chp 2
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The World of Business and AccountingThe World of Business and Accounting
Making Accounting Relevant
Owning and operating a business
takes special skills and traits.
Making Accounting Relevant
Owning and operating a business
takes special skills and traits.
What skills do you think are important for the person who owns and operates a business?
What skills do you think are important for the person who owns and operates a business?
Section 1Exploring the World of Business
Section 1Exploring 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.
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.
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.
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.)Section 1 Exploring the World of Business (cont'd.)
Section 1 Exploring the World of Business (cont'd.)Section 1 Exploring the World of Business (cont'd.)
Key Terms profit Loss capital service business merchandising business manufacturing business sole proprietorship partnership corporation
Key Terms profit Loss capital service business merchandising business manufacturing business sole proprietorship partnership corporation
The Environment of Business
In a free enterprise system people are free to produce the goods and services they choose.
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
Nike
IBM
local video rental store
clothing boutiques
local grocers
Tower Records
Section 1 Exploring the World of Business (cont'd.)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.
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.
The Need for a Risk-Taker
Entrepreneurs transform ideas for
products or services into real-world
businesses.
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.)Section 1 Exploring the World of Business (cont'd.)
Types of Business Operations
Service Businesses
Merchandising Businesses
Manufacturing Businesses
Types of Business Operations
Service Businesses
Merchandising Businesses
Manufacturing Businesses
Section 1 Exploring the World of Business (cont'd.)Section 1 Exploring the World of Business (cont'd.)
Forms of Business OrganizationsForms of Business Organizations
Sole proprietorship
Partnership
Corporation
Sole proprietorship
Partnership
Corporation
Section 1 Exploring the World of Business (cont'd.)Section 1 Exploring the World of Business (cont'd.)
Sole ProprietorshipSole Proprietorship
A business owned by one person.A business owned by one person.
Advantages:
Easy to set up
All profits go to owner
Owner has total control
Few regulations to
follow
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
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.)Section 1 Exploring the World of Business (cont'd.)
PartnershipPartnership
A business owned by two or more
persons, who agree to operate the
business as co-owners.
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
Advantages:
Easy to start
Skills and talents are pooled
More money available
Disadvantages:
Conflicts between partners
Profits must be shared
Owners share all risks
Disadvantages:
Conflicts between partners
Profits must be shared
Owners share all risks
Section 1 Exploring the World of Business (cont'd.)Section 1 Exploring the World of Business (cont'd.)
CorporationCorporation
A business organization that is
recognized by law to have a life of its
own.
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
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
Disadvantages: Costs more to start
up
Complex to organize
More regulations
Higher taxes
Section 1 Exploring the World of Business (cont'd.)Section 1 Exploring the World of Business (cont'd.)
Section 2Accounting: The Universal Language of Business
Section 2Accounting: The Universal Language of BusinessWhat 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.
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.
Why It’s Important
Understanding accounting systems is
the key to understanding business.
Why It’s Important
Understanding accounting systems is
the key to understanding business.
Section 2 Accounting: The Universal Language of Business (cont'd.)
Section 2 Accounting: The Universal Language of Business (cont'd.)
Key Terms accounting system
manual accounting system
computerized accounting system
GAAP
financial reports
Key Terms accounting system
manual accounting system
computerized accounting system
GAAP
financial reports
financial accounting
management accounting
business entity
accounting period
going concern
financial accounting
management accounting
business entity
accounting period
going concern
The Accounting System
Designed to collect, document, and
report on financial transactions affecting
the business.
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.)
Section 2 Accounting: The Universal Language of Business (cont'd.)
manual accounting system
computerized accounting system
generally accepted accounting
principles (GAAP)
financial reports
manual accounting system
computerized accounting system
generally accepted accounting
principles (GAAP)
financial reports
How the Accounting System WorksHow the Accounting System Works
Section 2 Accounting: The Universal Language of Business (cont'd.)
Section 2 Accounting: The Universal Language of Business (cont'd.)
Inputs
SourceDocuments
Inputs
SourceDocuments
Processing
Tasks
Processing
Tasks
OutputsFinancial and Management Accounting
Reports
OutputsFinancial and Management Accounting
Reports Financial
condition
Results of operations
Investments by and distributions to owners
Financial condition
Results of operations
Investments by and distributions to owners
Analyzing
Classifying
Recording
Analyzing
Classifying
Recording
Checks
Invoices
Sales Slips
Receipts
Checks
Invoices
Sales Slips
Receipts
Using Accounting Reports for Making Business Decisions
There are two groups that use
accounting reports:
Using Accounting Reports for Making Business Decisions
There are two groups that use
accounting reports:
Section 2 Accounting: The Universal Language of Business (cont'd.)
Section 2 Accounting: The Universal Language of Business (cont'd.)
individuals outside the business
who have an interest in the
business
individuals inside the business
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.
Financial Accounting
Financial accounting focuses on
reporting information to external users.
Section 2 Accounting: The Universal Language of Business (cont'd.)
Section 2 Accounting: The Universal Language of Business (cont'd.)
Who Uses Financial Accounting Reports?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
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.
Management Accounting
Management accounting focuses
on reporting information to
management.
Section 2 Accounting: The Universal Language of Business (cont'd.)
Section 2 Accounting: The Universal Language of Business (cont'd.)
Managers Managers
Accounting AssumptionsAccounting Assumptions
Section 2 Accounting: The Universal Language of Business (cont'd.)
Section 2 Accounting: The Universal Language of Business (cont'd.)
business entity
accounting period
going concern
business entity
accounting period
going concern