2. The accounting system produces information used by businesses to make decisions.
Glencoe Accounting
Glencoe Accounting
Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

3. Describe profit, risk-taking, and entrepreneurs.
Describe service, merchandising, and manufacturing businesses.
Compare the sole proprietorship, partnership, and corporate forms of businesses.
List the advantages and disadvantages of each form of business organization.
Describe the purpose of accounting.
Explain financial and management accounting.
Describe the three basic accounting assumptions.
Glencoe Accounting
Glencoe Accounting
Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

4. Key Terms free enterprise system profit loss entrepreneur capital
Exploring the World of Business
Section 2.1
Key Terms
free enterprise system
profit
loss
entrepreneur
capital
service business
merchandising business
manufacturing business
sole proprietorship
partnership
corporation
charter
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5. The Environment of Business
Exploring the World of Business
Section 2.1
free enterprise system
The activities that a person does well.
Free Enterprise System
profit
The amount of money earned over and above the amount spent to keep the business operating.
Profit
Loss
loss
When a business spends more money than it earns.
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6. The Environment of Business
Exploring the World of Business
Section 2.1
Operate at a profit
What a business needs to survive
An individual willing to take the risk
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7. The Environment of Business
Exploring the World of Business
Section 2.1
Inventors
entrepreneur
A person who transforms ideas for products or services into real-world businesses.
Investors
Entrepreneurs
Roles in a Business
Managers
Employees
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8. The Environment of Business
Exploring the World of Business
Section 2.1
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9. The Environment of Business
Exploring the World of Business
Section 2.1
Self-Starters
Organizational Skills
Traits of
Entrepreneurs
Accounting Skills
Marketing Knowledge
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10. The Environment of Business
Exploring the World of Business
Section 2.1
Do you have good writing and speaking skills?
Are you creative or mechanical?
Entrepreneur – Who, Me?
Are you a self-starter?
Do you have accounting or marketing skills?
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11. Types and Forms of Businesses
Exploring the World of Business
Section 2.1
Three Types of Business Operations
Service
Business
Merchandising
Business
Manufacturing
Business
manufacturing business
A 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.
merchandising business
A business that buys finished products and resells them to individuals or other businesses.
service business
A business that provides a needed service for a fee.
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12. Types and Forms of Businesses
Exploring the World of Business
Section 2.1 $
All types of businesses need capital to begin.
capital
Money that investors, banks, or business owners supply for a business to begin.
Glencoe Accounting

13. Types and Forms of Businesses
Exploring the World of Business
Section 2.1
Three Forms of Business Organization
Sole Proprietorship
Partnership
Corporation
sole proprietorship
A business owned by one person.
partnership
A business owned by two or more persons.
corporation
A business recognized by law to have a life of its own.
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14. Types and Forms of Businesses
Exploring the World of Business
Section 2.1
Advantages
Disadvantages
Easy to end the business
Difficult to manage
Being your own boss
Overwhelming time commitment
Pride of ownership
Few fringe benefits
No special taxes
Limited growth
Limited life span
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15. Types and Forms of Businesses
Unlimited Liability
Any debts or damages incurred by the business are your own personal debts.
(Even if you have to sell your home, car, etc.)
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16. Types and Forms of Businesses
Exploring the World of Business
Section 2.1
More advantages
More disadvantages
More financial resources
Unlimited liability
Shared management
Disagreements among partners
Longer survival
Difficult to terminate
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17. Types and Forms of Businesses
Exploring the World of Business
Section 2.1
charter
Legal permission to operate.
A corporation must obtain a charter.
More Advantages
More Disadvantages
Limited liability
Paperwork
Size
Perpetual life
Double taxation
Ease of drawing talented employees
Difficult to terminate
Separation of ownership from management
Possible conflict with board of directors
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18. Business Partner

19. How Should You Choose Your Business Partner?
Talk to successful and unsuccessful partnerships to see what works and what did not.
Interview prospective partner
Skills
What contacts, special attributes or resources can they contribute?
Evaluate kind of decision maker they are – will we get along?

