Introduction to Financial Statement
QUESTION 1
1. How do a proprietorship and corporation differ? If you worked for a CPA firm, which would you recommend to your client and why? Explain in your own words.
The difference between proprietorship and corporation is that proprietorship is only owned by 1 person and corporation is owned by either 1 person or a group of people. It also differs from the liability because a proprietorship has unlimited liability and a corporation has limited liability. When a proprietorship is sued, their personal assets are at risk if they lose, but if a corporation gets sued, their personal assets are not at risk. As a CPA, I would recommend the corporation business form to my client because if a corporation gets sued, their personal assets are not at risk.
2. What is the training of a CPA and what is their purpose? Explain in your own words.
The training of a CPA is very difficult. To become a CPA you must earn a bachelor’s degree where you have to have at least 150 college credits. Then you must also pass the multi-day CPA exam, and after you pass the exam, you have to work for a CPA for about a year to finally get your license. The purpose of a CPA is to audit accounting records such as tax returns.
QUESTION 2
Explain these terms in your own words.
Sarbanes-Oxley Act (SOX): This was a regulation passed by the government to prevent immoral corporate behavior.
Balance sheet: A balance sheet is a financial statement that shows the assets, liabilities and stockholder’s equity.
Income Statement: An income statement is a financial report that shows the net income or net loss by reporting the revenues and expenses.
External user: External users of accounting information are investors or bankers that need accounting reports see whether they make a profit or loss.
Internal User: Internal users of accounting information are managers that organize and run the business.
Annual Report: The annual report provides audited financial data.
1. How do a proprietorship and corporation differ? If you worked for a CPA firm, which would you recommend to your client and why? Explain in your own words.
The difference between proprietorship and corporation is that proprietorship is only owned by 1 person and corporation is owned by either 1 person or a group of people. It also differs from the liability because a proprietorship has unlimited liability and a corporation has limited liability. When a proprietorship is sued, their personal assets are at risk if they lose, but if a corporation gets sued, their personal assets are not at risk. As a CPA, I would recommend the corporation business form to my client because if a corporation gets sued, their personal assets are not at risk.
2. What is the training of a CPA and what is their purpose? Explain in your own words.
The training of a CPA is very difficult. To become a CPA you must earn a bachelor’s degree where you have to have at least 150 college credits. Then you must also pass the multi-day CPA exam, and after you pass the exam, you have to work for a CPA for about a year to finally get your license. The purpose of a CPA is to audit accounting records such as tax returns.
QUESTION 2
Explain these terms in your own words.
Sarbanes-Oxley Act (SOX): This was a regulation passed by the government to prevent immoral corporate behavior.
Balance sheet: A balance sheet is a financial statement that shows the assets, liabilities and stockholder’s equity.
Income Statement: An income statement is a financial report that shows the net income or net loss by reporting the revenues and expenses.
External user: External users of accounting information are investors or bankers that need accounting reports see whether they make a profit or loss.
Internal User: Internal users of accounting information are managers that organize and run the business.
Annual Report: The annual report provides audited financial data.