1. 0 Glencoe Accounting Unit 1 Chapter 2 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Unit 1 Introduction to Accounting Chapter 1You and the World of Accounting Chapter 2The World of Business and Accounting

2. 1 Glencoe Accounting Unit 1 Chapter 2 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 2 The World of Business and Accounting What You’ll Learn  Describe profit, risk-taking, and entrepreneurs.  Describe service, merchandising, and manufacturing businesses.  Compare the sole proprietorship, partnership, and corporate forms of business.  List the advantages and disadvantages of each form of business organization.  Describe the purpose of accounting.  Explain financial and management accounting.  Describe three basic accounting assumptions.  Define the accounting terms introduced in this chapter.

3. 2 Glencoe Accounting Unit 1 Chapter 2 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Main Idea The United States has a free enterprise system with various kinds of businesses. You Will Learn  about the environment of business.  the three types of business operations.  the three forms of business organization. Exploring the World of Business SECTION 2.1

4. 3 Glencoe Accounting Unit 1 Chapter 2 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Key Terms  free enterprise system  profit  loss  entrepreneur  capital  service business  merchandising business  manufacturing business Exploring the World of Business SECTION 2.1

5. 4 Glencoe Accounting Unit 1 Chapter 2 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Key Terms  sole proprietorship  partnership  corporation  charter Exploring the World of Business SECTION 2.1

6. 5 Glencoe Accounting Unit 1 Chapter 2 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. The Environment of Business When you hear the word business, what do you think of? In the U.S. we have a free enterprise system; people are free to produce goods and services and spend money as they wish.free enterprise system A business can operate at a profit or a loss. If the revenues are greater than the costs, the money left over is profit. When costs are greater than revenues, the business operates at a loss.profitloss In order to survive, a business must  operate at a profit, and  have an individual willing to take the risk to run it. Exploring the World of Business SECTION 2.1

7. 6 Glencoe Accounting Unit 1 Chapter 2 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. The Need for a Risk-Taker In a business, inventors generate ideas, employees provide labor, and managers supervise. An entrepreneur transforms ideas into actual businesses.entrepreneur Exploring the World of Business SECTION 2.1

8. 7 Glencoe Accounting Unit 1 Chapter 2 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Role of Entrepreneurs There are pros and cons to being an entrepreneur. Exploring the World of Business SECTION 2.1

9. 8 Glencoe Accounting Unit 1 Chapter 2 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Traits of Entrepreneurs Most entrepreneurs:  are self-starters.  have organizational skills.  have marketing knowledge.  have accounting skills. Exploring the World of Business SECTION 2.1

10. 9 Glencoe Accounting Unit 1 Chapter 2 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Entrepreneur – Who, Me? Have you thought about owning a business? If so, you should ask yourself these questions:  Do you have good writing and speaking skills?  Are you creative or mechanical?  Are you a self-starter?  Do you have accounting or marketing skills? Exploring the World of Business SECTION 2.1

11. 10 Glencoe Accounting Unit 1 Chapter 2 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Types and Forms of Business In a free enterprise system, an entrepreneur can choose the type and form of business to run. Exploring the World of Business SECTION 2.1

12. 11 Glencoe Accounting Unit 1 Chapter 2 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Types of Business Operations There are three types of business operations:  Service businesses provide services for fees. Service businesses  Merchandising businesses buy and sell finished products. Merchandising businesses  Manufacturing businesses buy materials and make finished products. Manufacturing businesses Each type needs capital (money) from investors, banks, or business owners to begin.capital Exploring the World of Business SECTION 2.1

13. 12 Glencoe Accounting Unit 1 Chapter 2 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Forms of Business Organization Most U.S. businesses are organized in one of three ways:  sole proprietorship sole proprietorship  partnership partnership  corporation corporation Exploring the World of Business SECTION 2.1

14. 13 Glencoe Accounting Unit 1 Chapter 2 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Sole Proprietorship Sole means “single” and proprietor means “owner.” A sole proprietor is a single owner, but the operation may have many managers and employees. There are advantages and disadvantages to being a sole proprietor. Exploring the World of Business SECTION 2.1

15. 14 Glencoe Accounting Unit 1 Chapter 2 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Partnership When two people enter into an agreement to operate a business as co-owners, a partnership is formed. There are advantages and disadvantages to a partnership. Exploring the World of Business SECTION 2.1

16. 15 Glencoe Accounting Unit 1 Chapter 2 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Corporation A corporation often starts off as a sole proprietorship or partnership. In order to become a corporation an organization must obtain a charter (legal permission to operate).charter There are advantages and disadvantages to a corporation. Exploring the World of Business SECTION 2.1

17. 16 Glencoe Accounting Unit 1 Chapter 2 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 2, Section 2 Accounting: The Universal Language of Business What Do You Think? What kinds of financial decisions do you make? What information do you use to make decisions?

18. 17 Glencoe Accounting Unit 1 Chapter 2 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Main Idea The accounting system produces information used to make decisions. You Will Learn  how the accounting system works.  how decision makers use accounting reports.  three important accounting assumptions. Accounting: The Universal Language of Business SECTION 2.2

19. 18 Glencoe Accounting Unit 1 Chapter 2 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Key Terms  accounting system  manual accounting system  computerized accounting system  GAAP  financial reports  financial accounting  management accounting  business entity  accounting period  going concern Accounting: The Universal Language of Business SECTION 2.2

20. 19 Glencoe Accounting Unit 1 Chapter 2 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. The Accounting System The accounting system is designed to collect, document, and report on financial transactions.accounting system There are two types of accounting systems:  manual accounting system manual accounting system  computerized accounting system computerized accounting system Accountants must follow GAAP rules issued by the Financial Accounting Standards Board (FASB).GAAP Financial reports Financial reports contain a summary of the financial status of a business. Accounting: The Universal Language of Business SECTION 2.2

21. 20 Glencoe Accounting Unit 1 Chapter 2 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Using Accounting Reports for Making Business Decisions Accounting provides financial information about a business or organization. There are two groups that use accounting reports:  FINANCIAL ACCOUNTING  individuals outside the business who have an interest in the business  MANIGERIAL ACCOUNTING  individuals inside the business Accounting: The Universal Language of Business SECTION 2.2

22. 21 Glencoe Accounting Unit 1 Chapter 2 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Financial Accounting In financial accounting, reports are prepared for individuals outside the business.financial accounting Those interested in the financial accounting reports of a business include  investors,  the local, state, and federal government, and  employees, consumers, and competitors. Accounting: The Universal Language of Business SECTION 2.2

23. 22 Glencoe Accounting Unit 1 Chapter 2 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Management Accounting In management accounting, reports are prepared for managers inside the business.management accounting Financial accounting reports help a manager decide:  what to do,  how to do it,  when to do it, and  whether or not the results match the plans for the future. Accounting: The Universal Language of Business SECTION 2.2

24. 23 Glencoe Accounting Unit 1 Chapter 2 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Accounting Assumptions As mentioned before, all businesses follow GAAP, which includes three assumptions:  A business is a business entity, separate from its owner’s personal holdings.business entity  There is a set accounting period.accounting period  A business is expected to continue as a going concern, able to survive and operate indefinitely.going concern Accounting: The Universal Language of Business SECTION 2.2