Actg 340 Midterm Study Guide

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* Chapter 12: Partnerships
* Advantages:
* Pass-through taxation
* Ease of formation
* Simplified recordkeeping
* Favorable taxation
* Increased ability to raise funds
* Disadvantages
* Unlimited liability
* Co-ownership of property
* Non-deductible costs
* Limited life
* Mutual agency
* Partner disagreements
* Limited Liability Companies
* Relatively new form of business and is primarily controlled at the state level. The LLC combines the most attractive features of a corporation with the best features of a partnership. * Advantages:

* Limited liability
* Easy of formation
* Simplified record-keeping
* Favorable taxation
* Flexibility of operations
* Disadvantages
* Limited corporate characteristics
* Limited life
* Lack of legal precedents
* Four Methods to divide profits and losses
* Fixed Ratio method
* Interest on partners’ capital balances method
* Salaries to partners method
* Salaries to partners and interest on partners’ capital balances method * Changes of Ownership
* Admission of a Partner-Through Purchase Among Partners * Admission of a Partner- Through Investment of Additional Assets * Admission of a Partner-Through Bonus to the Old Partners * Admission of a Partner-Through Bonus to the New Partners * Withdrawal of a Partner

* 2 ways a partner can withdraw from a partnership
* Voluntarily, through the sale of his or her interest to the remaining partner(s) * Involuntarily, for one of several reasons like death or mandatory retirement * Withdrawal of a Partner-Through Purchase Among Partners * Withdrawal of a Partner-Through withdrawal of Assets * Withdrawal of a Partner-Bonus to Remaining Partners * Liquidation of a Partnership

* When all the partners agree to end the partnership, we follow a four-step process to liquidate the partnership. The steps must be followed in this order: * All assets, except cash, are sold for cash, and the resulting gain or loss recognized * The gain or loss is allocated to the partners according to their fixed ratio * Cash is used to pay all partnership liabilities * Any remaining cash is distributed to the partners according to their fixed ratios * Chapter 6: Merchandising Operations

* Operating Cycle for Service Companies
* Sell ServicesReceive CashIncur Operating ExpensesSell Services * Merchandising Companies
* Sell ProductsReceive CashIncur Operating ExpensesBuy Products * Manufacturing Companies
* Sell ProductsReceive CashIncur Operating ExpensesBuy Raw MaterialsMake Products * Perpetual Inventory System
* The inventory record shows the number of units and cost of each type of merchandise stocked. The inventory record is updated every time an item is bought, sold, or returned. With the introduction of relatively low cost computer, almost all companies use the perpetual system. * Periodic Inventory System

* Rather than updating the inventory record each time an item is sold, bought, or returned, the periodic system updates the inventory record at the end of the accounting period. A physical count of inventory is used to update the inventory record. * Recording Merchandise Purchases

* Inventory purchases should be recorded at the point at which ownership is transferred. 2 Options * 1. When goods leave the seller’s shipping department, known as the FOB shipping point * 2. When the goods reach the customer at their destination point, known as FOB...
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