Chp 2

$ $ $ $ The World of Business and Accounting Making Accounting Relevant Owning and operating a business takes special skills and traits. Chapter 2 What skills do you think are important for the person who owns and operates a business?

$ $ $ $ Section 1 Exploring the World of Business What You’ll Learn Profit and risk-taking. The free enterprise system. Starting and running your own business. Three types of business operations. Three forms of business organization. Chapter 2

$ $ $ $ Why It’s Important In order to participate in the world of business, you’ll want to understand how businesses are formed, organized, and operated. Section 1 Exploring the World of Business (cont'd.) Chapter 2

$ $ $ $ Section 1 Exploring the World of Business (cont'd.) Key Terms profit Loss capital service business merchandising business manufacturing business sole proprietorship partnership corporation Chapter 2

$ $ $ $ The Environment of Business In a free enterprise system people are free to produce the goods and services they choose. Nike IBM local video rental store clothing boutiques local grocers Tower Records Chapter 2 Section 1 Exploring the World of Business (cont'd.)

$ $ $ $ The Need for Profit The amount of money earned over and above the amount spent to keep the business operating is called profit. Businesses that spend more money than they earn operate at a loss. Chapter 2 The Need for a Risk-Taker Entrepreneurs transform ideas for products or services into real-world businesses. Section 1 Exploring the World of Business (cont'd.)

$ $ $ $ Types of Business Operations Service Businesses Merchandising Businesses Manufacturing Businesses Chapter 2 Section 1 Exploring the World of Business (cont'd.)

$ $ $ $ Forms of Business Organizations Chapter 2 Sole proprietorship Partnership Corporation Section 1 Exploring the World of Business (cont'd.)

$ $ $ $ Sole Proprietorship Chapter 2 A business owned by one person. Advantages: Easy to set up All profits go to owner Owner has total control Few regulations to follow Disadvantages: Limited expertise Hard to raise money Owner has all the risks Hard to attract talented employees Section 1 Exploring the World of Business (cont'd.)

$ $ $ $ Partnership Chapter 2 A business owned by two or more persons, who agree to operate the business as co-owners. Advantages: Easy to start Skills and talents are pooled More money available Disadvantages: Conflicts between partners Profits must be shared Owners share all risks Section 1 Exploring the World of Business (cont'd.)

$ $ $ $ Corporation Chapter 2 A business organization that is recognized by law to have a life of its own. Advantages: Easier to raise money Easy to expand Easy to transfer ownership Losses limited to investment Disadvantages: Costs more to start up Complex to organize More regulations Higher taxes Section 1 Exploring the World of Business (cont'd.)

$ $ $ $ Section 2 Accounting: The Universal Language of Business What You’ll Learn How the accounting system works. Who uses financial accounting reports. Who uses management accounting reports. How accounting is used to help make business decisions. What assumptions provide the foundation for accounting systems. Chapter 2

$ $ $ $ Why It’s Important Understanding accounting systems is the key to understanding business. Section 2 Accounting: The Universal Language of Business (cont'd.) Key Terms accounting system manual accounting system computerized accounting system GAAP financial reports financial accounting management accounting business entity accounting period going concern Chapter 2

$ $ $ $ The Accounting System Designed to collect, document, and report on financial transactions affecting the business. Section 2 Accounting: The Universal Language of Business (cont'd.) Chapter 2 manual accounting system computerized accounting system generally accepted accounting principles (GAAP) financial reports

$ $ $ $ How the Accounting System Works Section 2 Accounting: The Universal Language of Business (cont'd.) Chapter 2 Inputs Source Documents Processing Tasks Outputs Financial and Management Accounting Reports Financial condition Results of operations Investments by and distributions to owners Analyzing Classifying Recording Checks Invoices Sales Slips Receipts

$ $ $ $ Using Accounting Reports for Making Business Decisions There are two groups that use accounting reports: Chapter 2 Section 2 Accounting: The Universal Language of Business (cont'd.) Chapter 2 individuals outside the business who have an interest in the business individuals inside the business

$ $ $ $ Financial Accounting Financial accounting focuses on reporting information to external users. Chapter 2 Section 2 Accounting: The Universal Language of Business (cont'd.) Chapter 2 Who Uses Financial Accounting Reports? potential investors individuals and institutions, such as banks, that loan money to a business local, state, and federal governments workers, consumers, union leaders, and competitors

$ $ $ $ Management Accounting Management accounting focuses on reporting information to management. Chapter 2 Section 2 Accounting: The Universal Language of Business (cont'd.) Chapter 2 Managers

$ $ $ $ Accounting Assumptions Chapter 2 Section 2 Accounting: The Universal Language of Business (cont'd.) Chapter 2 business entity accounting period going concern

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