Chapter 2 Section 2

Chapter 2, Section 2 Accounting: The Universal Language of Business What Do You Think? What kinds of financial decisions do you make? What information do you use to make decisions? Glencoe Accounting Unit 1 Chapter 2 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

Main Idea You Will Learn Accounting: The Universal Language of Business SECTION 2.2 Main Idea The accounting system produces information used to make decisions. You Will Learn how the accounting system works. how decision makers use accounting reports. three important accounting assumptions. Glencoe Accounting Unit 1 Chapter 2 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

Key Terms accounting system manual accounting system 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 Glencoe Accounting Unit 1 Chapter 2 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

The Accounting System Accounting: The Universal Language of Business SECTION 2.2 The Accounting System The accounting system is designed to collect, document, and report on financial transactions. There are two types of accounting systems: manual accounting system computerized accounting system Accountants must follow GAAP rules issued by the Financial Accounting Standards Board (FASB). Financial reports contain a summary of the financial status of a business. Glencoe Accounting Unit 1 Chapter 2 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

Using Accounting Reports for Making Business Decisions Accounting: The Universal Language of Business SECTION 2.2 Using Accounting Reports for Making Business Decisions Accounting provides financial information about a business or organization. There are two groups that use accounting reports: individuals outside the business who have an interest in the business individuals inside the business Glencoe Accounting Unit 1 Chapter 2 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

Accounting: The Universal Language of Business SECTION 2.2 Financial Accounting In financial accounting, reports are prepared for individuals outside the business. Those interested in the financial accounting reports of a business include investors, the local, state, and federal government, and employees, consumers, and competitors. Glencoe Accounting Unit 1 Chapter 2 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

Management Accounting Accounting: The Universal Language of Business SECTION 2.2 Management Accounting In management accounting, reports are prepared for managers inside the business. Financial accounting reports help a manager decide: what to do, how to do it, when to do it, and whether or not the results match the plans for the future. Glencoe Accounting Unit 1 Chapter 2 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

Accounting Assumptions Accounting: The Universal Language of Business SECTION 2.2 Accounting Assumptions As mentioned before, all businesses follow GAAP, which includes three assumptions: A business is a business entity, separate from its owner’s personal holdings. There is a set accounting period. A business is expected to continue as a going concern, able to survive and operate indefinitely. Glencoe Accounting Unit 1 Chapter 2 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

Accounting: The Universal Language of Business SECTION 2.2 Key Terms Review accounting system A system designed to collect, document, and report on business transactions. manual accounting system A type of accounting system in which information is processed by hand. computerized accounting system A type of accounting system in which information is recorded by entering it into a computer. Glencoe Accounting Unit 1 Chapter 2 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

Accounting: The Universal Language of Business SECTION 2.2 Key Terms Review GAAP The set of rules that all accountants use to prepare financial reports. financial reports Documents that present summarized information about the financial status of a business. financial accounting The type of accounting that focuses on reporting information to external users. Glencoe Accounting Unit 1 Chapter 2 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

Key Terms Review management accounting Accounting: The Universal Language of Business SECTION 2.2 Key Terms Review management accounting The type of accounting that focuses on reporting information to management; often referred to as accounting for internal users of accounting information. 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. Glencoe Accounting Unit 1 Chapter 2 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

Key Terms Review accounting period Accounting: The Universal Language of Business SECTION 2.2 Key Terms Review accounting period The period of time covered by an accounting report. going concern The accounting assumption that a business is expected to operate indefinitely. Glencoe Accounting Unit 1 Chapter 2 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

Question 1 DePalm Pizza had the following cash transactions yesterday. Chapter 2 Review CHAPTER 2 Question 1 DePalm Pizza had the following cash transactions yesterday. Receipts (money in): Checks: $650.00, Cash $500.00 Expenditures (money out): Gas and oil for delivery vehicle $75.98, supplies $477.50, salaries $380.00, and miscellaneous expenditures $123.76. Did DePalm have a “profit” or “loss” for the day? Glencoe Accounting Unit 1 Chapter 2 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

Question 1 Answer 1 Did DePalm have a “profit” or “loss” for the day? Chapter 2 Review CHAPTER 2 Question 1 Did DePalm have a “profit” or “loss” for the day? Answer 1 Step 1: Calculate the total receipts. $650.00 + $500.00 = $1,150 Step 2: Calculate the total expenditures. $75.98 + $477.50 + $380.00 + $123.76 = $1,057.24 Step 3: Calculate the net profit (loss). $1,150.00 - $1,057.24 = $92.76 profit (Receipts exceed expenditures) Glencoe Accounting Unit 1 Chapter 2 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

Chapter 2 Review CHAPTER 2 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. 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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