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The accounting system produces
information used by businesses to
make decisions.
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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.
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Section 2.1
Exploring the World
of Business
Key Terms
free enterprise system
merchandising business
profit
manufacturing business
loss
sole proprietorship
entrepreneur
partnership
capital
corporation
service business
charter
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The Environment of Business
Section 2.1
Exploring the World
of Business
free enterprise system
The activities that a person
does well.
Free Enterprise
System
Profit
Loss
profit
The amount of money earned
over and above the amount spent
to keep the business operating.
loss
When a business spends more
money than it earns.
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The Environment of Business
Section 2.1
Exploring the World
of Business
Operate at a
profit
What a business
needs to survive
An individual willing
to take the risk
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The Environment of Business
Section 2.1
Exploring the World
of Business
Inventors
Entrepreneurs
Roles in
a Business
Managers
Investors
entrepreneur
A person who
transforms ideas for
products or services
into real-world
businesses.
Employees
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The Environment of Business
Section 2.1
Exploring the World
of Business
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The Environment of Business
Section 2.1
Exploring the World
of Business
Self-Starters
Organizational
Skills
Traits of
Entrepreneurs
Accounting
Skills
Marketing
Knowledge
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The Environment of Business
Section 2.1
Exploring the World
of Business
Do you have good writing
and speaking skills?
Entrepreneur –
Who, Me?
Are you creative or
mechanical?
Are you a self-starter?
Do you have accounting or
marketing skills?
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Types and Forms of
Businesses
Section 2.1
Exploring the World
of Business
Three Types of Business Operations
Service
Business
service
business
A business that
provides a
needed service
for a fee.
Merchandising
Business
merchandising
business
A business that buys
finished products and
resells them to
individuals or other
businesses.
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.
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Types and Forms of
Businesses
Section 2.1
Exploring the World
of Business
$
All types of businesses need capital to begin.
capital
Money that investors, banks, or
business owners supply for a
business to begin.
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Types and Forms of
Businesses
Section 2.1
Exploring the World
of Business
Three Types 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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Types and Forms of
Businesses
Section 2.1
Exploring the World
of Business
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Glencoe Accounting
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Types and Forms of
Businesses
Section 2.1
Exploring the World
of Business
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Glencoe Accounting
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Types and Forms of
Businesses
Section 2.1
Exploring the World
of Business
A corporation must obtain a charter.
charter
Legal permission to operate.
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Section 2.2 Accounting: The Universal
Language of Business
Key Terms
accounting system
management accounting
manual accounting system
business entity
computerized accounting
system
accounting period
going concern
GAAP
financial reports
financial accounting
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The Accounting System
Section 2.2 Accounting: The Universal
Language of Business
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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The Accounting System
Section 2.2 Accounting: The Universal
Language of Business
What Is
GAAP?
GAAP (generally accepted accounting principles)
The set of rules that all accountants use to prepare
financial reports.
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The Accounting System
Section 2.2 Accounting: The Universal
Language of Business
What Are
financial reports?
financial reports
Documents that present summarized information
about the financial status of a business.
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Using Accounting Reports for
Making Business Decisions
Section 2.2 Accounting: The Universal
Language of Business
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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Using Accounting Reports for
Making Business Decisions
Section 2.2 Accounting: The Universal
Language of Business
Those interested in the financial accounting reports of a business include:
Investors
Local, state, and
federal
government
Employees,
consumers, and
competitors
financial accounting
The type of accounting that focuses on
reporting information to external users.
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Using Accounting Reports for
Making Business Decisions
Section 2.2 Accounting: The Universal
Language of Business
Management accounting
reports are prepared for
managers involved in:
Purchasing decisions
Hiring decisions
Production decisions
Payments
Sales
Collections
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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Accounting Assumptions
Section 2.2 Accounting: The Universal
Language of Business
GAAP Assumptions
Business entity
Accounting period
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.
Going concern
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Accounting Assumptions
Section 2.2 Accounting: The Universal
Language of Business
GAAP Assumptions
Business entity
accounting period
The period of time covered by
an accounting report.
Accounting period
Going concern
going concern
The accounting assumption that a
business is expected to operate
indefinitely.
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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
$123.76.
Did DePalm have a “profit” or “loss” for the day?
Step 1
Calculate the total receipts.
$650.00 + $500.00 = $1,150
Step 2
Calculate the total expenditures.
$75.98 + $477.50 + $380.00 + $123.76 = $1,057.24
Step 3
Calculate the net profit (loss).
$1,150.00 - $1,057.24 = $92.76 profit (Receipts exceed expenditures)
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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.
1. 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.
2. The business has the promise of only one owner to use to try to
secure money from investors or lenders.
3. The owner bears all of the risk of loss, or unlimited liability. The
owner could lose personal equity if the business fails.
4. The most talented potential employees would tend to prefer the job
security of working in larger firms.
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