Copyright © 2015 by the McGraw-Hill Companies, Inc. All ri.docx

Copyright © 2015 by the McGraw-Hill Companies, Inc. All
rights reserved.
McGraw-Hill/Irwin
Understanding Accounting and
Financial Information
CHAPTER 17
*
LEARNING OBJECTIVES
17-*Demonstrate the role that accounting and financial
information play for a business and its stakeholders.Identify the
different disciplines within the accounting profession.List the
steps in the accounting cycle, distinguish between accounting
and bookkeeping, and explain how computers are used in
accounting.
*

LEARNING OBJECTIVES
17-*Explain how the major financial statements
differ.Demonstrate the application of ratio analysis in reporting
financial information.
*
JOHN RAFTERY
Patriot Contractors
17-*Served in the Marines and used his G.I. Bill to study
accounting.Completed an entrepreneurship program for veterans
and launched Patriot Contractors.He credits his knowledge of
accounting with the growth of his business.
*
NAME that COMPANY
17-*
Accounting software makes financial information available
whenever the organization needs it. We specialize in software
that addresses the accounting needs of small businesses that are
often very different from major corporations.
Name that company!

Companies: Intuit’s QuickBooks
*
WHAT’S ACCOUNTING?
17-*
LO 17-1Accounting -- Recording, classifying, summarizing and
interpreting of financial events and transactions in an
organization to provide interested parties needed financial
information.Outside parties - like employees, owners, creditors,
unions, investors and the government - make use of a firm’s
accounting information.
See Learning Objective 1: Demonstrate the role financial
information and accounting plays for a business and its
stakeholders.
The ACCOUNTING SYSTEM
17-*
LO 17-1
stakeholders.
For students who are not taking an accounting class, this slide

can help them understand an accounting system from a
production perspective:
*Inputs - Sales documents, purchasing documents, payroll
records travel expenses, etc.
*Processing – Entries are made to journals; then transferred into
ledgers; and finally summarized and reviewed to compile a trial
balance.
*Outputs – Development of financial statements, such as the
balance sheet, income statement, and statement of cash flows,
prepared for management personnel within the company, as well
as interested parties outside the company.
It is very important for students to understand the importance
of integrity when calculating numbers. Generally Accepted
Accounting Principles (GAAP) outlines procedures that are
generally accepted in the accounting field. Ask students: What
role did questionable accounting procedures play with Enron,
Fannie Mae, and World Com?
ACCOUNTANTS’
RESPONSIBILITIES
17-*
LO 17-1
stakeholders.
Accountants’ ResponsibilitiesOne of the biggest uses of
accountants by business is taxes and auditing. Explain to the
class that the theme of “integrity of numbers” is critical for

business.In addition to the reasons listed on the slide,
accountants can offer businesses the following value-added
services:Getting complete visibility of processesSeeing the true
cost of a process or part of a processSeeing the cost of process
changes, volume changes, headcount, wastage, scrap, rejects,
non-conformance, downtimeSeeing costs by job and by
departmentSeeing and comparing costs of outsourcingMapping
business processes, organization-wide or job specificUsing
scenario analysis to see how re-engineering will affect
resources such as costs and headcounts
Chart1Cash Mgmt. & ForecastingMarket Strategy &
PlanningPersonal Financial PlanningValuation, Merger,
AcquistionTax/Auditing
Sales
0.3
0.22
0.22
0.19
0.95
Sheet1SalesCash Mgmt. & Forecasting30%Market Strategy &
Planning22%Personal Financial Planning22%Valuation, Merger,
Acquistion19%Tax/Auditing95%To resize chart data range, drag
lower right corner of range.
MANAGERIAL ACCOUNTING
17-*
LO 17-2Managerial Accounting -- Provides information and
analysis to managers inside the organization to assist them in
decision making.Managerial accounting is involved with:Costs
of productionCosts of marketing Preparation and control of
budgetsMinimizing tax liabilities

