The Environment of BusinessIn a Private Enterprise Economy people are free

to produce the goods and services they choose, and people are free to use their money as they wish.Income

Expenses

All the money that a business takes in.

All the money that a business spends.

Profit

Loss

When the amount of money earned is more that the amount of money spent it is called a profit.

When the amount of money spent is more that the amount of money earned it is called a loss.

Entrepreneur: A person who transforms ideas for products or services into real-world businesses.

Types of Businesses

Service Business

Merchandising Business

Manufacturing Business

Provide services at a fee.

Buys and sells finished

products.

Makes and sells finished

products.

Capital:

Money invested in a business.

Identifying Types of Businesses

Indicate whether each of the following businesses is a service business, a merchandising business, or

a manufacturing business.

Honda Motor Company Manufacturing

Joe’s Barber Shop

Macy*s

Larry’s Landscaping

Coca Cola Bottling Company

Service

Merchandising

Service

Manufacturing

Forms of BusinessesSole

Proprietorship

Partnership Corporation

A business owned by one

person.

A business owned by two or more

people.

A business organization that is recognized by law to have a life

of its own.Advantages

• easy to set up• all profits go to owner• owner has total control• few regulations to follow

• limited expertise• hard to raise money• owner has all the risk• hard to attract employees

Disadvantages

Advantages

• easy to start• skills and talents are pooled• more money available

Disadvantages• conflicts between partners• profits must be shared• owners share all risks

Advantages• easier to raise money• easy to expand• easy to transfer ownership• losses limited to investmentDisadvantages• costs more to start up• complex to organize• more regulations• higher taxesCharter:Legal permission to operate a corporation.

The Accounting SystemAccounting System:The process of recording and reporting

the financial information resulting from business transactions.

Manual Accounting System:System in which financial information is processed by hand.

Computerized Accounting System:

System in which financial information is processed using a computer.

Generally Accepted Accounting Principles:(GAAP)A set of rules used by accountants to prepare financial reports.

Financial Reports:Summarized information about the financial status of a business.

The Role of Accounting

Financial AccountingFocuses on reporting information to external users.

Steps in an Accounting System

collect

verify

analyze

record

classify

summarize

report

Managerial AccountingFocuses on reporting information to internal users.

Accounting Assumptions

Accounting is based on three basic assumptions about business operations.

Business Entity:An organization that exists independently of its owner’s personal holdings.

Going Concern: The assumption that a business will continue to operate in the future.

Fiscal Period: A period of time covered by an accounting report.

Homework

Textbook Page: 40 & 41 Workbook Page: 17 & 18Problem 2-4, Problem 2-5,Problem 2-6, & Problem 2-

7

Write a brief definition for each of the following terms:

1) Accounting Period

2) Accounting System

3) Business Entity

4) Charter

5) Computerized

Accounting System

6) Corporation

7) Entrepreneur

8) Financial Accounting

9) Financial reports

10)Free Enterprise

System

11)GAAP

12)Going Concern

13)Managerial Accounting

14)Manual Accounting

System

15)Manufacturing

Business

16)Merchandising

Business

17)Partnership

18)Service Business

19)Sole Proprietorship

Homework

Workbook Page: 18Ch 2 Review – Part 1 & 2Workbook Page: 23 & 24

Ch 2 Self-Test – Part A & B