Introduction to Financial Statement

Topics: Balance sheet, Generally Accepted Accounting Principles, Income statement Pages: 4 (501 words) Published: January 28, 2014
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.  ...
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