See Learning Objective 2: Identify the different disciplines
within the accounting profession.
USERS of ACCOUNTING INFORMATION
17-*
LO 17-2
1. This slide (based on Figure 17.2) gives the student an
overview of the importance of accounting information when
managing a business. Accounting procedures are the foundation
for controlling mechanisms that businesses put in place to
measure performance and plan for the future. Accounting
influences decisions for managers in the following
ways:Understanding cost behavior and perform cost-volume
profit analysisUsing cost allocation in planning and
controlUsing job-order-costing and process-costing to track the
flow of costs to productsUsing relevant information to make
marketing and production decisionsUsing capital budgeting
techniques to make long-term capital investment decisions
2. Accounting information can improve a company’s ability to
compete by:Using competitor information and sales analysis to
bring new concepts to the financial planning processLearning to
spot financial trends to predict strategic business
decisionsLearning how to integrate technology into decision-
making

3. Explain to the students the most important point of using
accounting information to influence decision-making is to make
sure you have the RIGHT information, at the RIGHT time and
in the RIGHT format.
FINANCIAL ACCOUNTING
17-*
LO 17-2Financial Accounting -- Financial information and
analyses are generated for people primarily outside the
organization. Outside users are interested in these questions:Is
the organization profitable?Is it able to pay its bills?How much
debt does it owe?Annual Report -- A yearly statement of the
financial condition, progress, and expectations of the firm.
Key things to watch for and read:
HOW to READ
an ANNUAL REPORT
17-*
LO 17-2Management’s discussion and analysis of
operationsBalance sheetIncome statementStatement of cash
flowsAuditor’s opinion

This slide presents the key areas to read when analyzing a
company’s annual report. It is important that students
understand that the annual report is more than a balance sheet
but contains different areas which are just as important. The
auditor’s opinion is a critical area for students to understand.
Basically there are four different types of opinion letters that
can be submitted. They are: Unqualified opinion - An
unqualified opinion letter involves a certification made by the
independent CPA firm that the company's financial statements
were prepared in conformity with Generally Accepted
Accounting Principles [GAAP], and fairly represented the firm's
financial condition on the statement date. Qualified opinion - A
qualified auditor's opinion letter is one in which the CPA has
included one or more specific qualifications to its assurance that
the customer's financial statements follow GAAP. This means
that one or more irregularities were found, and that the
customer could not or would not correct these irregularities.
Adverse opinion – This is the most serious of all the opinion
letters that can accompany a customer's financial statements.
When a CPA firm discovers information during the course of its
audit that demonstrates material noncompliance with GAAP
accounting rules, the CPA may choose to submit an adverse
opinion letter to accompany the financial statements of the
company under review. Disclaimer of opinion - Due to scope
limitations, a CPA may be unwilling to express any opinion
about the accuracy of a customer's financial statements. A
disclaimer of opinion letter means the CPA does not assume
responsibility for the accuracy of the company's financial
statements. (Source: www.encyclopediaofcredit.com)
PUBLIC vs. PRIVATE

ACCOUNTANTS
17-*
LO 17-2Private Accountants -- Work in a single firm,
government agency, or nonprofit organization.Public
Accountants -- Provide accounting services to individuals or
businesses.Certified Public Accountants (CPAs) -- Accountants
who have passed a series of examinations established by the
American Institute of Certified Public Accountants (AICPA)
and met a states requirements for education and experience.
This slide helps highlight the difference in public and private
accounting. This may be a good time to discuss what accounting
or finance careers will do for students:Develop them into a well
rounded business executivesHelp them learn how to analyze and
forecast financial goals through utilization of historical data,
competitor information and financial data/informationMake an
impression at a multi-billion dollar corporationSee the company
increase its financial vitality by being a part of the financial
planning and reporting process
WAYS to IMPROVE
ACCOUNTING PRACTICES
17-*
Source: www.soxlaw.com, accessed November 2014.
LO 17-2

This slide charts ways to improve the accounting practice. If the
events of the last ten years have taught us anything, it is that
accurate financial data is critical for creditors, investors and
managers to make informed decisions. The federal government
has reacted with the passage of Sarbanes-Oxley. This law which
went into effect in 2002 and has five major components:Section
302 - Periodic statutory financial reports are to include
certifications that: The signing officers have reviewed the
report; the report does not contain any material untrue
statements or material omission or be considered misleading;
the financial statements and related information fairly present
the financial condition and the results in all material respects;
the signing officers are responsible for internal controls and
have evaluated these internal controls within the previous
ninety days and have reported on their findings; a list of all
deficiencies in the internal controls and information on any
fraud that involves employees who are involved with internal
activities; and any significant changes in internal controls or
related factors that could have a negative impact on the internal
controlsSection 401 - Financial statements published by issuers
are required to be accurate and presented in a manner that does
not contain incorrect statements.Section 404 - Issuers are
required to publish information in their annual reports
concerning the scope and adequacy of the internal control
structure and procedures for financial reporting.Section 409 -
Issuers are required to disclose to the public, on an urgent basis,
information on material changes in their financial condition or
operations.Section 802 - Imposes penalties or fines and/or up to
20 years imprisonment for altering, destroying, mutilating,
concealing, falsifying records, documents or tangible objects
with the intent to obstruct, impede or influence a legal
investigation.

