Chapter 1 Business: What’s It All About? Chapter 1 Business: What’s It All About? Part 1

Purpose of a Business l ADD VALUE Make a PROFIT

A Simple Model of a Business

What are business processes ? What are business processes ? l A series of activities that a company performs to achieve its goals.

What are business processes? l A series of activities that a company performs to achieve its goals.  ACQUISITION / PAYMENT: acquire, maintain, and pay for the resources needed by the organization.

What are business processes? l A series of activities that a company performs to achieve its goals.  CONVERSION: covert the resources acquired into goods and services.

What are business processes? l A series of activities that a company performs to achieve its goals.  SALES / COLLECTIONS: sell and deliver goods and services to customers and to collect payment.

Types of Businesses l Service company-- provides a service for customers n Special case: financial services-- lSales Company-- n Merchandising--buys goods and resells them to other businesses (wholesale) or to final customers (retail)

Types of Businesses l Service company-- n provides a service for customers n Special case: financial services-- l Sales Company-- n Merchandising--buys goods and resells them to other businesses (wholesale) or to final customers (retail) n Manufacturing--makes a product and sells it

Examples: l Service n accountants, attorneys, physicians l Financial Service n Citicorp, Merrill Lynch, American Express l Merchandising n Wal-Mart, Safeway, The Gap l Manufacturing n General Motors, 3M, Reynolds Metals [Obviously, some businesses provide more than one of the functions listed above]

Ownership Structure of Businesses l Sole Proprietorship--a single owner business l Partnership--a multiple-owner business l Corporation--a business whose ownership is divided into "shares" and may be owned by a large number of people

Corporations l A corporation is a popular form of business because...

Corporations Ê It is simple for individuals to purchase small amounts of stock.

Corporations l A corporation is a popular form of business because... Ê It is simple for individuals to purchase small amounts of stock. Ë It allows for an easy transfer of ownership through established markets, like the New York Stock Exchange.

Corporations l A corporation is a popular form of business because... Ê It is simple for individuals to purchase small amounts of stock. Ë It allows for an easy transfer of ownership through established markets, like the New York Stock Exchange. Ì It provides stockholders with limited liability.

Corporations l Because a corporation is a separate legal entity, it can...

Corporations n Own assets.

Corporations l Because a corporation is a separate legal entity, it can... n Own assets. n Incur liabilities.

Corporations l Because a corporation is a separate legal entity, it can... n Own assets. n Incur liabilities. n Sue and be sued.

Corporations l Because a corporation is a separate legal entity, it can... n Own assets. n Incur liabilities. n Sue and be sued. n Enter into contracts independent of the stockholder owners.

Corporations l Because a corporation is a separate legal entity, it can... n Own assets. n Incur liabilities. n Sue and be sued. n Enter into contracts independent of the stockholder owners. l Many Americans own stock through a mutual fund or pension program.

Issues in deciding between sole proprietorship, partnership, or corporation l Personal liability l Taxation l Transfer of ownership l Ability to raise capital l Government regulation Characteristics of Different Forms of Business Organization

Ownership of a Corporation l Owners of common stock generally receive the following rights:

Ownership of a Corporation l Owners of common stock generally receive the following rights: n Voting (in person or by proxy).

Ownership of a Corporation l Owners of common stock generally receive the following rights: n Voting (in person or by proxy). n Distributions of profits.

Ownership of a Corporation l Owners of common stock generally receive the following rights: n Voting (in person or by proxy). n Distributions of profits. n Distributions of assets in a liquidation.

Ownership of a Corporation l Owners of common stock generally receive the following rights: n Voting (in person or by proxy). n Distributions of profits. n Distributions of assets in a liquidation. n Offers to purchase shares of a new stock issue (pro rata basis).

Creating a Corporation l State laws govern the creation of corporations. l An application for a charter (or articles of incorporation) must include the corporation’s name and purpose, kinds and amounts of capital stock authorized, and other detailed information.

Creating a Corporation Once the state issues a charter, the stockholders elect a board of directors.

