Unit 1 Introduction to Accounting Chapter 1 You and the World of Accounting Chapter 2 The World of Business and Accounting Glencoe Accounting Unit 1 Chapter 2 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

Chapter 2 The World of Business and Accounting What You’ll Learn Describe profit, risk-taking, and entrepreneurs. Describe service, merchandising, and manufacturing businesses. Compare the sole proprietorship, partnership, and corporate forms of business. List the advantages and disadvantages of each form of business organization. Describe the purpose of accounting. Explain financial and management accounting. Describe three basic accounting assumptions. Define the accounting terms introduced in this chapter. Glencoe Accounting Unit 1 Chapter 2 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

Chapter 2, Section 1 Exploring the World of Business What Do You Think? Why is the U.S. economy sometimes called a market economy? Glencoe Accounting Unit 1 Chapter 2 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

Exploring the World of Business SECTION 2.1 Main Idea The United States has a free enterprise system with various kinds of businesses. You Will Learn about the environment of business. the three types of business operations. the three forms of business organization. Glencoe Accounting Unit 1 Chapter 2 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

Exploring the World of Business SECTION 2.1 Key Terms free enterprise system profit loss entrepreneur capital service business merchandising business manufacturing business Glencoe Accounting Unit 1 Chapter 2 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

Exploring the World of Business SECTION 2.1 Key Terms sole proprietorship partnership corporation charter Glencoe Accounting Unit 1 Chapter 2 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

Exploring the World of Business SECTION 2.1 The Environment of Business When you hear the word business, what do you think of? In the U.S. we have a free enterprise system; people are free to produce goods and services and spend money as they wish. A business can operate at a profit or a loss. If the revenues are greater than the costs, the money left over is profit. When costs are greater than revenues, the business operates at a loss. In order to survive, a business must operate at a profit, and have an individual willing to take the risk to run it. Glencoe Accounting Unit 1 Chapter 2 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

Exploring the World of Business SECTION 2.1 The Need for a Risk-Taker In a business, inventors generate ideas, employees provide labor, and managers supervise. An entrepreneur transforms ideas into actual businesses. Glencoe Accounting Unit 1 Chapter 2 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

Exploring the World of Business SECTION 2.1 Role of Entrepreneurs There are pros and cons to being an entrepreneur. Glencoe Accounting Unit 1 Chapter 2 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

Exploring the World of Business SECTION 2.1 Traits of Entrepreneurs Most entrepreneurs: are self-starters. have organizational skills. have marketing knowledge. have accounting skills. Glencoe Accounting Unit 1 Chapter 2 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

Exploring the World of Business SECTION 2.1 Entrepreneur – Who, Me? Have you thought about owning a business? If so, you should ask yourself these questions: Do you have good writing and speaking skills? Are you creative or mechanical? Are you a self-starter? Do you have accounting or marketing skills? Glencoe Accounting Unit 1 Chapter 2 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

Exploring the World of Business SECTION 2.1 Types and Forms of Business In a free enterprise system, an entrepreneur can choose the type and form of business to run. Glencoe Accounting Unit 1 Chapter 2 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

Exploring the World of Business SECTION 2.1 Types of Business Operations There are three types of business operations: Service businesses provide services for fees. Merchandising businesses buy and sell finished products. Manufacturing businesses buy materials and make finished products. Each type needs capital (money) from investors, banks, or business owners to begin. Glencoe Accounting Unit 1 Chapter 2 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

Exploring the World of Business SECTION 2.1 Forms of Business Organization Most U.S. businesses are organized in one of three ways: sole proprietorship partnership corporation Glencoe Accounting Unit 1 Chapter 2 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

Exploring the World of Business SECTION 2.1 Sole Proprietorship Sole means “single” and proprietor means “owner.” A sole proprietor is a single owner, but the operation may have many managers and employees. There are advantages and disadvantages to being a sole proprietor. Glencoe Accounting Unit 1 Chapter 2 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

Exploring the World of Business SECTION 2.1 Partnership When two people enter into an agreement to operate a business as co-owners, a partnership is formed. There are advantages and disadvantages to a partnership. Glencoe Accounting Unit 1 Chapter 2 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

Exploring the World of Business SECTION 2.1 Corporation A corporation often starts off as a sole proprietorship or partnership. In order to become a corporation an organization must obtain a charter (legal permission to operate). There are advantages and disadvantages to a corporation. Glencoe Accounting Unit 1 Chapter 2 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

Exploring the World of Business SECTION 2.1 Key Terms Review free enterprise system A system in which individuals are free to produce the goods and services they choose. profit The amount earned above the amount of expense incurred to keep the business operating. loss The result when a business spends more money than it earns. entrepreneur A person who transforms ideas for products or services into real-world business. Glencoe Accounting Unit 1 Chapter 2 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

Exploring the World of Business SECTION 2.1 Key Terms Review capital Money supplied by investors, banks, or owners of a business. service business A business that provides a needed service for a fee. merchandising business A business that buys finished goods and resells them to individuals or other businesses. Glencoe Accounting Unit 1 Chapter 2 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

Exploring the World of Business SECTION 2.1 Key Terms Review manufacturing business A business that buys raw materials and transforms them into financial products by using labor and machinery. sole proprietorship A business owned by one person. partnership A business owned by two or more persons, called partners, who agree to operate the business as co-owners. Glencoe Accounting Unit 1 Chapter 2 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

Exploring the World of Business SECTION 2.1 Key Terms Review corporation A business organization recognized by law to have a life of its own. charter The legal permission, granted by a state, that gives a corporation certain rights and privileges and spells out the rules under which the corporation is to operate. Glencoe Accounting Unit 1 Chapter 2 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

Chapter 2 Review CHAPTER 2 Answer 2 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. The business has the promise of only one owner to use to try to secure money from investors or lenders. The owner bears all of the risk of loss, or unlimited liability. The owner could lose personal equity if the business fails. The most talented potential employees would tend to prefer the job security of working in larger firms. Glencoe Accounting Unit 1 Chapter 2 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

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