Question

Respond to the following questions using grammatically correct language and appropriate APA citations. To achieve a proficient grade in this assignment, answer the proficient-level queries for each question. To achieve a distinguished grade, answer both sets of queries for each question.

Question 1:

Proficient-level: Identify and describe the three basic forms of business organizations. What are the advantages and disadvantages of each form of ownership?

Distinguished-level: Business entities can also be categorized by the type of business activities they perform. Identify and describe the three types. What do all three types have in common?

Question 2:

Proficient-level: Identify the primary objectives of every business. What are the four basic financial statements that measure the primary objectives of every business? Describe what information each statement presents and which of the primary objective(s) can be met through the information presented on the statement.

Distinguished-level: Describe the difference between an asset, liability, and equity on a company's balance sheet.

Question 3:

Proficient-level: Identify the framework for the entire accounting process and describe its components and how they fit together to form this framework.

Distinguished-level: Define the nature of an accounting transaction and provide multiple examples of these transactions.

Question 4:

Proficient-level: To allow the accounting process to run smoothly, accountants must rely on a set of underlying concepts or assumptions. Identify and describe each of the five concepts or assumptions.

Distinguished-level: Match each of the concepts or assumptions to one or more of the financial statements that it applies to.

Question 5:

Proficient-level: Many accounting transactions will apply to one or more of the financial statements. In the case of the balance sheet, multiple account types can be affected. For each of the following items, provide an example of a transaction that would have the following effects on the items in a firm's financial statements. Provide five correct responses: Increase an asset; decrease some other asset. Increase an asset; increase a liability. Decrease retained earnings; decrease an asset. Increase an asset; increase retained earnings. Decrease an asset; decrease a liability. Increase a liability; decrease retained earnings.

Distinguished-level: Correctly provide an example for all of the effects on the items in a firm's financial statements.

Question 6:

Proficient-level: Consider this scenario. James Stevens was taking an accounting course at State University. Also, he was helping companies find accounting systems that would fit their information needs. He advised one of his clients to acquire a software computer package that could record business transactions and prepare financial statements. The licensing agreement with the software company specified that the basic charge for one site was USD 4,000 and that USD 1,000 must be paid for each additional site where the software was used. James was pleased that his recommendation to acquire the software was followed. However, he was upset that management wanted him to install the software at eight other sites in the company and did not intend to pay the extra USD 8,000 due the software company. A member of management stated, "The software company will never know the difference and, besides, everyone else seems to be pirating software. If they do find out, we will pay the extra fee at that time. Our expenses are high enough without paying these unnecessary costs." James believed he might lose this client if he did not do as management instructed. Discuss whether you believe this is an ethical violation.

Distinguished-level: Identify any laws that may have been broken as a result of this issue.

Answer 1

Answer 1:

Proficient-level: Identify and describe the three basic forms of business organizations. What are the advantages and disadvantages of each form of ownership?

The three (3) main forms of business organization are: (1) sole proprietorships, (2) partnerships, and (3) corporations.

1) Sole Proprietorship

A sole proprietorship is the simplest form of business. It is an unincorporated business owned by one individual.

The proprietorship has three important advantages:

(1) It is easily and inexpensively formed, (2) it is subject to few government regulations, and (3) the business avoids corporate income taxes.

The proprietorship also has three important limitations:

(1) It is difficult for a proprietorship to obtain large sums of capital; (2) the proprietor has unlimited personal liability for the business’s debts, which can result in losses that exceed the money he or she has invested in the company; and (3) the life of a business organized as a proprietorship is limited to the life of the individual who created it.

2.) Partnership

A partnership exists whenever two or more persons associate to conduct a noncorporate business.

The major advantage of a partnership is its low cost and ease of formation.

The disadvantages are similar to those associated with proprietorships: (1) unlimited liability, (2) limited life of the organization, (3) difficulty of transferring ownership, and (4) difficulty of raising large amounts of capital.

3.) Corporation

A corporation is the complex and biggest form of business. It is a legal entity created by a state, and it is separate and distinct from its owners and managers.