20. 3 Types of Partnerships
General Partnership
Limited Partnership
Master Limited Partnership

21. 3 Types of Partnerships
1. A general partnership is one in which all owners share in operating the business and in assuming liability for the business’s debts.
50 / 50
40 / 60
30 / 30 / 40
25 / 25 / 25 / 25

22. 3 Types of Partnerships
2. Limited Partnership –
Is one with one or more general partners and one or more limited partners

23. General Partner
Owner
Unlimited Liability Active in managing the firm

24. Limited Partner owner Invests $ no management no liability
responsibility for losses

25. Limited Liability
The responsibility of a business’s owners for losses only up to the amount they invest; limited partners and shareholders have limited liability.

26. 3 Types of Partnerships
Master Limited Partnership (MLP) – looks like a corporation in that it acts like a corporation but is taxed like a partnership

27. Partnership Agreement
A written agreement that specifies the
who, what, when, where, how and why the partnership is formed so that no misunderstandings arise

28. Franchise
The right to use a specific business’s name and sell its products or services in a given territory
Franchisor – Company that develops a product
Franchisee – A person who buys the right
*must have a franchise agreement*

29. Franchise Advantages Disadvantages Management assistance
Larger start-up costs
Nationally recognized name
Marketing fees
Financial advice & assistance
Shared profit/royalty
Lower failure rate
Management regulation
Restrictions on selling
Competition from nearby franchises

30. Key Terms accounting system manual accounting system
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
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31. The Accounting System Manual Accounting System
Accounting: The Universal Language of Business
Section 2.2
Manual Accounting System
Two types of accounting systems
Computerized Accounting System
accounting system
Designed to collect, document, and report on financial transactions affecting the business.
manual accounting system
When accounting information is processed by hand.
computerized accounting system
When accounting information is processed by recording it into a computer.
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32. GAAP (generally accepted accounting principles)
The Accounting System
Accounting: The Universal Language of Business
Section 2.2
What Is
GAAP?
GAAP (generally accepted accounting principles)
The set of rules that all accountants use to prepare financial reports.
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33. financial reports? The Accounting System What Are financial reports
Accounting: The Universal Language of Business
Section 2.2
What Are
financial reports?
financial reports
Documents that present summarized information about the financial status of a business.
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34. Using Accounting Reports for Making Business Decisions
Accounting: The Universal Language of Business
Section 2.2
Individuals outside the business who have an interest in the business
Two groups that use accounting reports
Individuals inside the business
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35. Using Accounting Reports for Making Business Decisions
Accounting: The Universal Language of Business
Section 2.2
Those interested in the financial accounting reports of a business include:
Local, state, and federal government
Employees, consumers, and competitors
Investors
financial accounting
The type of accounting that focuses on reporting information to external users.
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36. Using Accounting Reports for Making Business Decisions
Accounting: The Universal Language of Business
Section 2.2
Purchasing decisions
Hiring decisions
Production decisions
Payments
Sales
Collections
Management accounting reports are prepared for managers involved in:
management accounting
The type of accounting that focuses on reporting information to management; often referred to as accounting for internal users of accounting information.
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37. Accounting Assumptions
Accounting: The Universal Language of Business
Section 2.2
GAAP Assumptions
business entity
The 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.
Business entity
Accounting period
Going concern
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38. Accounting Assumptions
Accounting: The Universal Language of Business
Section 2.2
GAAP Assumptions
accounting period
The period of time covered by an accounting report.
Business entity
Accounting period
going concern
The accounting assumption that a business is expected to operate indefinitely.
Going concern
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39. Step 1 Step 2 Step 3 Question 1
DePalm Pizza had the following cash transactions yesterday.
Receipts (money in): Checks: $650.00, Cash $500.00
Expenditures (money out): Gas and oil for delivery vehicle $75.98, supplies $477.50, salaries $380.00, and miscellaneous expenditures $
Did DePalm have a “profit” or “loss” for the day?
Step 1
Calculate the total receipts.
$ $ = $1,150
Step 2
Calculate the total expenditures.
$ $ $ $ = $1,057.24
Step 3
Calculate the net profit (loss).
$1, $1, = $92.76 profit (Receipts exceed expenditures)
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40. Question 2
Sole proprietorship is the most popular form of business ownership, yet very few large businesses are sole proprietorships. Give at least two reasons to explain this.
Sole proprietorships have the expertise of only the owner to call on. For example, the owner may be a great accountant but only a fair salesperson.
The business has the promise of only one owner to use to try to secure money from investors or lenders.
The owner bears all of the risk of loss, or unlimited liability. The owner could lose personal equity if the business fails.
The most talented potential employees would tend to prefer the job security of working in larger firms.
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41. End of