1. The World of Business and Accounting
Chapter 2 $
The World of Business and Accounting $
Making Accounting Relevant
Owning and operating a business takes special skills and traits. $
What skills do you think are important for the person who owns and operates a business? $

2. $ $ $ $ Why It’s Important Chapter 2
Section 1 Exploring the World of Business (cont'd.)
Chapter 2 $
Why It’s Important
In order to participate in the world of business, you’ll want to understand how businesses are formed, organized, and operated. $ $ $

3. $ $ $ $ The Environment of Business Chapter 2
Section 1 Exploring the World of Business (cont'd.)
Chapter 2 $
The Environment of Business
In a free enterprise system people are free to produce the goods and services they choose. $
Nike
IBM
local video rental store
clothing boutiques
local grocers
Tower Records $ $

4. $ $ $ $ The Need for Profit The Need for a Risk-Taker
Section 1 Exploring the World of Business (cont'd.)
Chapter 2 $
The Need for Profit
The amount of money earned over and above the amount spent to keep the business operating is called profit. Businesses that spend more money than they earn operate at a loss. $ $
The Need for a Risk-Taker
Entrepreneurs transform ideas for products or services into real-world businesses. $

5. $ $ $ $ Entrepreneurship: Who Me? Chapter 2
Section 1 Exploring the World of Business (cont'd.)
Chapter 2 $
Entrepreneurship: Who Me?
Have you ever considered owning a business? $
Cons
You probably need to work long hours.
You lose the security of steady wages and medical benefits an employer provides.
You market your own services or products.
You pay for your own operating expenses.
You must be motivated and energetic each day.
You face the possibility of losing money.
Pros
You are your own boss
You create opportunities for earning money.
You create and control your work schedule.
You choose the people you serve.
You select the people who work with you.
You benefit from the rewards of your own hard work.
You choose your own work hours. $ $

6. $ $ $ $ Types of Business Operations Chapter 2
Section 1 Exploring the World of Business (cont'd.)
Chapter 2 $
Types of Business Operations
Service Businesses – provides a needed service for a fee.
Merchandising Businesses – buys finished products and resells them to individuals or other businesses.
Manufacturing Businesses – buys raw materials, such as wood or iron, and transforms them into finished products through the use of labor and capital. It then sells the finished products to individual or other businesses. $ $ $

7. $ $ $ $ Forms of Business Organizations Chapter 2
Section 1 Exploring the World of Business (cont'd.)
Chapter 2 $
Forms of Business Organizations
Sole proprietorship – a business owned by one person.
Partnership – a business owned by two or more persons, called partners, who agree to operate the business as co-owners.
Corporation – a business organizations that is recognized by law to have a life of its own. Must get legal permission from the state to operate. This is called a charter and it gives he business certain rights and privileges. $ $ $

8. $ $ $ $ Sole Proprietorship Chapter 2 A business owned by one person.
Section 1 Exploring the World of Business (cont'd.)
Chapter 2 $
Sole Proprietorship
A business owned by one person. $
Advantages:
Easy to set up
All profits go to owner
Owner has total control
Few regulations to follow
Disadvantages:
Limited expertise
Hard to raise money
Owner has all the risks
Hard to attract talented employees $ $

9. $ $ $ $ Partnership Chapter 2
Section 1 Exploring the World of Business (cont'd.)
Chapter 2 $
Partnership
A business owned by two or more persons, who agree to operate the business as co-owners. $
Advantages:
Easy to start
Skills and talents are pooled
More money available
Disadvantages:
Conflicts between partners
Profits must be shared
Owners share all risks $ $

10. $ $ $ $ Corporation Chapter 2
Section 1 Exploring the World of Business (cont'd.)
Chapter 2 $
Corporation
A business organization that is recognized by law to have a life of its own. $
Disadvantages:
Costs more to start up
Complex to organize
More regulations
Higher taxes
Advantages:
Easier to raise money
Easy to expand
Easy to transfer ownership
Losses limited to investment $ $

11. Accounting: The Language of Business
Chapter 2 $
Accounting: The Language of Business $
Have you ever wondered how popular bands, like U2, determine which venues they’ll play, how much ticket prices should be, and how profitable CD sales have been?
All of these issues are tackled by the band’s financial team: ACCOUNTANTS, CLERKS and FINANCIAL ADVISORS! $ $

12. Chapter 2 $
Accounting System -- is designed to collect, document, and report on financial transactions affecting the business. $ $
Manual Accounting System – processed by hand
Computerized Accounting System – processed by a computer $

13. Financial and Management Accounting Reports
Chapter 2 $
How the Accounting System Works $
Inputs
Source
Documents
Processing
Tasks
Outputs
Financial and Management Accounting Reports
Checks
Invoices
Sales Slips
Receipts $
Analyzing
Classifying
Recording
Financial condition
Results of operations
Investments by and distributions to owners $

14. Accounting: The Language of Business
Chapter 2 $
Accounting: The Language of Business $
All accountants use the same set of rules, called “generally accepted accounting principles” or GAAP for short.
Accounting principles provide a way to communicate financial information in a form understood by those interested in the operation and financial condition of a business.
Because this is so fundamental, accounting is often referred to as the “language of business”.
Financial Reports are summarized information about the financial state of the business. $ $

15. The Purpose of Accounting
Chapter 2 $
The Purpose of Accounting $
The purpose of accounting is to provide financial information about a business or a not-for-profit organization.
Individuals need financial information in order to make good decisions $ $

16. $ $ $ $ Using Accounting Reports for Making Business Decisions
Chapter 2
Chapter 2 $
Using Accounting Reports for Making Business Decisions
In general, there are two groups that use accounting reports: $ $
individuals outside the business who have an interest in the business
individuals inside the business $

17. Chapter 2
Chapter 2 $
Financial Accounting -- focuses on reporting information to external users. These reports are prepared using GAAP. $
Who Uses Financial Accounting Reports? $
potential investors
individuals and institutions, such as banks, that loan money to a business
local, state, and federal governments
workers, consumers, union leaders, and competitors $

18. $ $ $ $ Management Accounting Chapter 2 Chapter 2
Management accounting focuses on reporting information to internal management.
These types of reports are prepared for managers making the day-to-day operating decisions like purchasing, hiring and firing.
Managers need accounting information so that they can decide what to do and how to do it! $ $ $

19. $ $ $ $ Accounting Assumptions Chapter 2 Chapter 2
Business Entity – business exists independently of it’s owners personal holdings.
Accounting Period – for reporting purposes, the life of the business is divided into specific periods of time! (Can be months, quarters, or years, for example).
Going Concern – it’s assumed that the business has the ability to survive and operate indefinitely. $ $