1. The World of Business & Accounting
11/18/2018
The World of Business & Accounting
Chapter 2
Make a list of several local businesses & write their names down…
Identify them as either a service, manufacturing, or merchandising business

2. Exploring the World of Business (2.1)
11/18/2018
Exploring the World of Business (2.1)
Free enterprise system
What kinds of risk are involved in running a business?
Profit
Loss
The need for profit
The need for a risk-taker
Role of entrepreneurs
Traits of entrepreneurs
1. Possibility of losing money invested in the business, making legally questionable decisions
1a. Amount of money earned over & above the amount spent to keep the business operating.
1b. Businesses that spend more money than they earn
2. To pay for raw materials, labor, equipment, utilities, & rent…the selling price must be high enough to cover all costs.
3. Person who transforms ideas for products or services into real-world business. Owning a business can offer flexible schedules, self-direction, and financial gain…see figure 2.1 (pros & cons of entrepreneurship)
4. motivated, self-starters, risk-taking, organized, marketing knowledge, & accounting skills

3. Types & Forms of Businesses
11/18/2018
Types & Forms of Businesses
Service – provides a needed service for a fee
Merchandising – buy finished products & resells them to individuals or other businesses.
Manufacturing – buy raw materials, uses labor & machinery to transform them into finished products to individuals or other businesses.
Capital- money supplied by investors, banks, or business owners
First…what do businesses do and how are they organized?
ex. Travel agencies, hair salons, repair shops, real estate offices, and medical centers
Car dealers, grocery stores, etc.

4. Forms of Business Organization
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Forms of Business Organization
What new businesses in our area have recognized a need? What needs exist in the community that an entrepreneur could address?
Sole proprietorship
Adv/disadv
Partnership
Corporation
Charter – legal permission from state to operate
Easy to start up, little or no legal paperwork required, you’re the boss, all profits go to owner
Owned by two or more people who agree to operate the business as co-owners…adv – easy to set up, pooled skills & talents, more money available…disadv – conflict, shared profits, shared risks
Business recognized by law to have a life of its own. Must get permission from the state to operate.
Adv – easier to raise money, easy to expand, easy to transfer ownership…disadv – more costs to start, more complex to organize, more regulations, higher taxes

5. Accounting: The Universal Language of Business (2.2)
11/18/2018
Accounting: The Universal Language of Business (2.2)
What would happen if everyone used a different set of rules when driving?
The Accounting System
Manual accounting system
Computerized accounting system
GAAP (generally accepted accounting principles)
Financial reports
1. GAAP guides people through financial information that is presented in a consistent way from one company to another.
2a. Processed by hand
2b. Recorded by entering it into a computer
3. All accountants follow the same set of rules to prepare financial reports.
4. Summarized information about the financial status of a business.

6. Figure 2.7 (How the Accounting System Works)
11/18/2018
Figure 2.7 (How the Accounting System Works)
Inputs -
Processing 
Outputs
Source Documents
Checks
Invoices
Sales slips
Receipts
Tasks
Analyzing
Classifying
Recording
Financial & Management Accounting Reports
Financial condition
Investments by and distributions to owners

7. Using Accounting Reports for Making Business Decisions
11/18/2018
Using Accounting Reports for Making Business Decisions
Who uses accounting reports?
These reports have a wide audience
Two groups
Individuals outside the business who have an interest in the business
Individuals inside the business
People who invest in or loan money to a business or are asked to do so, people who have any kind of interest in the business & people who work for the business.

8. 11/18/2018
Financial Accounting
Focuses on reporting information to external users
Reports are prepared for individuals not directly involved in the day-to-day operations of the business
Investors, banks than loan money to business, all levels of government, consumers, union leaders, & competitors

9. Management Accounting
11/18/2018
Management Accounting
Focuses on reporting information to management
Reports are prepared for managers involved in making the day-to-day operating decisions like purchasing, hiring, production, payments, sales, & collections
They need information so they can decide what to do, how to do it, when to do it, & whether or not the results match the plans for the future

10. Accounting Assumptions
11/18/2018
Accounting Assumptions
Business entity
Exists independently of its owner’s personal holdings
Accounting period
A period of time covered by an accounting report…can cover one month, a quarter, or a year (most common)
Going concern – although many businesses fail within the first five years, accountants assume the business will continue to operate
An assumption is something taken for granted as true.
2. This assumption is necessary when accountants assign the cost of buildings and equipment over the estimated period of time they will be used. Comparison of reports from one period to the next also makes the accounting period concept necessary.
3. Unless there is evidence to the contrary, accountants assume that a business has the ability to survive and operate indefinitely.