1. 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.

2. 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.

3. 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.

4. 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.

5. 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.

6. 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.

7. 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.

8. 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.

9. 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.

10. 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.

11. 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.

12. 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.

13. 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.

14. 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.

15. 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.