Three major advantages:

(1) Unlimited life. A corporation can continue after its original owners and managers are deceased. (2) Easy transferability of ownership interest. Ownership interests can be divided into shares of stock, which, in turn, can be transferred far more easily than can proprietorship or partnership interests. (3) Limited liability. Losses are limited to the actual funds invested.

Two disadvantages:

(1) Corporate earnings may be subject to double taxation—the earnings of the corporation are taxed at the level, and then any earnings paid out as dividends are taxed again as income to the stockholders. (2) Setting up a corporation, and filing the many required document reports, is more complex and time-consuming than for a proprietorship or a partnership.

Distinguished-level: Business entities can also be categorized by the type of business activities they perform. Identify and describe the three types. What do all three types have in common?

Three types of business activities are:

Operations

Operations includes every activity needed to manufacture a product or provide a service. Operations is an essential business function, because without a product or service to sell, a business has no reason to exist. Operations activities will always revolve around acquiring raw resources, converting those resources into something to sell and scheduling and controlling the process of conversion.

Marketing

Without customers for its products or services, a company can't stay afloat, making marketing another crucial business activity. Marketing activities are intimately connected with a company's products and services. Marketing activities determine the needed performance specifications of a company's products and services, the proper pricing, the best distribution channels and packaging. Consumer and marketplace studies, promotion and sales also fall under marketing's purview.

Finance

The bottom line: Money makes business possible. When approached carefully, finance activities build a foundation for a company's security, ensuring future operations. Finance must measure operations to create forecasts predicting a company's ability to meet future challenges. Creating budgets, allocating funds throughout the company, determining investments, protecting assets, managing credit and preparing financial reports are other necessary financial activities. Two important statements companies typically prepare are the balance sheet, which shows a company's assets and liabilities, and the income statement. By subtracting expenses from income, the income statement reveals a company's profit or loss.

All three are interlinked and act as backbone of the company for its smooth functioning.

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Answer 2:

Proficient-level: Identify the primary objectives of every business. What are the four basic financial statements that measure the primary objectives of every business? Describe what information each statement presents and which of the primary objective(s) can be met through the information presented on the statement.

Primary objectives of every business is:

1. Economic Objectives:

(i) Earning profits

(ii) Creating customers

(iii) Innovations

2. Social objectives

(i) Supplying desired goods at reasonable prices

(ii) Fair Remuneration to employees

(iii) Employment Generation

(iv) Fair return to investor

(v) Social welfare

3. Human Objectives

i.Labour welfare

ii. Developing human resources

iii. Participative management

iv. Labour management cooperation

4. National Objectives

(i) Optimum utilisation of resources

(ii) National self-reliance

(iii) Development of small scale Industries

(iv) Development of backward areas

Four basic financial statements that measure the primary objectives of every business are:

1. Statement of Financial Position

Statement of Financial Position, also known as the Balance Sheet, presents the financial position of an entity at a given date. It is comprised of the following three elements:

• Assets: Something a business owns or controls (e.g. cash, inventory, plant and machinery, etc)
• Liabilities: Something a business owes to someone (e.g. creditors, bank loans, etc)
• Equity: What the business owes to its owners. This represents the amount of capital that remains in the business after its assets are used to pay off its outstanding liabilities. Equity therefore represents the difference between the assets and liabilities.

2. Income Statement

Income Statement, also known as the Profit and Loss Statement, reports the company's financial performance in terms of net profit or loss over a specified period. Income Statement is composed of the following two elements:

• Income: What the business has earned over a period (e.g. sales revenue, dividend income, etc)
• Expense: The cost incurred by the business over a period (e.g. salaries and wages, depreciation, rental charges, etc)

Net profit or loss is arrived by deducting expenses from income.

3. Cash Flow Statement

Cash Flow Statement, presents the movement in cash and bank balances over a period. The movement in cash flows is classified into the following segments:

• Operating Activities: Represents the cash flow from primary activities of a business.
• Investing Activities: Represents cash flow from the purchase and sale of assets other than inventories (e.g. purchase of a factory plant)
• Financing Activities: Represents cash flow generated or spent on raising and repaying share capital and debt together with the payments of interest and dividends.

