Multiple Choice
A company's long-term purpose can be identified in a concise format by creating which of the following?
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1. Introduction to Accounting
Business Organization
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Join thousands of students who trust us to help them ace their exams!Watch the first videoMultiple Choice
In the context of business organization, an agency relationship can be created:
A
Only through a written contract signed by both parties
B
Only when the agent receives monetary compensation
C
By express agreement between the principal and the agent
D
Exclusively by operation of law in partnership firms
Verified step by step guidance1
Understand the concept of an agency relationship: An agency relationship is a fiduciary relationship where one party (the agent) acts on behalf of another party (the principal). This relationship can be established through various means, not limited to written contracts or monetary compensation.
Clarify the term 'express agreement': An express agreement refers to a clear and intentional agreement between the principal and the agent, which can be verbal or written. It does not necessarily require a formal contract.
Evaluate the options provided: Analyze each option to determine whether it aligns with the definition of an agency relationship. For example, a written contract is not the only way to create an agency relationship, and monetary compensation is not a requirement.
Focus on the correct answer: The correct answer is 'By express agreement between the principal and the agent,' as this is the most inclusive and accurate way an agency relationship can be established.
Consider other scenarios: While express agreements are common, agency relationships can also arise through implied agreements or by operation of law, such as in partnership firms. This highlights the flexibility of agency creation in business contexts.
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