Accounting Chapter 2 section 1 Chapter 2: Exploring the business world

Objective: To learn more about the business environment Objective: To learn more about the business environment and how accounting relates the environment Goal: Our goal form this lesson is to know the three type of business operations and the three forms of business ownership.

Free enterprise system Free enterprise system – People are free to produce the goods and services they choose. Profit – The amount of money earned over and above the amount spent to keep the business operating Loss – If businesses spend more many than they earn

Entrepreneurship Entrepreneurs – transform ideas for products or services into real-world businesses The “Self-made” Man, or Woman

Three types of Business Operations Service Business Merchandising Business Manufacturing Business

Service Business Service Businesses provide a service for a fee Ex: Hair salons, Travel Agencies, Consulting Firms, Real Estate Agencies, etc.

Merchandising Business Merchandising business buys finished products and resells them to individuals or other businesses. Ex: JC Penney, Walmart, Target, etc.

Manufacturing Business Manufacturing businesses buy raw materials, such as wood or iron, and transforms them into finished products through labor and capital Think “Factory”….

Three types of Business Operations Service Business - provide a service for a fee Merchandising Business - Merchandising business buys finished products and resells them to individuals or other businesses. Manufacturing Business - Manufacturing businesses buy raw materials, such as wood or iron, and transforms them into finished products through labor and capital

Sole Proprietorship A business that is owned by one person Advantages Easy to set up All profits go to owner Owner has total control Few regulations to follow Disadvantages Limited Expertise Hard to raise money (capital) Owner has all of the risk (Liability) Hard to attract talented employees

Partnership A partnership is a business owned by two or more persons called partners. They 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 the risk (Liability)

Corporation A corporation is a business organization that is recognized by law to have a life of its own. Needs legal permission, called a charter, which gives a corporation certain rights and privileges A corporation is like its own person, the business is different than the owners

Corporation Advantages Easier to raise money (capital) (issue stocks) Easier to expand Easy to transfer ownership Losses limited to the investment Disadvantages Costs more to start up Complex to organize More regulation Higher taxes Double Taxation

Chapter 2, Section 2 Accounting: The Universal Language of Business

The Accounting System An Accounting System is designed to collect, document, and report on financial transactions affecting the business.

Financial Accounting The purpose of Financial Accounting is to report the companies earnings to the public through financial reports These reports are called Financial statements

Financial Statements Apple’s financial statements

GAAP “Generally Accepted Accounting Principles” It is pronounced as “GAP” These are the rules by which financial accounting

Managerial Accounting Focus on information for management, it is the accounting for internal users of accounting information.

Chapter 2 Vocab Business Entity – exists independently of its owner’s personal holdings Accounting period – A period of time covered by an accounting report Going concern – The assumption that a business will go on and survive forever