1 Introduction to Business in the United States CHAPTER F1 © 2007 Pearson Custom Publishing.
-
Upload
sofia-ruff -
Category
Documents
-
view
214 -
download
0
Transcript of 1 Introduction to Business in the United States CHAPTER F1 © 2007 Pearson Custom Publishing.
1
Introduction to Introduction to Business in the Business in the United StatesUnited States
CHAPTER F1
© 2007 Pearson Custom © 2007 Pearson Custom PublishingPublishing
2
Business (biz’nis), n. Business (biz’nis), n. 1. One’s work or occupation.1. One’s work or occupation.
2. A special task or duty.2. A special task or duty.
3. A matter or affair.3. A matter or affair.
4. Commerce or trade.4. Commerce or trade.
5. A commercial or industrial 5. A commercial or industrial establishment. establishment.
© 2007 Pearson Custom Publishing© 2007 Pearson Custom Publishing
3
Learning Objective 1:Learning Objective 1:
Describe the four Describe the four factors of productionfactors of production
© 2007 Pearson Custom Publishing© 2007 Pearson Custom Publishing
4
Factors of ProductionFactors of Production Natural resourcesNatural resources
land, timber, oil, metals, water, etc.land, timber, oil, metals, water, etc.
Labor– the human resource factor
Capital– money, buildings, equipment, tools, etc.
Entrepreneurship– the art of starting and running a
business
© 2007 Pearson Custom Publishing© 2007 Pearson Custom Publishing
5
Learning Objective 2:Learning Objective 2:
Explain the basic Explain the basic concepts of capitalism concepts of capitalism and how they relate to and how they relate to
the profit motive.the profit motive.
© 2007 Pearson Custom Publishing© 2007 Pearson Custom Publishing
6
In a In a planned economyplanned economy, the , the government generally controls all government generally controls all or most of the factors of or most of the factors of production.production.
Communism is the classic Communism is the classic example of a planned economy.example of a planned economy.
© 2007 Pearson Custom Publishing© 2007 Pearson Custom Publishing
Planned EconomiesPlanned Economies
7
Market EconomiesMarket Economies In a In a market economymarket economy, competition , competition
within the marketplace is considered within the marketplace is considered crucial to achieve efficiency in the crucial to achieve efficiency in the allocation of resources (the factors of allocation of resources (the factors of production).production).
Capitalism is the classic example of a Capitalism is the classic example of a market economy, also called “free market economy, also called “free enterprise,” “free market,” or a “private enterprise,” “free market,” or a “private enterprise” system.enterprise” system.
© 2007 Pearson Custom Publishing© 2007 Pearson Custom Publishing
8 © 2007 Pearson Custom Publishing© 2007 Pearson Custom Publishing
Profit MotiveProfit Motive
To understand the profit motive you To understand the profit motive you need to understand the basics of need to understand the basics of Cost-Cost-Benefit Analysis.Benefit Analysis.
Virtually all activities or actions involve Virtually all activities or actions involve a a “cost,”“cost,” monetary or otherwise. monetary or otherwise.
Most activities or actions have the Most activities or actions have the potential for potential for “benefit,”“benefit,” again not again not necessarily monetary.necessarily monetary.
9 © 2007 Pearson Custom Publishing© 2007 Pearson Custom Publishing
Cost-Benefit AnalysisCost-Benefit Analysis
Without extenuating circumstances, a Without extenuating circumstances, a person will generally do something person will generally do something only if the expected benefits are at least only if the expected benefits are at least equal to the estimated costs or equal to the estimated costs or sacrifice.sacrifice.
If the benefits were equal to the cost, If the benefits were equal to the cost, you would have a you would have a Break-evenBreak-even situation.situation.
When the benefits exceed the costs, When the benefits exceed the costs, you have a you have a ProfitProfit..
10 © 2007 Pearson Custom Publishing© 2007 Pearson Custom Publishing
Definitions of “Profit” Definitions of “Profit” TermsTerms
““Profit”Profit” is the excess of benefit over is the excess of benefit over cost.cost.
““Gross Profit”Gross Profit” is the difference is the difference between the cost to buy an item and between the cost to buy an item and the price charged when selling the the price charged when selling the item (i.e., “markup”).item (i.e., “markup”).
““Net Profit”Net Profit” or or “Net Income”“Net Income” is the is the final profit after subtracting all final profit after subtracting all legitimate costs of doing business legitimate costs of doing business from the sales and other inflows into from the sales and other inflows into the business.the business.
