3. The Environment of Business Glencoe Accounting Exploring the World of Business Free Enterprise System Profit Loss free enterprise system People are free to produce goods and services. profit The amount of money earned over and above the amount spent to keep the business operating. loss When a business spends more money than it earns. Section 2.1

4. Types and Forms of Businesses Glencoe Accounting Exploring the World of Business Section 2.1 Three Types of Business Operations Service Business Merchandising Business Manufacturing Business service business A business that provides a needed service for a fee. merchandising business A business that buys finished products and resells them to individuals or other businesses. manufacturing business A business that buys raw materials, uses labor and machinery to transform them into finished products, and sells the finished products to individuals or other businesses.

5. Types and Forms of Businesses Glencoe Accounting Exploring the World of Business Section 2.1 $ All types of businesses need capital to begin. capital Money that investors, banks, or business owners supply for a business to begin.

6. Types and Forms of Businesses Glencoe Accounting 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. Exploring the World of Business Section 2.1 Three Types of Business Organization Sole Proprietorship Partnership Corporation

7. Types and Forms of Businesses Glencoe Accounting Exploring the World of Business Section 2.1

8. Types and Forms of Businesses Glencoe Accounting Exploring the World of Business Section 2.1

9. Types and Forms of Businesses Glencoe Accounting Exploring the World of Business A corporation must obtain a charter . charter Legal permission to operate. Section 2.1

11. The Accounting System Glencoe Accounting Accounting: The Universal Language of Business Section 2.2 Two types of accounting systems Manual Accounting System Computerized Accounting System accounting system Designed to collect, document, and report on financial transactions affecting the business. manual accounting system When accounting information is processed by hand. computerized accounting system When accounting information is processed by recording it into a computer.

12. The Accounting System Glencoe Accounting Accounting: The Universal Language of Business Section 2.2 GAAP (generally accepted accounting principles) The set of rules that all accountants use to prepare financial reports. What Is GAAP ?

13. The Accounting System Glencoe Accounting Accounting: The Universal Language of Business Section 2.2 What Are financial reports ? financial reports Documents that present summarized information about the financial status of a business.

14. Using Accounting Reports for Making Business Decisions Glencoe Accounting Accounting: The Universal Language of Business Section 2.2 Two groups that use accounting reports Individuals outside the business who have an interest in the business Individuals inside the business

15. Using Accounting Reports for Making Business Decisions Glencoe Accounting Accounting: The Universal Language of Business Section 2.2 Those interested in the financial accounting reports of a business include: Investors Local, state, and federal government Employees, consumers, and competitors financial accounting The type of accounting that focuses on reporting information to external users .

17. Accounting Assumptions Glencoe Accounting Accounting: The Universal Language of Business Section 2.2 GAAP Assumptions Business entity Accounting period Going concern business entity The accounting assumption that a business exists independently of its owner’s personal holdings. The accounting records and reports are maintained separately and contain financial information related only to the business.

18. Accounting Assumptions Glencoe Accounting Accounting: The Universal Language of Business Section 2.2 GAAP Assumptions Business entity Accounting period Going concern accounting period The period of time covered by an accounting report. going concern The accounting assumption that a business is expected to operate indefinitely.