Chapter 8 Accounting

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What are issued shares?

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Issued shares are authorized shares that have been sold to investors.

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What is earned capital?

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Earned capital refers to accumulated net income from operating the business that is not distributed to the owners or stockholders.

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What are stock dividends?

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Stock dividends are a noncash return on equity that gives stockholders incremental shares of stock based on outstanding shares.

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What is the relationship between dividends and a corporation?

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Dividends are a transfer of wealth from the business to its owners, and corporations are not required to pay dividends; they are only paid when declared by the board of directors.

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What is a sole proprietorship?

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A sole proprietorship is the easiest business structure to set up, where all profits and losses go to the owner, who has unlimited personal liability.

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What is the significance of retained earnings in a corporation?

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Retained earnings are crucial for a corporation as they indicate the accumulated net income that can be used for reinvestment or to pay dividends.

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What does unlimited liability mean in a sole proprietorship?

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Unlimited liability means that the owner is personally responsible for all debts and obligations of the business.

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What happens to a sole proprietorship when the owner dies?

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A sole proprietorship ceases to exist upon the death or departure of the owner.

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What is the tax treatment of a sole proprietorship?

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A sole proprietorship is treated as a pass-through organization for tax purposes, meaning profits are taxed on the owner's personal tax return.

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What are the advantages of a sole proprietorship?

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Advantages of a sole proprietorship include ease of setup, complete control by the owner, and fewer regulations compared to corporations.