CPA Business Environment & Concepts Flashcards

Which economic concept describes the additional cost of producing one more unit of a good or service?

Answer: Marginal cost

Marginal cost is the incremental cost incurred when producing one additional unit of output.

Under the COSO framework, which component addresses an entity's overall attitude toward risk?

Answer: Risk appetite

Risk appetite is the amount of risk an entity is willing to accept in pursuit of its strategic objectives, as defined within the COSO ERM framework.

Which form of business organization provides limited liability to all owners while allowing pass-through taxation?

Answer: S Corporation

An S Corporation provides limited liability protection to shareholders while passing income and losses directly to shareholders' personal tax returns.

In a perfectly competitive market, a firm's demand curve is best described as:

Answer: Perfectly elastic (horizontal)

In perfect competition, individual firms are price takers, so they face a perfectly elastic (horizontal) demand curve at the market price.

Which concept states that a business is assumed to continue operating indefinitely unless there is evidence to the contrary?

Answer: Going concern

The going concern assumption holds that a business will continue to operate for the foreseeable future, justifying the use of historical cost accounting.

Which organizational structure groups employees by function, such as marketing, finance, and operations?

Answer: Functional structure

A functional structure organizes employees based on their specialized roles or departments, promoting efficiency through expertise.