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Chapter 1: Q. 4SE (page 33)

You would like to start a cellular telephone equipment service business. You are considering organizing the business as a sole proprietorship. Identify the advantages and disadvantages of owning a sole proprietorship.

Short Answer

Expert verified

The advantage of sole proprietorship includes a single owner and it does not require sharing of profits with anyone. Disadvantages include termination of the organization and personal liability of the owner.

Step by step solution

01

Explanation on Sole Proprietorship

Sole proprietorship is one of the forms of business organization in which there is only one owner.

02

Advantages and disadvantages

Advantages are as follows:

  • There is only a single owner of the business who receives all profits.
  • The profits are not shared with anyone in the organization.

Disadvantages are as follows:

  • It can be terminated at the death of the owner or at the will of the owner.
  • The personal property of the owner can be used to repay the debts of the businesses.

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Most popular questions from this chapter

Match the accounting terminology to the definitions. 7. Cost principle a. oversees the creation and governance of accounting standards in the United States 8. GAAP b. requires an organization to be a separate economic unit 9. Faithful representation c. oversees U.S. financial markets 10. SEC d. states that acquired assets and services should be recorded at their actual cost 11. FASB e. creates International Financial Reporting Standards 12. Monetary unit assumption f. the main U.S. accounting rule book 13. Economic entity assumption g. assumes that an entity will remain in operation for the foreseeable future 14. Going concern assumption h. assumes that items on the financial statements are recorded in a monetary unit 15. IASB i. requires information to be complete, neutral, and free from material error

How does retained earnings increase? What are the two ways that retained earnings decreases?

Match the accounting terminology to the definitions. 1. Certified management accountants a. information system that measures business activities, processes that information into reports, and communicates the results to decision makers 2. Accounting b. professional accountants who serve the general public 3. Managerial accounting c. person or business to whom a business owes money 4. Certified public accountants d. field of accounting that focuses on providing information for internal decision makers 5. Financial accounting e. professionals who work for a single company 6. Creditor f. field of accounting that focuses on providing information for external decision makers

Describe the similarities and differences among the four different types of business entities discussed in the chapter.

Identifying users of accounting information

For each of the users of accounting information, identify whether the user is an external decision maker (E) or an internal decision maker (I):

a. customer

b. company manager

c. Internal Revenue Service

d. lender

e. investor

f. controller

g. cost accountant

h. SEC
See all solutions

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