(Source: www.soxlaw.com)
Chart1Review/Change Current ProceduresCreate/Expand
Internal AuditsHire Independent Firm for ConsultingRestructure
Executive Compensation Plans
Sales
0.44
0.36
0.23
0.08
Sheet1SalesReview/Change Current
Procedures44%Create/Expand Internal Audits36%Hire
Independent Firm for Consulting23%Restructure Executive
Compensation Plans8%To resize chart data range, drag lower
right corner of range.
DODD-FRANK ACT
17-*
Photo Credit: Nancy Pelosi
LO 17-2Dodd-Frank Wall Street Reform and Consumer
Protection Act increased financial regulation by increasing the
power of the Public Company Accounting Oversight Board.Act
was brought on by the recent financial crisis.
AUDITING CHECKS ACCURACY

17-*
LO 17-2Auditing -- Reviewing and evaluating the information
used to prepare a company’s financial statements.Independent
Audit -- An evaluation and unbiased opinion about the accuracy
of a company’s financial statements.Certified Internal Auditors
(CIAs) -- Accountants who have a bachelor’s degree and two
years of experience in internal auditing and pass an exam
administered by the Institute of Internal Auditors.
ELEMENTARY,
MR. AUDITOR, ELEMENTARY
17-*
Fraud damages businesses, no matter the size.The SEC has
committed itself to fighting fraud but not all auditors and CPAs
are trained in finding fraud.Colleges are offering advanced
degrees in forensic accounting to meet the upcoming demand
for these accountants.
Tax Accountants -- Accountants trained in tax law and are
responsible for preparing tax returns or developing tax
strategies.

SPECIALIZED ACCOUNTANTS
17-*
LO 17-2Government and Not-for-Profit Accounting -- Support
for organizations whose purpose is not generating a profit, but
serving others according to a duly approved budget.
TEST PREP
17-*
What’s the key difference between managerial and financial
accounting?How’s the job of a private accountant different from
that of a public accountant?What’s the job of an auditor?
What’s an independent audit?
Managerial accounting provides information and analysis to the
managers inside the organization and helps them make better
informed decisions. Managerial accounting is concerned with
measuring and reporting cost of production, marketing, and
other functions such as preparing budgets; making sure business
units stay within their budgets and designing strategies to
minimize taxes. Financial accounting differs from managerial
accounting in that financial accounting generates information
for people primarily outside the organization.
The private accountant works for a single firm, government
agency, or nonprofit organization. While public accountants
work for accounting firms that provide accounting services for a
fee. Public accountants provide services to individuals or
businesses that include designing an accounting system,
selection of software to run the accounting system. and

analyzing an organization’s financial performance.
Auditors are responsible for examining the financial health of
the organization as well as looking into the operational
effectiveness and efficiencies of the organization. An
independent audit is an audit conducted by public accounts who
provide an evaluation and unbiased opinion about the accuracy
of a company’s financial statements.
The ACCOUNTING CYCLE
17-*
LO 17-3Accounting Cycle -- A six-step procedure that results in
the preparation and analysis of the major financial statements.
See Learning Objective 3: List the steps in the accounting cycle,
distinguish between accounting and bookkeeping, and explain
how computers are used in accounting.
With this slide (based on Figure 17.4) students are provided
with the step-by-step progression of the accounting cycle.
Place particular emphasis on the accounting cycle to give the
student an overview of reporting requirements. To start a
discussion with students ask the following questions before
showing the next few slides:Can you explain the differences
between accounting and bookkeeping?What’s the difference
between an accounting journal and a ledger?Why does a
bookkeeper prepare a trial balance?
BOOKKEEPER’S ROLE