11
Learning Objective 3:Learning Objective 3:
Explain the basic issues in Explain the basic issues in the debate over whether the debate over whether businesses have a social businesses have a social
responsibility.responsibility.
© 2007 Pearson Custom Publishing© 2007 Pearson Custom Publishing
12 © 2007 Pearson Custom Publishing© 2007 Pearson Custom Publishing
Social Responsibility of Social Responsibility of BusinessBusiness
Many companies are displaying an Many companies are displaying an increasing awareness of their increasing awareness of their responsibility with regard to social responsibility with regard to social and environmental concerns.and environmental concerns.
An example of this would An example of this would
be the increased awareness be the increased awareness
of the “green” companies, those that of the “green” companies, those that are environmentally friendly.are environmentally friendly.
13 © 2007 Pearson Custom Publishing© 2007 Pearson Custom Publishing
StakeholdersStakeholders
A A stakeholderstakeholder is anyone who is is anyone who is affected by the way that a affected by the way that a company operates and the company operates and the decisions that are made inside decisions that are made inside that company. A company owes a that company. A company owes a responsibility to the stakeholders.responsibility to the stakeholders.
14
Learning Objective 4:Learning Objective 4:
Distinguish among the Distinguish among the three basic forms of three basic forms of
business organization business organization and describe the and describe the advantages and advantages and
disadvantages of each.disadvantages of each.© 2007 Pearson Custom Publishing© 2007 Pearson Custom Publishing
15 © 2007 Pearson Custom Publishing© 2007 Pearson Custom Publishing
Forms of Business Forms of Business OrganizationsOrganizations
Sole ProprietorshipsSole Proprietorships: : An An unincorporated business owned by a unincorporated business owned by a single individual. single individual.
Not necessarily a small business. The Not necessarily a small business. The vast majority of U.S. businesses are vast majority of U.S. businesses are sole proprietorships.sole proprietorships.
16 © 2007 Pearson Custom Publishing© 2007 Pearson Custom Publishing
Proprietorship Proprietorship AdvantagesAdvantages
Easy and inexpensive to set up.Easy and inexpensive to set up. No sharing of profits.No sharing of profits. Total control.Total control. Few government regulations.Few government regulations. No special income taxes.No special income taxes. Easy and inexpensive to dissolve.Easy and inexpensive to dissolve.
17 © 2007 Pearson Custom Publishing© 2007 Pearson Custom Publishing
Proprietorship Proprietorship DisadvantagesDisadvantages
Unlimited liability.Unlimited liability. Limited access to capital or money.Limited access to capital or money. Limited management expertise.Limited management expertise. Personal time commitment.Personal time commitment. Limited life.Limited life.
18 © 2007 Pearson Custom Publishing© 2007 Pearson Custom Publishing
Forms of Business Forms of Business OrganizationsOrganizations
Partnerships:Partnerships: An unincorporated An unincorporated business with two or more owners. business with two or more owners.
Most public accounting firms are Most public accounting firms are partnerships. Many professional sports partnerships. Many professional sports teams are partnerships, such as the teams are partnerships, such as the Boston Celtics.Boston Celtics.
19 © 2007 Pearson Custom Publishing© 2007 Pearson Custom Publishing
Partnership Partnership AdvantagesAdvantages
Easy to form.Easy to form. Increased management expertise.Increased management expertise. Access to more capital.Access to more capital. Few government regulations.Few government regulations. No special income taxes.No special income taxes. Greater business continuity.Greater business continuity.
20 © 2007 Pearson Custom Publishing© 2007 Pearson Custom Publishing
Partnership Partnership DisadvantagesDisadvantages
Unlimited liability.Unlimited liability. Sharing of profits.Sharing of profits. Difficulty in dissolving.Difficulty in dissolving. Potential conflicts between Potential conflicts between
partners.partners.
21 © 2007 Pearson Custom Publishing© 2007 Pearson Custom Publishing
Separate Entity Separate Entity AssumptionAssumption
For proper accounting to occur, For proper accounting to occur, business events and transactions business events and transactions must be separated from the must be separated from the personal events and transactions personal events and transactions of the owners. This is true for all of the owners. This is true for all forms of business organizations.forms of business organizations.
22 © 2007 Pearson Custom Publishing© 2007 Pearson Custom Publishing
Separate Entity Separate Entity AssumptionAssumption
Do not confuse a Do not confuse a separate separate accounting entityaccounting entity with a with a separate legal entityseparate legal entity. Only . Only corporations are legally separate corporations are legally separate from their owners.from their owners.
