The Environment of Business In a Private Enterprise Economy people are free to produce the goods and services they choose, and people are free to use their money as they wish. Income All the money that a business takes in. Profit When the amount of money earned is more that the amount of money spent it is called a profit. Loss Expenses All the money that a business spends. When the amount of money spent is more that the amount of money earned it is called a loss. Entrepreneur: A person who transforms ideas for products or services into real-world businesses.

Types of Businesses Service Business Merchandising Business Manufacturing Business Provide services at a fee. Buys and sells finished products. Makes and sells finished products. Capital: Money invested in a business.

Identifying Types of Businesses Indicate whether each of the following businesses is a service business, a merchandising business, or a manufacturing business. Honda Motor Company Manufacturing Joe’s Barber Shop Service Macy*s Merchandising Larry’s Landscaping Service Coca Cola Bottling Company Manufacturing

Forms of Businesses Sole Proprietorship Partnership Corporation A business organization that is recognized by law to have a life of its own. A business owned by one person. A business owned by two or more people. Advantages Advantages easy to set up all profits go to owner owner has total control few regulations to follow easy to start skills and talents are pooled more money available Advantages easier to raise money easy to expand easy to transfer ownership losses limited to investment Disadvantages Disadvantages limited expertise hard to raise money owner has all the risk hard to attract employees conflicts between partners profits must be shared owners share all risks Disadvantages costs more to start up complex to organize more regulations higher taxes Charter: Legal permission to operate a corporation.

The Accounting System Accounting System: The process of recording and reporting the financial information resulting from business transactions. Manual Accounting System: System in which financial information is processed by hand. Computerized Accounting System: System in which financial information is processed using a computer. Generally Accepted Accounting Principles: (GAAP) A set of rules used by accountants to prepare financial reports. Financial Reports: Summarized information about the financial status of a business.

The Role of Accounting Steps in an Accounting System Financial Accounting Managerial Accounting Focuses on reporting information to external users. Focuses on reporting information to internal users. Steps in an Accounting System report summarize classify record analyze verify collect

Accounting Assumptions Accounting is based on three basic assumptions about business operations. Business Entity: An organization that exists independently of its owner’s personal holdings. Going Concern: The assumption that a business will continue to operate in the future. Fiscal Period: A period of time covered by an accounting report.

Homework Textbook Page: 40 & 41 Workbook Page: 21 & 22 Problem 2-4, Problem 2-5, Problem 2-6, & Problem 2-7

Write a brief definition for each of the following terms: Accounting Period Accounting System Business Entity Charter Computerized Accounting System Corporation Entrepreneur Financial Accounting Financial reports Free Enterprise System GAAP Going Concern Managerial Accounting Manual Accounting System Manufacturing Business Merchandising Business Partnership Service Business Sole Proprietorship

Homework Ch 2 Review – Part 1 & 2 Ch 2 Self-Test – Part A & B