1. Free Enterprise System

2. Free Enterprise System
In a Free Enterprise System people are free to produce the goods and services they choose. Individuals are free to use their money as they wish: spend it, save it, invest it, or donate it. Business owners must compete.
Profit
Loss

3. CAPITAL

4. Money supplied by investors, banks, or owners of a business.
Capital
Money supplied by investors, banks, or owners of a business.

5. Name three types of business operations:
Service
Merchandising
Manufacturing

6. Service Business Provides a needed service for a fee. Travel Agencies
Styling Salons
Movers
Repair Shops
Real Estate Offices
Medical Centers

7. Merchandising Business
Buys finished products and resells them to individuals or other businesses.
Department Stores
Car Dealers
Grocery Stores
Drugstores
Hobby Shops

8. Manufacturing Business
Buys raw materials, such as wood or iron ore, and transforms them into finished products through the use of labor and capital. It then sells the finished products to individuals or other businesses.
Shipbuilder
Bakery
Car Manufacturer

9. Name the three forms of business organizations:
Sole Proprietorship
Partnership
Corporation

10. Sole Proprietorship Sole = “single” or “one.” Proprietor = “owner.”
Term has nothing to do with size.
Oldest and most common form of business organization.
Easiest to form with little or no legal paperwork.
Success or failure of the business depends heavily on efforts and talent of the owner.

11. Sole Proprietorship Advantages Disadvantages 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

12. Partnership
Business owned by two or more persons, called partners, who agree to operate the business as co-owners.
Often formed when the need for capital is greater than the amount of money one person can invest.
Not always small.

13. Partnership Advantages Disadvantages Easy to start
Skills and talents are pooled
More money available
Disadvantages
Conflicts between partners
Profits must be shared
Owners share all the risks

14. Corporation
Business organization that is recognized by law to have a life of its own.
Must get permission from the state to operate. This legal permission is called a charter. (Spells out rules under which the corporation is to operate.)
Often starts as sole proprietorship or partnership.

15. Corporation Advantages Disadvantages Easier to raise money
Easy to expand
Easy to transfer ownership
Losses limited to investments.
Disadvantages
Costs more to start up
Complex to organize
More regulations
Higher taxes

16. What is the role of accounting?
Information system
Profits and losses
Able to analyze what is profitable
Quantifying the results of the business operation.
Able to COMPARE

17. Process of recording and reporting financial events of transactions.
ACCOUNTING SYSTEM
Process of recording and reporting financial events of transactions.

18. Language of Business
Accounting is a standard means of communicating financial information in a form that is clearly understood by all those interested in the operations and financial condition of a business.

19. 4 Basic Accounting Assumptions
Business Entity
Going Concern
Unit of Measure
Time Period

20. BUSINESS ENTITY
Organization that exists independently of it’s owner’s personal holdings.

21. It is assumed that a business will continue to operate in the future.
GOING CONCERN
It is assumed that a business will continue to operate in the future.

22. The effects of business transactions are measured in money amounts.
UNIT OF MEASURE
The effects of business transactions are measured in money amounts.

23. TIME PERIOD
Accounting reports are prepared for a specific period of time called a FISCAL PERIOD.

24. What are some career opportunities in accounting?+1

25. What organizations influence accounting practices?+1

26. American Institute of Certified Public Accountants
Professional organization that develops standards of professional practice.

27. Financial Accounting Standards Board
Formed in 1973 to develop financial accounting standards for businesses and not-for-profit organizations.
Issues two publications:
Statements of Financial Accounting Standards
Interpretations

28. Securities and Exchange Commission
Congress established in 1934 to regulate the sale of stock certificates to the general public.
Authority to regulate and control accounting and other information distributed by corporations. (Usually lets accounting profession do this part.)

29. Internal Revenue Service (IRS)
Collects federal taxes
Enforces tax regulations
Interprets tax laws

30. Other Organizations
National Council on Governmental Accounting (state and local governments).
American Accounting Association includes professors and CPA concerned with developing accounting standards.
Institute of Management Accountants is concerned with accounting for management purposes.