1. 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.

2. 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.

3. 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

4. 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.

5. 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.

6. 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

7. 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.

8. Homework Textbook Page: 40 & 41 Workbook Page: 17 & 18
Problem 2-4, Problem 2-5,
Problem 2-6, & Problem 2-7

9. 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

10. Homework Workbook Page: 18 Ch 2 Review – Part 1 & 2
Ch 2 Self-Test – Part A & B