23
The Corporate FormThe Corporate Form
A corporation is an A corporation is an “artificial being,”“artificial being,” a legal entity separate and apart from a legal entity separate and apart from the owners (stockholders). A the owners (stockholders). A corporation can sue, and be sued. A corporation can sue, and be sued. A corporation can buy, own, and sell corporation can buy, own, and sell property.property.
© 2007 Pearson Custom © 2007 Pearson Custom PublishingPublishing
24 © 2007 Pearson Custom Publishing© 2007 Pearson Custom Publishing
Corporation AdvantagesCorporation Advantages
Limited liability.Limited liability. Greater access to Greater access to
capital.capital. Easy transferability of Easy transferability of
ownership.ownership. Continuity of life.Continuity of life. Greater management Greater management
expertise.expertise.
25
Corporation Corporation DisadvantagesDisadvantages
Greater tax burdenGreater tax burden (double (double
taxation).taxation). Greater Greater
governmental governmental regulation.regulation.
Absentee Absentee ownership. ownership.
26 © 2007 Pearson Custom Publishing© 2007 Pearson Custom Publishing
Other Business FormsOther Business Forms
Limited partnershipLimited partnership:: at least one at least one general partner with unlimited liability.general partner with unlimited liability.
Limited liability partnership (LLP)Limited liability partnership (LLP):: the the liability of the general partner is limited.liability of the general partner is limited.
Limited liability company (LLC)Limited liability company (LLC):: stockholders still enjoy the limited stockholders still enjoy the limited liability of a corporation, but they are liability of a corporation, but they are taxed as if they are partners (no double taxed as if they are partners (no double taxation).taxation).
27 © 2007 Pearson Custom Publishing© 2007 Pearson Custom Publishing
Discussion QuestionDiscussion Question
Imagine that you have the opportunity Imagine that you have the opportunity to start a company. Would you prefer to start a company. Would you prefer to be an owner (or part owner) of a to be an owner (or part owner) of a proprietorship, partnership, or proprietorship, partnership, or corporation? Cite specific reasons for corporation? Cite specific reasons for your choice.your choice.
Follow-up: Want to learn more about Follow-up: Want to learn more about starting a corporation? Try using the starting a corporation? Try using the Internet site Internet site www.delawareinc.comwww.delawareinc.com to to see how easy it is to set up a corporation see how easy it is to set up a corporation in that state.in that state.
28
Learning Objective 5:Learning Objective 5:
Distinguish among the Distinguish among the three major types of three major types of
business activities and business activities and define hybrid define hybrid businesses. businesses.
© 2007 Pearson Custom Publishing© 2007 Pearson Custom Publishing
29 © 2007 Pearson Custom Publishing© 2007 Pearson Custom Publishing
Types of BusinessesTypes of Businesses
Manufacturing CompaniesManufacturing Companies Merchandising CompaniesMerchandising Companies
Wholesalers and RetailersWholesalers and Retailers Service CompaniesService Companies Hybrid CompaniesHybrid Companies
Some combination of the aboveSome combination of the above
30
Learning Objective 6:Learning Objective 6:
Explain the basic need Explain the basic need for international for international
business trade and the business trade and the complications involved complications involved
in this activity.in this activity.
© 2007 Pearson Custom Publishing© 2007 Pearson Custom Publishing
31 © 2007 Pearson Custom Publishing© 2007 Pearson Custom Publishing
Global Nature of Global Nature of BusinessBusiness
Many businesses operate Many businesses operate within what is called the within what is called the global global economyeconomy..
Imports, exports, and theImports, exports, and the “balance of trade”“balance of trade” are all are all important factors in important factors in
determining a nation’s determining a nation’s
economic health.economic health.
32 © 2007 Pearson Custom Publishing© 2007 Pearson Custom Publishing
Economic Economic ComplicationsComplications
Companies involved in international Companies involved in international trade are often faced with many trade are often faced with many potential conflicts.potential conflicts.
Different currencies used around the Different currencies used around the world can cause problems in world can cause problems in determining the “value” of a deal determining the “value” of a deal between two companies. Currency between two companies. Currency must be “translated” or converted.must be “translated” or converted.
33 © 2007 Pearson Custom Publishing© 2007 Pearson Custom Publishing
Political ComplicationsPolitical Complications
Many countries impose Many countries impose quotasquotas to to limit imports. limit imports.
