1. Chapter 2 Section 2

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.

3. 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.

4. 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.

5. 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.

6. 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.

7. 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.

8. 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.

9. 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.

10. 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.

11. 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.

12. 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.

13. 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.

14. 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 $
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.

15. 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.
$ $ = $1,150
Step 2: Calculate the total expenditures.
$ $ $ $ = $1,057.24
Step 3: Calculate the net profit (loss).
$1, $1, = $92.76 profit
(Receipts exceed expenditures)
Glencoe Accounting Unit 1 Chapter 2 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

16. 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.

17. 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.

18. Resources Glencoe Accounting Online Learning Center English Glossary
Spanish Glossary
Glencoe Accounting Unit 1 Chapter 2 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.