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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
The amount of money earned
Profit Loss 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
entrepreneur
A person who
Entrepreneurs Investors transforms ideas for
Roles in products or services
a Business into real-world
businesses.

Managers Employees

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Glencoe Accounting Copyright by The McGraw-Hill Companies, Inc. All rights reserved.
 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 Marketing
Skills 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?

Are you creative or

mechanical?
Entrepreneur
Who, Me?
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 Merchandising Manufacturing

Business Business Business

manufacturing business
merchandising
service A business that buys raw
business
business materials, uses labor and
A business that buys
A business that machinery to transform them
finished products and
provides a into finished products, and
resells them to
needed service sells the finished products to
individuals or other
for a fee. individuals or other
businesses.
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 Partnership Corporation

Proprietorship

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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Glencoe Accounting Copyright by The McGraw-Hill Companies, Inc. All rights reserved.
 Types and Forms of
Businesses
Section 2.1 Exploring the World
of Business

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Glencoe Accounting Copyright by The McGraw-Hill Companies, Inc. All rights reserved.
 Types and Forms of
Businesses
Section 2.1 Exploring the World
of Business

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Glencoe Accounting Copyright by The McGraw-Hill Companies, Inc. All rights reserved.
 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 accounting period
system
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 computerized accounting system

When accounting information is When accounting information is
processed by hand. 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:

Local, state, and Employees,

Investors federal consumers, and
government competitors

financial accounting
The type of accounting that focuses on
reporting information to external users.

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Glencoe Accounting Copyright by The McGraw-Hill Companies, Inc. All rights reserved.
 Using Accounting Reports for
Making Business Decisions
Section 2.2 Accounting: The Universal
Language of Business

Purchasing decisions
Management accounting Hiring decisions
Production decisions
reports are prepared for Payments
managers involved in: 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
Business entity The accounting assumption that
a business exists independently
of its owners personal holdings.
Accounting period The accounting records and
reports are maintained separately
and contain financial information
related only to the business.
Going concern

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Glencoe Accounting Copyright by The McGraw-Hill Companies, Inc. All rights reserved.
 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
The accounting assumption that a
business is expected to operate
Going concern 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?

Calculate the total receipts.
Step 1 $650.00 + $500.00 = $1,150

Calculate the total expenditures.

Step 2 $75.98 + $477.50 + $380.00 + $123.76 = $1,057.24

Calculate the net profit (loss).

Step 3 $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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End of

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