Copyright © by McGraw-Hill Education. All rights reserved. Accounting The accounting system produces information used by businesses to make decisions.

Copyright © by McGraw-Hill Education. All rights reserved. Accounting Describe profit, risk-taking, and entrepreneurs. Describe service, merchandising, and manufacturing businesses. Compare the sole proprietorship, partnership, and corporate forms of businesses. List the advantages and disadvantages of each form of business organization. Describe the purpose of accounting. Explain financial and management accounting. Describe the three basic accounting assumptions.

Copyright © by McGraw-Hill Education. All rights reserved. Accounting Key Terms free enterprise system profit loss entrepreneur capital service business Exploring the World of Business Section 2.1 merchandising business manufacturing business sole proprietorship partnership corporation charter

Copyright © by McGraw-Hill Education. All rights reserved. Accounting Exploring the World of Business The Environment of Business Free Enterprise System ProfitLoss free enterprise system The activities that a person does well. profit The amount of money earned over and above the amount spent to keep the business operating. loss When a business spends more money than it earns. Section 2.1

Copyright © by McGraw-Hill Education. All rights reserved. Accounting Exploring the World of Business The Environment of Business Section 2.1 What a business needs to survive Operate at a profit An individual willing to take the risk

Copyright © by McGraw-Hill Education. All rights reserved. Accounting Exploring the World of Business The Environment of Business Section 2.1 Roles in a Business Inventors Investors EmployeesManagers Entrepreneurs entrepreneur A person who transforms ideas for products or services into real-world businesses.

Copyright © by McGraw-Hill Education. All rights reserved. Accounting Exploring the World of Business The Environment of Business Section 2.1

Copyright © by McGraw-Hill Education. All rights reserved. Accounting Exploring the World of Business The Environment of Business Section 2.1 Traits of Entrepreneurs Self-StartersOrganizational Skills Marketing Knowledge Accounting Skills

Copyright © by McGraw-Hill Education. All rights reserved. Accounting Exploring the World of Business The Environment of Business Section 2.1 Entrepreneur – Who, Me? Are you creative or mechanical? Are you a self-starter? Do you have good writing and speaking skills? Do you have accounting or marketing skills?

Copyright © by McGraw-Hill Education. All rights reserved. Accounting Exploring the World of Business Types and Forms of Businesses Section 2.1 Three Types of Business Operations Service Business Merchandising Business Manufacturing Business service business A business that provides a needed service for a fee. merchandising business A business that buys finished products and resells them to individuals or other businesses. manufacturing business A business that buys raw materials, uses labor and machinery to transform them into finished products, and sells the finished products to individuals or other businesses.

Copyright © by McGraw-Hill Education. All rights reserved. Accounting Exploring the World of Business Types and Forms of Businesses Section 2.1 $ All types of businesses need capital to begin. capital Money that investors, banks, or business owners supply for a business to begin.

Copyright © by McGraw-Hill Education. All rights reserved. Accounting sole proprietorship A business owned by one person. partnership A business owned by two or more persons. corporation A business recognized by law to have a life of its own. Exploring the World of Business Types and Forms of Businesses Section 2.1 Three Types of Business Organization Sole Proprietorship PartnershipCorporation

Copyright © by McGraw-Hill Education. All rights reserved. Accounting Exploring the World of Business Types and Forms of Businesses Section 2.1

Copyright © by McGraw-Hill Education. All rights reserved. Accounting Exploring the World of Business Types and Forms of Businesses Section 2.1

Copyright © by McGraw-Hill Education. All rights reserved. Accounting Exploring the World of Business Types and Forms of Businesses A corporation must obtain a charter. charter Legal permission to operate. Section 2.1

Copyright © by McGraw-Hill Education. All rights reserved. Accounting Accounting: The Universal Language of Business Section 2.2 Key Terms accounting system manual accounting system computerized accounting system GAAP financial reports financial accounting management accounting business entity accounting period going concern

Copyright © by McGraw-Hill Education. All rights reserved. Accounting Accounting: The Universal Language of Business Section 2.2 The Accounting System Two types of accounting systems Manual Accounting System Computerized Accounting System accounting system Designed to collect, document, and report on financial transactions affecting the business. manual accounting system When accounting information is processed by hand. computerized accounting system When accounting information is processed by recording it into a computer.

Copyright © by McGraw-Hill Education. All rights reserved. Accounting Accounting: The Universal Language of Business Section 2.2 The Accounting System GAAP (generally accepted accounting principles) The set of rules that all accountants use to prepare financial reports. What Is GAAP?

Copyright © by McGraw-Hill Education. All rights reserved. Accounting The Accounting System Accounting: The Universal Language of Business Section 2.2 What Are financial reports? financial reports Documents that present summarized information about the financial status of a business.

Copyright © by McGraw-Hill Education. All rights reserved. Accounting Using Accounting Reports for Making Business Decisions Accounting: The Universal Language of Business Section 2.2 Two groups that use accounting reports Individuals outside the business who have an interest in the business Individuals inside the business

Copyright © by McGraw-Hill Education. All rights reserved. Accounting Using Accounting Reports for Making Business Decisions Accounting: The Universal Language of Business Section 2.2 Those interested in the financial accounting reports of a business include: Investors Local, state, and federal government Employees, consumers, and competitors financial accounting The type of accounting that focuses on reporting information to external users.

Copyright © by McGraw-Hill Education. All rights reserved. Accounting Using Accounting Reports for Making Business Decisions Accounting: The Universal Language of Business Section 2.2 Management accounting reports are prepared for managers involved in: management accounting The type of accounting that focuses on reporting information to management; often referred to as accounting for internal users of accounting information. Purchasing decisions Hiring decisions Production decisions Payments Sales Collections

Copyright © by McGraw-Hill Education. All rights reserved. Accounting Accounting Assumptions Accounting: The Universal Language of Business Section 2.2 GAAP Assumptions Business entity Accounting period Going concern business entity The accounting assumption that a business exists independently of its owner’s personal holdings. The accounting records and reports are maintained separately and contain financial information related only to the business.

Copyright © by McGraw-Hill Education. All rights reserved. Accounting Accounting Assumptions Accounting: The Universal Language of Business Section 2.2 GAAP Assumptions Business entity Accounting period Going concern accounting period The period of time covered by an accounting report. going concern The accounting assumption that a business is expected to operate indefinitely.

Copyright © by McGraw-Hill Education. All rights reserved. Accounting Question 1 DePalm Pizza had the following cash transactions yesterday. Receipts (money in): Checks: $650.00, Cash $ Expenditures (money out): Gas and oil for delivery vehicle $75.98, supplies $477.50, salaries $380.00, and miscellaneous expenditures $ Did DePalm have a “profit” or “loss” for the day? Step 1 Calculate the total receipts. $ $ = $1,150 Step 2 Calculate the total expenditures. $ $ $ $ = $1, Step 3 Calculate the net profit (loss). $1, $1, = $92.76 profit (Receipts exceed expenditures)

Copyright © by McGraw-Hill Education. All rights reserved. Accounting Question 2 Sole proprietorship is the most popular form of business ownership, yet very few large businesses are sole proprietorships. Give at least two reasons to explain this. 1.Sole proprietorships have the expertise of only the owner to call on. For example, the owner may be a great accountant but only a fair salesperson. 2.The business has the promise of only one owner to use to try to secure money from investors or lenders. 3.The owner bears all of the risk of loss, or unlimited liability. The owner could lose personal equity if the business fails. 4.The most talented potential employees would tend to prefer the job security of working in larger firms.

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