Chap 2 class notes
- 1. Chapter 2 Last update: 8/18/12
- 2. 2. Compare and contrast the rules governing accounting decisions with 85% accuracy by: a) Defining the role of profit, risking-taking & entrepreneur in U.S. economy b) Identifying the differences among sole proprietorship, partnership & corporate forms of business c) Applying the three basic accounting assumption to specific situations
- 4. Free enterprise system:: people are free to produce the goods and services they choose
- 5. Capital: money supplied to business by investors, banks, or owners of a business Entrepreneur: A person who owns their own business.
- 6. Loss: business spends more money than it earns Profit: business spends less money than it earns
- 8. 1. Service business: provides a needed service for a fee Doctors, Lawyers, Car Accountant Services . Sporting Industry Realtors
- 9. 2. Merchandising business: buys finished products and resells them to individuals or businesses Examples: grocery stores, sporting goods stores, gas stations, clothing stores
- 10. 3.Manufacturing business: buys raw materials and transforms them into finished products through use of labor and capital
- 12. 1. Sole proprietorship: single or one owner who runs a business Usually, these types of business are small & are found in areas of service or merchandising
- 13. 2. Partnership: business owned by two or more persons who agree to operate business as co-owners Usually, these types of business are small and found in areas of service or merchandising
- 14. Any size business, but usually medium to large Charter: gives a corporation certain rights and privileges—rules by which to operate—has “inc” trademark
- 17. Two Types of Accounting Systems: 1. Manual accounting system: financial information is recorded by hand
- 19. Standardized Rules CPA: (Certified Public Accountant)—Credentials for an accountant that shows s/he passed state test and can operate as a state recognized accounting
- 20. Standardized Rules GAAP: (Generally Accepted Accounting Principles)—all accountants use same set of rules to prepare financial information for a business
- 21. Standardized Rules Financial reports: Summarized information prepared by accountants to show financial status of business
- 22. Standardized Rules Three Basic Rules or Assumptions made by Accountants
- 23. Standardized Rules 1. Business Entity Business exists separately from its owner’s personal holdings Financial statements only have information related to business Personal finances can NOT be included into business finances
- 24. Standardized Rules 2. Accounting Period • For financial reporting purposes, life and activities of business are divided into specific periods of time • Most common accounting period is one year • Allows businesses to compare earnings from one accounting period to another
- 25. Standardized Rules 3. Going Concern: • Accountants assume business has ability to survive and operate for indefinite period of time • Thus, business has “ongoing” life of its own, separate from owner or owners
- 26. 1 2
- 27. Focuses on reporting information to external users
- 28. 2. Management accounting Focuses on reporting information to management (accounting for internal use)
- 29. What’s up doc? On to our hands on work