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

http://finance.yahoo.com/q/bs?s=AAPL&annual

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