Multiple Choice
The type of business risk that refers to a possible risk arising from a business decision or move is called _____.
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1. Introduction to Accounting
Types of Accounting
Multiple Choice
Which of the following best describes an express agency relationship in accounting?
A
An agency relationship that is implied by the actions or conduct of the parties involved.
B
An agency relationship that is established through the principal's ratification of the agent's unauthorized acts.
C
An agency relationship that arises automatically by law without any agreement.
D
An agency relationship that is created by a written or spoken agreement between the principal and the agent.
Verified step by step guidance1
Step 1: Understand the concept of an express agency relationship. In financial accounting, an express agency relationship is formed when there is a clear and explicit agreement between the principal and the agent. This agreement can be either written or spoken.
Step 2: Differentiate express agency from other types of agency relationships. For example, implied agency arises from the actions or conduct of the parties, while agency by ratification occurs when the principal approves the agent's unauthorized acts after they have been performed.
Step 3: Recognize that express agency requires mutual consent and a clear agreement. Both parties must agree to the terms of the relationship, and the principal explicitly authorizes the agent to act on their behalf.
Step 4: Note that express agency does not arise automatically by law or through actions alone. It is intentionally created through communication and agreement between the principal and the agent.
Step 5: Apply this understanding to the problem. The correct description of an express agency relationship is: 'An agency relationship that is created by a written or spoken agreement between the principal and the agent.'
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