1. $ $ $ $ Key Terms Chapter 2 free enterprise system profit loss
entrepreneur
capital
service business
merchandising business
manufacturing business
sole proprietorship
partnership
corporation
charter $ $ $

2. $ $ $ $ The Need for Profit The Need for a Risk-Taker
Section 1 Exploring the World of Business (con’t.)
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. $

3. $ $ $ $ Entrepreneurship: Who Me? Chapter 2
Section 1 Exploring the World of Business (con’t.)
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. $ $

4. $ $ $ $ Types of Business Operations Chapter 2 Service Businesses
Section 1 Exploring the World of Business (con’t.)
Chapter 2 $
Types of Business Operations
Service Businesses
Merchandising Businesses
Manufacturing Businesses $ $ $

5. $ $ $ $ Forms of Business Organizations Chapter 2 Sole proprietorship
Section 1 Exploring the World of Business (con’t.)
Chapter 2 $
Forms of Business Organizations $
Sole proprietorship
Partnership
Corporation $ $

6. $ $ $ $ Sole Proprietorship Chapter 2 A business owned by one person.
Section 1 Exploring the World of Business (con’t.)
Chapter 2 $
Sole Proprietorship
A business owned by one person. $
Advantages:
Easy to set up
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 $ $

7. $ $ $ $ Partnership Chapter 2
Section 1 Exploring the World of Business (con’t.)
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 $ $

8. $ $ $ $ Corporation Chapter 2
Section 1 Exploring the World of Business (con’t.)
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 $ $

9. $ $ $ $ Why It’s Important Key Terms Chapter 2
Understanding accounting systems is the key to understanding business. $
Key Terms
accounting system
manual accounting system
computerized accounting system
GAAP
financial reports
financial reports
financial accounting
management accounting
business entity
accounting period
going concern $ $

10. $ $ $ $ The Accounting System Chapter 2
Designed to collect, document, and report on financial transactions affecting the business. $
manual accounting system
computerized accounting system
generally accepted accounting principles (GAAP)
financial reports $ $

11. 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 $

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

13. $ $ $ $ Financial Accounting Who Uses Financial Accounting Reports?
Chapter 2
Chapter 2 $
Financial Accounting
Financial accounting focuses on reporting information to external users. $
Who Uses Financial Accounting Reports? $
potential investors
banks that loan money to a business
local, state, and federal governments
workers, consumers, union leaders, and competitors $

14. $ $ $ $ Management Accounting Chapter 2 Chapter 2
Management accounting focuses on reporting information to management. $ $
Managers $

15. $ $ $ $ Accounting Assumptions Chapter 2 Chapter 2 business entity
accounting period
going concern $ $