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.

Traits of Entrepreneurs 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.

Types and Forms 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. 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.

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.

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.

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: 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.