Some countries impose Some countries impose tariffs tariffs on on imports to raise tax revenue and imports to raise tax revenue and also to increase prices of imported also to increase prices of imported goods in relation to domestic goods in relation to domestic goods.goods.
34
Learning Objective 7:Learning Objective 7:
Define accounting and Define accounting and distinguish among the distinguish among the
different roles of different roles of accountants.accountants.
© 2007 Pearson Custom Publishing© 2007 Pearson Custom Publishing
35 © 2007 Pearson Custom Publishing© 2007 Pearson Custom Publishing
Accounting in the Accounting in the Business EnvironmentBusiness Environment
The purpose of The purpose of accounting is to accounting is to provide useful provide useful information to information to decision makers.decision makers.
36 © 2007 Pearson Custom Publishing© 2007 Pearson Custom Publishing
Definition of Definition of AccountingAccounting
Accounting is a system for Accounting is a system for analyzinganalyzing and and recordingrecording business transaction, business transaction, transformingtransforming the resultant data into the resultant data into information useful for decision information useful for decision making, and making, and reportingreporting to the proper to the proper stakeholders.stakeholders.
37 © 2007 Pearson Custom Publishing© 2007 Pearson Custom Publishing
Internal vs. External Internal vs. External Decision MakersDecision Makers
Internal: People within the organization Internal: People within the organization who make decisions who make decisions for the companyfor the company with almost with almost unlimitedunlimited information information..
External: People outside the organization External: People outside the organization who make decisions who make decisions about the companyabout the company with with limitedlimited information. information.
38 © 2007 Pearson Custom Publishing© 2007 Pearson Custom Publishing
Financial vs. Financial vs. Management Management AccountingAccounting
Financial: Provides historical financial Financial: Provides historical financial information to internal and external information to internal and external stakeholdersstakeholders..
Management: Provides detailed financial Management: Provides detailed financial and non-financial information to internal and non-financial information to internal decision makers.decision makers.
39 © 2007 Pearson Custom Publishing© 2007 Pearson Custom Publishing
AccountantAccountant
An information specialist who An information specialist who provides a variety of accounting provides a variety of accounting and consultation services to and consultation services to businesses and individuals.businesses and individuals.
40 © 2007 Pearson Custom Publishing© 2007 Pearson Custom Publishing
Development of the Development of the Accounting Accounting ProfessionProfession
The stock market crash of 1929 created The stock market crash of 1929 created a need for investors and lenders to make a need for investors and lenders to make prudent decisions about companies.prudent decisions about companies.
Congress enacted the Congress enacted the Securities Act of Securities Act of 19331933 and the and the Securities Exchange Act of Securities Exchange Act of 19341934 creating the Securities and creating the Securities and Exchange Commission (SEC).Exchange Commission (SEC).
41 © 2007 Pearson Custom Publishing© 2007 Pearson Custom Publishing
The SECThe SEC
Congress gave the SEC the Congress gave the SEC the authorityauthority to to establish accounting principles.establish accounting principles.
The SEC The SEC delegateddelegated the authority to the authority to establish accounting principles to the establish accounting principles to the accounting profession through the accounting profession through the Financial Accounting Standards Board Financial Accounting Standards Board (FASB).(FASB).
42 © 2007 Pearson Custom Publishing© 2007 Pearson Custom Publishing
Standards for Standards for Financial ReportingFinancial Reporting
Accounting is dynamic and Accounting is dynamic and changes with the natural evolution changes with the natural evolution of business and technology. of business and technology.
FASB continues to focus on issues FASB continues to focus on issues that affect financial reporting and that affect financial reporting and the needs of financial report users, the needs of financial report users, under the watchful eye of the SEC.under the watchful eye of the SEC.
43 © 2007 Pearson Custom Publishing© 2007 Pearson Custom Publishing
What is GAAP?What is GAAP? Guidelines for presentation of financial Guidelines for presentation of financial
accounting information designed to accounting information designed to serve external decision makers’ need serve external decision makers’ need for consistent and comparable for consistent and comparable information are known as information are known as Generally Generally Accepted Accounting Principles Accepted Accounting Principles (GAAP)(GAAP)..
Only Only pubicpubic companies must conform to companies must conform to GAAP.GAAP.
