1. Business Accounting
Chapter 2

2. Free Enterprise System

3. CHOICE:
produce what you want & use money as you wish

4. INNOVATION:
new and better products and services

5. COMPETITION:
businesses compete and try to make profit

6. ENTREPRENEURSHIP:
taking risks on new ideas in business and transforming them into real-world applications

7. Profit and Loss

8. Profit: money earned above amount spent,
needed to continue operating in long term

9. Loss:
more costs than earnings

10. Three types of businesses:

11. Service:
provides service for fee

12. Merchandising:
resells final goods to consumer

13. Manufacturing:
turns raw material into finished product

14. Capital:
money invested in a business by an owner

15. Three forms of business organization:
Sole Proprietorship
Partnership
Corporation

16. Sole Proprietorship
has only one owner
oldest and most common;
easiest to form
owner keeps profit

17. Partnership
bound by partnership agreement
money to be invested
responsibilities
division of profits and losses

18. Corporation needs charter has life of its own owned by shareholders
(permission from state)
has life of its own
owned by shareholders
many start as sole proprietorship or partnership

19. The Role of Accounting
record and report accurate, timely, useful, financial information as it relates to the profits and losses of a business
Accounting is the language of business.

20. Generally Accepted Accounting Principles (GAAP)
Basic accounting rules apply to all businesses.
Different businesses may use different accounting systems but follow same rules. 

21. Steps in an accounting system
collect and verify source documents
analyze business transaction
what did we get, what did we give?
journalize transaction
(post to the ledger) classify
(trial balance) prove

22. (worksheet) summarize
financial reporting
adjust
close
post-closing trial balance

23. Users of financial information:
government
unions
management
creditors
customers
owner
investors

24. Financial Accounting: Management Accounting:
Types of Accounting
Financial Accounting:
external users
Management Accounting:
internal users

25. Accounting Assumptions

26. accounting records contain only information related to the business entity
business will continue to operate as a going concern

27. money amounts of fixed buying power are the unit of measure for transactions
the time period covered by an accounting report is a fiscal period or accounting period