What do all businesses have in common? l No matter what the ownership structure of a business, they all have at least two main business processes:

What do all businesses have in common? l No matter what the ownership structure of a business, they all have at least two main business processes: p Acquisition/Payment p Sales/Collection

Acquisition/payment process Activity Possible Documents l Identify need for goods/ services l Purchase requisition

Acquisition/payment process Activity Possible Documents l Identify need for goods/ services l Identify vendor l Purchase requisition l Purchase order Order goods/ services

Acquisition/payment process Activity Possible Documents l Identify need for goods/ services l Identify vendor Order goods/ services l Receive and inspect goods l Purchase requisition l Purchase order l Receiving report

Acquisition/payment process Activity Possible Documents l Identify need for goods/ services l Identify vendor Order goods/ services l Receive and inspect goods l Pay for goods or services l Purchase requisition l Purchase order l Receiving report l Check requisition l Check

Sales/collection process l Customer places an order (Customer order)

Sales/collection process l Customer places an order (Customer order) l Customer’s credit is approved

Sales/collection process l Customer places an order (Customer order) l Customer’s credit is approved l Warehouse selects goods for shipment (Picking slip)

Sales/collection process l Customer places an order (Customer order) l Customer’s credit is approved l Warehouse selects goods for shipment (Picking slip) l Goods are shipped (Packing slip) (Shipping notice)

Sales/collection process l Customer places an order (Customer order) l Customer’s credit is approved l Warehouse selects goods for shipment (Picking slip) l Goods are shipped (Packing slip) (Shipping notice) l Customer is billed for goods (Invoice)

Sales/collection process l Customer places an order (Customer order) l Customer’s credit is approved l Warehouse selects goods for shipment (Picking slip) l Goods are shipped (Packing slip) (Shipping notice) l Customer is billed for goods (Invoice) l Payment for goods is received (Check)

Business Transactions l Business transactions are exchanges. l The two transactions that make up an “exchange” are the GIVE part and the GET part. l The exchange occurs between the business entity and a person or business external to the entity. l The business gives something and then gets something in return.

Resources, Events, and Agents l We can model an exchange with these three components: n the resources are the things being exchanged (goods or services for money) n the event describes the business action (e.g. cash disbursement, sale, etc.) n the agents are the people involved in the exchange (e.g., the customer)

An example: a business sells an alarm clock for a cash: Resources Events Agents

An example: a business sells an alarm clock for a cash: Resources Events Agents Sale

An example: a business sells an alarm clock for a cash: Resources Events Agents Sale clock

An example: a business sells an alarm clock for a cash: Resources Events Agents Sale clock salesperson customer

An example: a business sells an alarm clock for a cash: Resources Events Agents Sale clock salesperson customer Cash collection

An example: a business sells an alarm clock for a cash: Resources Events Agents Sale clock salesperson customer Cash collection cash

An example: a business sells an alarm clock for a cash: Resources Events Agents Sale clock salesperson customer Cash collection cash customer

An example: a business sells an alarm clock for a cash: Resources Events Agents Sale clock salesperson customer Cash collection cash customer cashier

Who needs accounting information? A) Management

Who needs accounting information? A) Management B) Those with a direct financial interest n Present or potential investors n Present or potential creditors

Who needs accounting information? C)Those with an indirect financial interest n Tax Authorities n Regulatory Agencies n Economic Planners n Labor unions, financial advisors, others.

Who needs accounting information? C)Those with an indirect financial interest n Tax Authorities n Regulatory Agencies n Economic Planners n Labor unions, financial advisors, others. D) Employees

Financial Accounting Information Information related to: Sales the company’s information system

Financial Accounting Information Information related to: Sales Purchases the company’s information system

Financial Accounting Information Information related to: Sales Purchases Collections the company’s information system

Financial Accounting Information Information related to: Sales Purchases Collections Payments the company’s information system

Financial Accounting Information Information related to: Sales Purchases Collections Payments the company’s information system Various views of the data:

Financial Accounting Information Information related to: Sales Purchases Collections Payments the company’s information system Various views of the data: Financial data for external reports

Financial Accounting Information Information related to: Sales Purchases Collections Payments the company’s information system Various views of the data: Financial data for external reports Production information

Financial Accounting Information Information related to: Sales Purchases Collections Payments the company’s information system Various views of the data: Financial data for external reports Production information Customer and vendor information