17-*
LO 17-3Bookkeeping -- The recording of business transactions.
Bookkeepers divide a firm’s transactions into meaningful
categories and post them into a record book or computer
program called a journal.Double-Entry Bookkeeping --
Bookkeepers record all transactions in two places so they can
check one list of transactions against the other for accuracy.
BOOKKEEPER’S TOOLS
17-*
LO 17-3Ledger -- A specialized accounting book or program
where all information is in one place. Trial Balance -- A
summary of all the information in the account ledgers.
TECHNOLOGY and ACCOUNTING
17-*
LO 17-3Computerized accounting programs post information

instantly and from remote locations.Intuit’s QuickBooks address
the specific needs of small businesses.
TEST PREP
17-*
How is the job of the bookkeeper different from an
accountant?What’s the purpose of accounting journals and a
ledger?Why does a bookkeeper prepare a trial balance?How has
computer software helped businesses in maintaining and
compiling accounting information?
A bookkeeper classifies and summarizes the firm’s financial
data; while accountants interpret the data, prepare financial
statements, and report the information to management.
The purpose of accounting journal is to divide the firm’s
transactions into meaningful categories to keep information
organized and manageable. A ledger transfers information from
an accounting journal so managers can find information about a
single account in one place.
A bookkeeper prepares a trial balance to ensure the figures in
the account ledgers are correct and balanced.
Computer software post information from journals
instantaneously even from remote locations so financial
information is readily available whenever the organization
needs it.

Financial Statement -- A summary of all the financial
transactions that have occurred over a particular period.
FINANCIAL STATEMENTS
17-*
LO 17-3Key financial statements of business are:Balance
sheetIncome statementStatement of cash flows
See Learning Objective 4: Explain how the major financial
statements differ.
Students often do not understand that financial statements are
more than a balance sheet but incorporate the income statement
and statement of cash flows.
The FUNDAMENTAL
ACCOUNTING EQUATION
17-*
LO 17-4Fundamental Accounting Equation -- The basis for the
balance sheet.The equation must always be balanced and
includes the formula:Assets = Liabilities + Owners Equity
statements differ.
*

The BALANCE SHEET
17-*
LO 17-4Balance Sheet -- The financial statement that reports a
firm’s financial condition at a specific time.
statements differ.
See Figure 17.5 in the text for a sample Balance Sheet for Very
Vegetarian.
ASSETS
17-*
LO 17-4Assets -- Economic resources owned by a firm. Items
can be tangible or intangible. Liquidity -- Ease with which
assets can be converted into cash.
statements differ.
CLASSIFYING ASSETS
17-*
LO 17-4Current Assets -- Items that can or will be converted to

cash within one year. Fixed Assets -- Long-term assets that are
relatively permanent such as land, buildings, or
equipment.Intangible Assets -- Long-term assets that have no
physical form but do have value such as patents, trademarks,
and goodwill.
statements differ.
Assets are divided into three categories according to how fast
they can be converted into cash.
*
CLASSIFYING LIABILITIES
17-*
LO 17-4Liabilities -- What the business owes to others - its
debts. Accounts Payable -- Current liabilities a firm owes for
merchandise or services purchased on credit.Notes Payable --
Short or long-term liabilities a business promises to pay by a
certain date.Bonds Payable -- Long-term liabilities that the firm
must pay back.
statements differ.
*
OWNERS’ EQUITY ACCOUNTS

17-*
LO 17-4Owners’ Equity -- The amount of the business that
belongs to the owners minus any liabilities of the
owners.Retained Earnings -- Accumulated earnings from the
firm’s profitable operations that are reinvested in the business.
statements differ.
*
TEST PREP
17-*
What do we call the formula for the balance sheet? What three
accounts does it include?What does it mean to list assets
according to liquidity?What is the difference between long-term
and short-term liabilities on the balance sheet?What is owners’
equity and how is it determined?
The formula for the balance sheet is referred to as the
fundamental accounting equation. This equation includes the
following three accounts: assets, liabilities and owners equity.
Assets on the balance sheet are listed according to how quickly
they can be converted to cash. Therefore, as you move down
the balance sheet it becomes more difficult to convert the assets
into “liquid” cash.
Liabilities are what the business owes to others. The liability
account is divided into current and long-term liabilities.
Common liability accounts include: accounts payable, notes
payable and bonds payable.
Owners’ equity is the amount of the business that belongs to the
owners, minus any liabilities the business owes. The formula

