Operating activities include the production, sales, and delivery
of the company's product as well as collecting payment from its customers. This could
include purchasing raw materials, building inventory, advertising, and shipping the
product.
2. Investing - Investing activities include purchases or sales of an asset (assets can be land,
building, equipment, marketable securities, etc.), loans made to suppliers or received
from customers, payments related to mergers and acquisitions, and dividends received.
3. Financing - Financing activities include the inflow of cash from investors, as well as the
outflow of cash to shareholders as dividends as the company generates income. Other
activities which impact the long-term liabilities and equity of the company are also listed
in the financing activities.
4. Characteristic of partnerships
Characteristics
The characteristics of partnerships are different from the sole proprietorships already studied in basic
accounting. Some of the more important characteristics are as follows:
Mutual Contribution. There cannot be a partnership without contribution of money, property or industry (i.e.
work or services which may either be personal manual efforts or intellectual) to a common fund.
Division of Profits or Losses. The essence of a partnership is that each partner must share in the profits or
losses of the venture.
Co-Ownership of Contributed Assets. All assets contributed into the partnership are owned by the
partnership by virtue of its separate and distinct juridical personality. If one partner contributes an asset to the
business, all partners jointly own it in a special sense.
Mutual Agency. Any partner can bind the other partners to a contract if he is acting within his express or
implied authority.
Limited Life. A partnership has a limited life. It may be dissolved by the admission, death, insolvency,
incapacity, withdrawal of a partner or expiration of the term specified in the partnership agreement.
Unlimited Liability. All partners (except limited partners), including industrial partners, are personally liable for
all debts incurred by the partnership. If the partnership can not settle its obligations, creditors' claims will be
satisfied from the personal assets of the partners without prejudice to the rights of the separate creditors of the
partners.
Income Taxes. Partnerships, except general professional partnerships, are subject to tax at the rate of 34% (in
1998), 33% (in 1999) and 32% (in 2000 and thereafter) of taxable income.
Partners' Equity Accounts. Accounting for partnerships are much like accounting for sole proprietorships. The
difference lies in the number of the partners' equity accounts. Each partner has a capital account and a
withdrawal account that serves similar functions as the related accounts for sole proprietorships.

Advantages and Disadvantages

A partnership offers certain advantages over a sole proprietorship and a corporation. It also has a number of
disadvantages. They are as follows:
Advantages over Proprietorships
1.
Brings greater financial capability to the business.
2.
Combines special skills, expertise and experience of the partners.

3.
Offers relative freedom and flexibility of action in decision-making.
Advantages over Corporations
1.
Easier and less expensive to organize.
2.
More personal and informal.
Disadvantages
1.
Easily dissolvable, and thus unstable compared to a corporation.
2.
Mutual agency and unlimited liability may create personal obligations to partners.
3.
Less effective than a corporation in raising large amounts of capital.

5. Advantages and disadvantages of partnerships

Advantages of a partnership include that: 1.two heads (or more) are better than one
2.your business is easy to establish and start-up costs are low more capital is available for
the business 3.youll have greater borrowing capacity high-calibre employees can be
made partners 4. there is opportunity for income splitting, 5. an advantage of particular
importance due to resultant tax savings partners business affairs are private 6. there is
limited external regulation 7. its easy to change your legal structure later if
circumstances change.
Disadvantages of a partnership include that: 1. the liability of the partners for the
debts of the business is unlimited each partner is jointly and severally liable for the
partnerships debts; that is, 2. each partner is liable for their share of the partnership debts
as well as being liable for all the debts 3. there is a risk of disagreements and friction
among partners and management each partner is an agent of the partnership and is liable
for actions by other partners if partners join or leave, 4. you will probably have to value
all the partnership assets and this can be costly.
6. What do board of directors do - A board of directors (B of D) is a group of individuals
that are elected as, or elected to act as, representatives of the stockholders to establish
corporate management related policies and to make decisions on major company issues.
7. What is a discount bond - A bond that is issued for less than its par (or face) value, or
a bond currently trading for less than its par value in the secondary market. A bond is
considered a discount bond when it has a lower interest rate than the current market
rate, and consequently is sold at a lower price.

8. What is meant by controlling interest over 50%

9. Different types of special partnerships: LP, LLC, LLP
Limited Partnership A limited partnership (LP) offers the same tax benefits as a
standard partnership with one exception. One or more of the partners are silent partners;
this means that they will assist by giving the partnership seed money and collect profits,
but will not run the business in any way. By remaining silent, these partners are shielded
from liability.
Limited Liability Partnership A limited liability partnership (LLP) still offers the
partnership tax benefits, but also offers liability protection for its partners. Specifically, a
limited liability partnership can only be sued for the total amount of assets in the
business. For example, if a customer slipped on a pickle in your grocery store and is
suing for their injuries, they cannot receive more than the total value of your grocery

store. This partnership is a popular choice for law firms and medical practices to ensure
that customers cannot sue for assets such as the practitioners home.
Limited Liability Company A limited liability company (LLC) offers both the most
benefits and the most protection for a business owner. The LLC provides for the same tax
protection as a partnership, but also gives the liability protection of a corporation. Under
corporate law, a corporation is only liable for the total start-up investment in the
company. So, if your company is currently worth $20 million, but you had a start-up of
five million dollars, you cannot be sued for more than five million dollars. LLCs are
limited by state law to only certain types of practices. Some states, such as Arizona, have
created an even greater hybrid called a Professional LLC, where professionals such as
doctors and dentists can obtain the LLC protection, but with greater limitation than a
regular business.
10. Definition of liquidity, soldency, profitability, market prospects
11. Special journals (different types): Sales, Purchases, Disbursements, Cash receipts,
General journal entries.
12. 3 Special dates when it comes to dividends: Date of Declaration, Record, Payment
13. Definition of Stock Dividend - A stock dividend is a dividend payment made in the
form of additional shares, rather than a cash payout. Also known as a "scripdividend."

14. Definition and characteristic of preferred stocks - A preferred stock is a class of

ownership in a corporation that has a higher claim on its assets and earnings than
common stock. Preferred shares generally have a dividend that must be paid out before
dividends to common shareholders, and the shares usually do not carry voting rights.
Preferred stock combines features of debt, in that it pays fixed dividends, and equity, in
that it has the potential to appreciate in price. The details of each preferred stock depend
on the issue.
15. Notes Payable (interest on the note)

RATIOS

1. Current Ratio
Current Assets
Current Liabilities
2. Net Profit Margin (Return on Sales)
Net Income *
Net Sales

3. Du Pont Return on Assets

Net Income *
Sales

Sales
Assets

4. Debt to Equity
Total Debt
Total Equity
5. Total Asset Turnover
Net Sales
Average Total Assets
6. Accounts Receivable Turnover
Net Sales
Average Gross Receivables
7. Days' Sales in Inventory
Ending Inventory
Cost of Goods Sold / 365
8. Inventory Turnover
Cost of Goods Sold
Average Inventory
9. Debt Ratio= Total Liabilities/Total Assets
10. Days sales Uncollected= AR/Net Sales x 365

Assets
Equity