4. Statement of Changes in Equity

Statement of Changes in Equity, also known as the Statement of Retained Earnings, details the movement in owners' equity over a period. The movement in owners' equity is derived from the following components:

• Net Profit or loss during the period as reported in the income statement
• Share capital issued or repaid during the period
• Dividend payments
• Gains or losses recognized directly in equity (e.g. revaluation surpluses)
• Effects of a change in accounting policy or correction of accounting error

Distinguished-level: Describe the difference between an asset, liability, and equity on a company's balance sheet.

• Assets: Something a business owns or controls (e.g. cash, inventory, plant and machinery, etc)
• Liabilities: Something a business owes to someone (e.g. creditors, bank loans, etc)
• Equity: What the business owes to its owners. This represents the amount of capital that remains in the business after its assets are used to pay off its outstanding liabilities. Equity therefore represents the difference between the assets and liabilities.

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Answer 3:

Proficient-level: Identify the framework for the entire accounting process and describe its components and how they fit together to form this framework.

The accounting equation is the framework for the entire accounting process. This equality shows that the assets of a business are equal to its equities; that is, Assets = Equities .

Assets were defined earlier as the things of value owned by the business, or the economic resources of the business. Equities are all claims to, or interests in, assets.

For example, assume that you purchased a new company automobile for $15,000 by investing $ 10,000 in your own corporation and borrowing $ 5,000 in the name of the corporation from a bank. Your equity in the automobile is $10,000, and the bank’s equity is $ 5,000. You can further describe the $5,000 as a liability because you owe the bank $ 5,000. If you are a corporation, you can describe your $10,000 equity as stockholders’ equity or interest in the asset. Since the owners in a corporation are stockholders, the basic accounting equation becomes: Assets A = Liabilities L + Stockholders’ Equity SE

Distinguished-level: Define the nature of an accounting transaction and provide multiple examples of these transactions.

Accounting has got a very wide scope and area of application. Now-a-days, in any social institution or professional activity, whether that is profit earning or not, financial transactions must take place. So there arises the need for recording and summarizing these transactions when they occur and the necessity of finding out the net result of the same after the expiry of a certain fixed period.

Nature of Accounting:

We know Accounting is the systematic recording of financial transactions and presentation of the related information of the appropriate persons. The basic features of accounting are as follows:
1. Accounting is a process: A process refers to the method of performing any specific job step by step according to the objectives, or target.

2. Accounting is an art: Accounting is an art of recording, classifying, summarizing and finalizing the financial data.

3. Accounting is means and not an end: Accounting finds out the financial results and position of an entity and the same time, it communicates this information to its users. The users then take their own decisions on the basis of such information. So, it can be said that mere keeping of accounts can be the primary objective of any person or entity. On the other hand, the main objective may be identified as taking decisions on the basis of financial information supplied by accounting. Thus, accounting itself is not an objective, it helps attaining a specific objective. So it is said the accounting is ‘a means to an end’ and it is not ‘an end in itself.’

4. Accounting deals with financial information and transactions; Accounting records the financial transactions and date after classifying the same and finalizes their result for a definite period for conveying them to their users.

5. Accounting is an information system: Accounting is recognized and characterized as a storehouse of information. As a service function, it collects processes and communicates financial information of any entity. This discipline of knowledge has been evolved out to meet the need of financial information required by different interested groups.

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Answer 4:

Proficient-level: To allow the accounting process to run smoothly, accountants must rely on a set of underlying concepts or assumptions. Identify and describe each of the five concepts or assumptions.

Set of underlying concepts and assumptions accountants rely on are:

1. Going concern – Entity is a going concern
2. Accrual basis of accounting – all financial statements except cash flow information must be prepared following accrual basis of accounting
3. Consistency – Consistency in presentation and classification of financial statements items
4. Materiality and aggregation – Material class of similar items are presented separately
5. Offsetting – Assets against liabilities and incomes against expenses cannot be offset .

Distinguished-level: Match each of the concepts or assumptions to one or more of the financial statements that it applies to.

1. Going concern – Income statement
2. Accrual basis of accounting – Income statement, Financial position statement and statement of equity
3. Consistency – Statement of financial position
4. Materiality and aggregation – statement of equity
5. Offsetting – Income statement