for owners’ equity is assets minus liabilities.
The INCOME STATEMENT
17-*
LO 17-4Income Statement -- The financial statement that shows
a firm’s bottom line - that is, its profit after costs, expenses,
and taxes.Net Income/Net Loss -- The revenue left over after
costs and expenses.
statements differ.
*
The INCOME STATEMENT
17-*
LO 17-4The formula for the income statement:
RevenueCost of Goods Sold
= Gross ProfitOperating Expenses
= Net Income before TaxesTaxes
= Net Income or Net Loss
statements differ.
See Figure 17.7 in the text for a sample Income Statement for
Very Vegetarian.

*
ACCOUNTS of the INCOME STATEMENT
17-*
LO 17-4Revenue is the monetary value a firm received for
goods sold, services rendered or other payments.Cost of Goods
Sold (or Manufactured) -- Measures the cost of merchandise the
firm sells or the cost of raw materials and supplies it used in
producing items for resale.Gross Profit (or Gross Margin) --
How much a firm earned by buying (or making) and selling
merchandise.
statements differ.
*
THE IN’S and OUT’S of
VALUING INVENTORY
17-*
Generally Accepted Accounting Principles (GAAP) sometimes
permits accountants to use different method of accounting for
inventory.FIFO: First-In, First-OutLIFO: Last-In, First-OutEach
valuation can affect income and ending inventory valuation.
statements differ.

ACCOUNTS of the INCOME STATEMENT
17-*
LO 17-4Operating Expenses – Cost involved in operating a
business, such as rent, salaries and supplies.Depreciation -- The
systematic write-off of the cost of a tangible asset over its
estimated useful life.
statements differ.
While depreciation is an expense, it is a non-cash expense for
the company.
*
The STATEMENT of CASH FLOWS
17-*
LO 17-4Statement of Cash Flows -- Reports cash receipts and
cash disbursements related to the three major activities of a
firm:OperationsInvestmentsFinancing
statements differ.
See Figure 17.8 in the text for a sample Statement of Cash
Flows for Very Vegetarian.

*
Cash Flow -- The difference between cash coming in and cash
going out of a business.
UNDERSTANDING CASH FLOW
17-*
LO 17-4Managing cash flow is a key consideration of a business
and can be particularly challenging for small and seasonal
businesses.
statements differ.
*
WOULD YOU COOK the BOOKS?
17-*
You are the only accountant employed by a small, struggling
dog food company.The company requests a bank loan to keep
operations going and your boss suggests you record some
revenue early.This is against accounting principles, but you
know if you don’t get the loan, you may lose your job. What do
you do?
statements differ.

TEST PREP
17-*
What are the key steps in preparing an income
statement?What’s the difference between revenue and income
on the income statement?Why is the statement of cash flows
important in evaluating a firm’s operations?
The key steps in preparing an income statement are:
RevenueCost of Goods Sold
= Gross ProfitOperating Expenses
= Net Income before TaxesTaxes
= Net Income or Net Loss
2. Revenue is the monetary value of what a firm receives for
goods sold, services rendered, and other payments such as rent.
Income refers to the bottom line which is the net income (or
perhaps net loss) the firm incurs from revenue minus sales
returns, costs, expenses, and taxes over a period of time.
3. The statement of cash flows is important because it answers
such questions as: How much cash came into the business from
current operations? Did the firm use cash to buy stocks, bonds,
or other investments? Did it sell some investments that brought
in cash?
Ratio Analysis -- The assessment of a firm’s financial condition
using calculations and financial ratios developed from the
firm’s financial statements.
USING FINANCIAL RATIOS
17-*
LO 17-5Key ratios include:Liquidity ratiosLeverage

ratiosPerformance ratiosActivity ratios
See Learning Objective 5: Demonstrate the application of ratio
analysis in reporting financial information.
Ratio analysis provides an assessment of the firm’s financial
condition. It can be extremely useful when results of a ratio
analysis are compared to industry peers.
*
COMMONLY USED
LIQUIDITY RATIOS
17-*
LO 17-5Liquidity ratios measure a firm’s ability to turn assets
into cash to pay its short-term debts.Two key ratios are:Current
ratioAcid-test ratioThis information is found on the firm’s
balance sheet.
The acid-test ratio is sometimes referred to as the quick ratio.
*
LEVERAGE RATIOS
17-*

