the world of business and accounting making accounting relevant owning and operating a business...

The World of Business and AccountingThe World of Business and Accounting

Making Accounting Relevant

Owning and operating a business

takes special skills and traits.

Making Accounting Relevant

Owning and operating a business

takes special skills and traits.

What skills do you think are important for the person who owns and operates a business?

What skills do you think are important for the person who owns and operates a business?

Section 1Exploring the World of Business

Section 1Exploring the World of Business

What You’ll Learn

Profit and risk-taking.

The free enterprise system.

Starting and running your own business.

Three types of business operations.

Three forms of business organization.

What You’ll Learn

Profit and risk-taking.

The free enterprise system.

Starting and running your own business.

Three types of business operations.

Three forms of business organization.

Why It’s Important

In order to participate in the

world of business, you’ll want to

understand how businesses are

formed, organized, and operated.


In order to participate in the

world of business, you’ll want to

understand how businesses are

formed, organized, and operated.

Section 1 Exploring the World of Business (cont'd.)Section 1 Exploring the World of Business (cont'd.)


Key Terms free enterprise system profit loss entrepreneur capital service business merchandising business manufacturing business sole proprietorship partnership corporation charter

Key Terms free enterprise system profit loss entrepreneur capital service business merchandising business manufacturing business sole proprietorship partnership corporation charter

The Environment of Business

In a free enterprise system people are free to produce the goods and services they choose.

The Environment of Business

In a free enterprise system people are free to produce the goods and services they choose. Nike

IBM

local video rental store

clothing boutiques

local grocers

Tower Records

Nike

IBM

local video rental store

clothing boutiques

local grocers

Tower Records


The Need for Profit

The amount of money earned over

and above the amount spent to keep the

business operating is called profit.

Businesses that spend more money

than they earn operate at a loss.

The Need for Profit

The amount of money earned over

and above the amount spent to keep the

business operating is called profit.

Businesses that spend more money

than they earn operate at a loss.

The Need for a Risk-Taker

Entrepreneurs transform ideas for

products or services into real-world

businesses.

The Need for a Risk-Taker

Entrepreneurs transform ideas for

products or services into real-world

businesses.


Entrepreneurship: Who Me?

Have you ever considered owning a business?

Entrepreneurship: Who Me?

Have you ever considered owning a business?

Pros You are your own boss

You create opportunities for earning money.

You create and control your work schedule.

You choose the people you serve.

You select the people who work with you.

You benefit from the rewards of your own hard work.

You choose your own work hours.

Pros You are your own boss

You create opportunities for earning money.

You create and control your work schedule.

You choose the people you serve.

You select the people who work with you.

You benefit from the rewards of your own hard work.

You choose your own work hours.

Cons You probably need to work

long hours.

You lose the security of steady wages and medical benefits an employer provides.

You market your own services or products.

You pay for your own operating expenses.

You must be motivated and energetic each day.

You face the possibility of losing money.

Cons You probably need to work

long hours.

You lose the security of steady wages and medical benefits an employer provides.

You market your own services or products.

You pay for your own operating expenses.

You must be motivated and energetic each day.

You face the possibility of losing money.


Types of Business Operations

Service Businesses

Merchandising Businesses

Manufacturing Businesses

Types of Business Operations

Service Businesses

Merchandising Businesses

Manufacturing Businesses


Forms of Business OrganizationsForms of Business Organizations

Sole proprietorship

Partnership

Corporation

Sole proprietorship

Partnership

Corporation


Sole ProprietorshipSole Proprietorship

A business owned by one person.A business owned by one person.

Advantages:

Easy to set up

All profits go to owner

Owner has total control

Few regulations to

follow

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

Owner has all the risks

Hard to attract talented

employees

Disadvantages:

Limited expertise

Hard to raise money

Owner has all the risks

Hard to attract talented

employees


PartnershipPartnership

A business owned by two or more

persons, who agree to operate the

business as co-owners.

A business owned by two or more

persons, who agree to operate the

business as co-owners.

Advantages:

Easy to start

Skills and talents are pooled

More money available

Advantages:

Easy to start

Skills and talents are pooled

More money available

Disadvantages:

Conflicts between partners

Profits must be shared

Owners share all risks

Disadvantages:

Conflicts between partners

Profits must be shared

Owners share all risks


CorporationCorporation

A business organization that is

recognized by law to have a life of its

own.

A business organization that is

recognized by law to have a life of its

own.

