Ch 2 powerpoint

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Key Terms

free enterprise system

profit

loss

entrepreneur

capital

service business

Exploring the Worldof Business

Section 2.1

merchandising business

manufacturing business

sole proprietorship

partnership

corporation

charter



The Environment of Business

Free Enterprise System

Profit Loss

free enterprise system People are free to produce goods

and services.

profitThe amount of money earned

over and above the amount spent to keep the business operating.

lossWhen a business spends more

money than it earns.

Section 2.1



Types and Forms of Businesses

Section 2.1

Three Types of Business Operations

ServiceBusiness

MerchandisingBusiness

ManufacturingBusiness

service business

A business that provides a

needed service for a fee.

merchandising business

A business that buys finished products and

resells them to individuals or other

businesses.

manufacturing businessA business that buys raw materials, uses labor and

machinery to transform them into finished products, and

sells the finished products to individuals or other

businesses.




Section 2.1

$All types of businesses need capital to begin.

capitalMoney that investors, banks, or business owners supply for a

business to begin.


sole proprietorshipA business owned by one person.

partnershipA business owned by two or more persons.

corporationA business recognized by law to have a life of its own.



Section 2.1

Three Types of Business Organization

SoleProprietorship

Partnership Corporation




Section 2.1




Section 2.1




A corporation must obtain a charter.

charterLegal permission to operate.

Section 2.1


Accounting: The Universal Language of Business

Section 2.2

Key Terms

accounting system

manual accounting system

computerized accounting system

GAAP

financial reports

financial accounting

management accounting

business entity

accounting period

going concern



Section 2.2

The Accounting System

Two types of accounting systems

Manual AccountingSystem

Computerized Accounting System

accounting systemDesigned to collect, document, and report on financial transactions affecting

the business.

manual accounting systemWhen accounting information is

processed by hand.

computerized accounting systemWhen accounting information is processed by recording it into a

computer.



Section 2.2


GAAP (generally accepted accounting principles)The set of rules that all accountants use to prepare

financial reports.

What Is

GAAP?




Section 2.2

What Are

financial reports?

financial reportsDocuments that present summarized information

about the financial status of a business.


Using Accounting Reports for Making Business Decisions


Section 2.2

Two groups that useaccounting reports

Individuals outside the business who have an interest in the business

Individuals inside the business




Section 2.2

Those interested in the financial accounting reports of a business include:

InvestorsLocal, state, and

federal government

Employees, consumers, and

competitors

financial accountingThe type of accounting that focuses on reporting information to external users.




Section 2.2

Management accounting reports are prepared for managers involved in:

management accountingThe type of accounting that focuses on reporting information to management; often referred to as

accounting for internal users of accounting information.

Purchasing decisionsHiring decisionsProduction decisionsPaymentsSalesCollections


Accounting Assumptions


Section 2.2

GAAP Assumptions

Business entity

Accounting period

Going concern

business entityThe accounting assumption that a business exists independently of its owner’s personal holdings.

The accounting records and reports are maintained separately and contain financial information

related only to the business.


Accounting Assumptions


Section 2.2

GAAP Assumptions

Business entity

Accounting period

Going concern

accounting periodThe period of time covered by

an accounting report.

going concernThe accounting assumption that a business is expected to operate

indefinitely.