Question

Provide a brief review of the firm’s business and history. Revenue and expense recognition, Inventories, Depreciation are examples.

Answer 1

The theory of the firm asserts that firms exist to maximize profits; however, this theory changes as the economic marketplace changes. More modern theories would distinguish between firms that work toward long-term sustainability and those that aim to produce high levels of profit in a short time.

A firm's business activities are typically conducted under the firm's name, but the degree of legal protection—for employees or owners—depends on the type of ownership structure under which the firm was created. Some organization types, such as corporations, provide more legal protection than others. There exists the concept of the mature firm that has been firmly established. Firms can assume many different types based on their ownership structures:

• A sole proprietorship or sole trader is owned by one person, who is liable for all costs and obligations, and owns all assets. Although not common under the firm umbrella, there exist some sole proprietorship businesses that operate as firms.
• A partnership is a business owned by two or more people; there is no limit to the number of partners that can have a stake in ownership. A partnership's owners each are liable for all business obligations, and together they own everything that belongs to the business.
• In a corporation, the businesses' financials are separate from the owners' financials. Owners of a corporation are not liable for any costs, lawsuits, or other obligations of the business. A corporation may be owned by individuals or by a government. Though business entities, corporations can function similarly to individuals. For example, they may take out loans, enter into contract agreements, and pay taxes. A firm that is owned by multiple people is often called a company.
• A financial cooperative is similar to a corporation in that its owners have limited liability, with the difference that its investors have a say in the company's operations.

Revenue and Expense Recognition is a generally accepted accounting principle (GAAP) that stipulates how and when revenue or expense is to be recognized. The revenue and expense recognition principle using accrual accounting requires that revenues are recognized when realized and earned–not when cash is received and for the expense that is same when the expense paid in cash or bank.

Inventory is an accounting term that refers to goods that are in various stages of being made ready for sale, including: Finished goods that are available to be sold Work-in-progress, Raw materials to be used to produce more finished goods.

Depreciation is defined as a reduction in the value of an asset that occurs over time as the asset gets older or as wear and tear occurs, or the decline of one currency in relation to others.