44 © 2007 Pearson Custom Publishing© 2007 Pearson Custom Publishing
““Publicly traded”Publicly traded” stock is listed on stock is listed on one of the national or regional one of the national or regional stock exchanges. stock exchanges.
Most banks and other lenders or Most banks and other lenders or creditors also request that financial creditors also request that financial statements be prepared in statements be prepared in accordance with GAAP.accordance with GAAP.
Who Is Bound by Who Is Bound by GAAP?GAAP?
45 © 2007 Pearson Custom Publishing© 2007 Pearson Custom Publishing
International Standards International Standards for Financial Reportingfor Financial Reporting The The International Accounting International Accounting
Standards BoardStandards Board (IASB) is (IASB) is responsible for development of responsible for development of international accounting international accounting standards. standards.
The IASB and the FASB work The IASB and the FASB work together to develop a unified together to develop a unified global set of standards.global set of standards.
46 © 2007 Pearson Custom Publishing© 2007 Pearson Custom Publishing
Accounting is a Accounting is a ProfessionProfession
Accounting is a profession as Accounting is a profession as evidenced by :evidenced by : a strict code of ethics a strict code of ethics code of professional conduct code of professional conduct continuing professional educationcontinuing professional education licensing by a governmental unit.licensing by a governmental unit.
47 © 2007 Pearson Custom Publishing© 2007 Pearson Custom Publishing
Certified Public Certified Public AccountantAccountant
An individual who meets An individual who meets educational and professional educational and professional criteria to be licensed by a state criteria to be licensed by a state board of accountancy.board of accountancy.
48 © 2007 Pearson Custom Publishing© 2007 Pearson Custom Publishing
Accountants’ RolesAccountants’ Roles
Assurance ServicesAssurance Services TaxationTaxation Consulting ServicesConsulting Services Management AccountingManagement Accounting
49 © 2007 Pearson Custom Publishing© 2007 Pearson Custom Publishing
Assurances ServicesAssurances Services
Requires Requires independence independence of the accountant of the accountant in fact and appearance.in fact and appearance.
AttestationAttestation: evaluation of one party’s : evaluation of one party’s assertion to a third party.assertion to a third party.
AuditingAuditing: process of gathering objective : process of gathering objective evidence, evaluating the evidence against evidence, evaluating the evidence against specific criteria, and reporting the results specific criteria, and reporting the results to users of information.to users of information.
50 © 2007 Pearson Custom Publishing© 2007 Pearson Custom Publishing
Financial Statement Financial Statement AuditAudit
An examination by an independent An examination by an independent CPA of enough of a company’s CPA of enough of a company’s records to determine whether the records to determine whether the financial statements were prepared financial statements were prepared in accordance with GAAPin accordance with GAAP and and demonstrate a fair representation of demonstrate a fair representation of the company’s financial conditionthe company’s financial condition..
51 © 2007 Pearson Custom Publishing© 2007 Pearson Custom Publishing
TaxationTaxation
CPAs help individuals and CPAs help individuals and businesses legally minimize tax businesses legally minimize tax assessments.assessments.
CPAs represent clients in matters CPAs represent clients in matters before IRS and state and local taxing before IRS and state and local taxing agents.agents.
52 © 2007 Pearson Custom Publishing© 2007 Pearson Custom Publishing
Consulting ServicesConsulting Services
CPA provides data, decision CPA provides data, decision information, and other advice to information, and other advice to help the client manage the help the client manage the business.business.
Requires expertise in a number Requires expertise in a number of business subjects.of business subjects.
53 © 2007 Pearson Custom Publishing© 2007 Pearson Custom Publishing
Management AccountingManagement Accounting
A chief financial officer (CFO) is the A chief financial officer (CFO) is the highest level of management highest level of management accountant who directs the firm’s accountant who directs the firm’s financial affairs. financial affairs.
Cost accounting is a narrow Cost accounting is a narrow application of management accounting application of management accounting to determine the cost of a to determine the cost of a manufactured product.manufactured product.
54 © 2007 Pearson Custom Publishing© 2007 Pearson Custom Publishing
Accountants’ Accountants’ ResponsibilitiesResponsibilities
Accountants with certifications must:Accountants with certifications must: Maintain expertise with continuing Maintain expertise with continuing
education.education. Maintain high ethical standards.Maintain high ethical standards. Meet their legal responsibilities to their Meet their legal responsibilities to their
clients and third parties who rely on clients and third parties who rely on financial information associated with the financial information associated with the CPA.CPA.
55
End of Chapter F1