Advantages: Easier to raise money

Easy to expand

Easy to transfer ownership

Losses limited to investment

Advantages: Easier to raise money

Easy to expand

Easy to transfer ownership

Losses limited to investment

Disadvantages: Costs more to start

up

Complex to organize

More regulations

Higher taxes

Disadvantages: Costs more to start

up

Complex to organize

More regulations

Higher taxes


Check Your UnderstandingCheck Your Understanding

Would you say that the

advantages of being an entrepreneur

outweigh the disadvantages or vice

versa? Why?

Would you say that the

advantages of being an entrepreneur

outweigh the disadvantages or vice

versa? Why?


You work as a sales clerk at the Gap. The fall

merchandise has come in, and the store manager

has asked you to price the crewneck sweaters at

25% over cost. A sweater costs 15 wholesale. What

is the retail price? With a 6 percent sales tax, what

is the cost of the sweater to the customer? If the

Gap sold 100 sweaters at that price, what would the

profit be?

You work as a sales clerk at the Gap. The fall

merchandise has come in, and the store manager

has asked you to price the crewneck sweaters at

25% over cost. A sweater costs 15 wholesale. What

is the retail price? With a 6 percent sales tax, what

is the cost of the sweater to the customer? If the

Gap sold 100 sweaters at that price, what would the

profit be?


Section 2Accounting: The Universal Language of Business

Section 2Accounting: The Universal Language of BusinessWhat You’ll Learn

How the accounting system works.

Who uses financial accounting reports.

Who uses management accounting reports.

How accounting is used to help make business decisions.

What assumptions provide the foundation for accounting systems.

What You’ll Learn How the accounting system works.

Who uses financial accounting reports.

Who uses management accounting reports.

How accounting is used to help make business decisions.

What assumptions provide the foundation for accounting systems.


Understanding accounting systems is

the key to understanding business.


Understanding accounting systems is

the key to understanding business.

Section 2 Accounting: The Universal Language of Business (cont'd.)


Key Terms accounting system

manual accounting system

computerized accounting system

GAAP

financial reports

Key Terms accounting system



GAAP

financial reports

financial accounting

management accounting

business entity

accounting period

going concern

financial accounting

management accounting

business entity

accounting period

going concern

The Accounting System

Designed to collect, document, and

report on financial transactions affecting

the business.

The Accounting System

Designed to collect, document, and

report on financial transactions affecting

the business.





generally accepted accounting

principles (GAAP)

financial reports



generally accepted accounting

principles (GAAP)

financial reports

How the Accounting System WorksHow the Accounting System Works



Inputs

SourceDocuments

Inputs

SourceDocuments

Processing

Tasks

Processing

Tasks

OutputsFinancial and Management Accounting

Reports

OutputsFinancial and Management Accounting

Reports Financial

condition

Results of operations

Investments by and distributions to owners

Financial condition

Results of operations

Investments by and distributions to owners

Analyzing

Classifying

Recording

Analyzing

Classifying

Recording

Checks

Invoices

Sales Slips

Receipts

Checks

Invoices

Sales Slips

Receipts

Using Accounting Reports for Making Business Decisions

There are two groups that use

accounting reports:

Using Accounting Reports for Making Business Decisions

There are two groups that use

accounting reports:



individuals outside the business

who have an interest in the

business

individuals inside the business

individuals outside the business

who have an interest in the

business

individuals inside the business

Financial Accounting

Financial accounting focuses on

reporting information to external users.

Financial Accounting

Financial accounting focuses on

reporting information to external users.



Who Uses Financial Accounting Reports?Who Uses Financial Accounting Reports? potential investors

individuals and institutions, such as banks, that loan money to a business

local, state, and federal governments

workers, consumers, union leaders, and competitors

potential investors

individuals and institutions, such as banks, that loan money to a business

local, state, and federal governments

workers, consumers, union leaders, and competitors

Management Accounting

Management accounting focuses

on reporting information to

management.

Management Accounting

Management accounting focuses

on reporting information to

management.



Managers Managers

Accounting AssumptionsAccounting Assumptions



business entity – the business records are held independently of personal financial activities

accounting period – most common is one year

going concern – assumes the business has the ability to survive and operate indefinitely

business entity – the business records are held independently of personal financial activities

accounting period – most common is one year

going concern – assumes the business has the ability to survive and operate indefinitely

Check Your Understanding

Consider creating an “accounting

system” for your personal finances.

Check Your Understanding

Consider creating an “accounting

system” for your personal finances.

1. How would you organize the system?

2. What inputs would there be?

3. How might you record your activities?

4. How might you report on those

activities?

1. How would you organize the system?

2. What inputs would there be?

3. How might you record your activities?

4. How might you report on those

activities?



the world of business and accounting making accounting relevant owning and operating a business...

Documents

world of business contd

business operating

partnershipa business

sole proprietorshipa

work hours

hard work

work schedule

free enterprise system