2. The Environment of Business In a Private Enterprise Economy people are free to produce the goods and services they choose, and people are free to use their money as they wish. Income Expenses All the money that a business takes in. All the money that a business spends. Profit Loss When the amount of money earned is more that the amount of money spent it is called a profit. When the amount of money spent is more that the amount of money earned it is called a loss.

3. Types of Businesses Service Business Merchandising Business Manufacturing Business Provide services at a fee. Buys and sells finished products. Makes and sells finished products. Capital:Money invested in a business.

4. Forms of Businesses Sole Proprietorship PartnershipCorporation A business owned by one person. A business owned by two or more people. A business organization that is recognized by law to have a life of its own. Advantages easy to set up all profits go to owner owner has total control few regulations to follow limited expertise hard to raise money owner has all the risk hard to attract employees Disadvantages Advantages easy to start skills and talents are pooled more money available Disadvantages conflicts between partners profits must be shared owners share all risks Advantages easier to raise money easy to expand easy to transfer ownership losses limited to investment Disadvantages costs more to start up complex to organize more regulations higher taxes Charter:Legal permission to operate a corporation.

5. The Role of Accounting Accounting System:The process of recording and reporting financial events and transactions. Steps in an Accounting System collect verify analyze record classify summarize report

6. Accounting Assumptions Accounting is based on three basic assumptions about business operations. Business Entity: An organization that exists independently of its owner’s personal holdings. Going Concern: The assumption that a business will continue to operate in the future. Fiscal Period: A period of time covered by an accounting report.