LO 17-5Leverage ratios measure the degree to which a firm
relies on borrowed funds in its operations.Key ratios
include:Debt to Owner’s Equity RatioThis information is found
on the firm’s balance sheet.
*
PROFITABILITY RATIOS
17-*
LO 17-5Profitability ratios measure how effectively a firm’s
managers are using the firm’s various resources to achieve
profits.Key ratios include:Basic earnings per shareReturn on
salesReturn on equityThis information is found on the firm’s
balance sheet and income statement.
*
ACTIVITY RATIOSThis information is found on the firm’s
balance sheet and income statement.
17-*
LO 17-5Activity ratios measure how effectively management is

turning over inventory.Key ratios include:Inventory turnover
ratio
*
SPEAKING a UNIVERSAL
ACCOUNTING LANGUAGE�
17-*
Multinational companies must adapt their accounting reporting
to the rules of multiple countries.Many countries have adopted
International Financial Reporting Standards (IFRS) and are
pushing to make them standard.The U.S. Securities & Exchange
Commission believes there should be such a standard.
TIMELINE for the MOVE to IFRS
17-*
Source: IFRS.org, accessed November 2014.
LO 17-52008: SEC offered proposed timeline2009: 110 large
companies had the option of using IFRS2012: SEC assessed
progress of IFRS2013: Final decision on the move to IFRS2015:
Large public companies will be required to report in IFRS

(pending SEC decision)2016: All companies will be required to
report in IFRS (pending SEC decision)
This slide profiles the timeline for the move to International
Financial Reporting Standards International Financial Reporting
Standards (IFRS) are a set of accounting standards developed by
the International Accounting Standards Board (IASB) that is
becoming the global standard for the preparation of public
company financial statements. Ask students: What are some of
the benefits of international accounting standards? If time
permits have students explore the IFRS website (www.ifrs.com)
and review some of the accounting case studies that the website
presents.
TEST PREP
17-*
What’s the primary purpose of performing ratio analysis using
the firm’s financial statements?What are the four main
categories of financial ratios?
Ratio analysis is the assessment of a firm’s financial condition,
using calculations and financial ratios. Financial ratios are
especially useful in comparing the company’s performance to its
financial objectives and to the performance of others in the
industry.
The four main categories of financial ratios are: liquidity,
leverage, profitability and activity.

Taking Risks and Making Profits within the
Dynamic Business Environment
Copyright © 2015 by the McGraw-Hill Companies, Inc. All
rights reserved.
McGraw-Hill/Irwin
CHAPTER 1
*
Describe the relationship between profit and risk, and show how
businesses and nonprofits can raise the standard of living for
all.Compare and contrast being an entrepreneur and working for
others.Analyze the effects of the economic environment and
taxes on businesses.Describe the effects of technology on
businesses.
LEARNING OBJECTIVES
1-*
*
Demonstrate how businesses can meet and beat
competition.Analyze the social changes affecting

businesses.Identify what businesses must do to meet global
challenges, including war and terrorism.Review how past trends
are being repeated in the present and what those trends mean for
tomorrow’s college graduates.
LEARNING OBJECTIVES
1-*
*
Has juggled a long music career with lucrative
businesses.Started investing while in his first band.Opened the
Cabo Wabo Cantina in 1990 and has since increased the
brand.Donates large amounts to help feed the hungry.
SAMMY HAGAR
Entrepreneur
1-*
*
Just before Christmas 2013, hackers stole more than 110 million
credit card numbers from this retailer’s computer system
requiring all customers to monitor activity on these accounts
and or get new credit cards. The company’s profits fell nearly
50% for the quarter.
Name that company!

NAME that COMPANY
1-*
Company: Target
*
Goods -- Tangible products such as computers, food, clothing,
cars and appliances.Services -- Intangible products (that can’t
be held in your hand) like education, healthcare, insurance,
recreation and travel.Successfully filling a market need means
you could make money for yourself and provide jobs for others.
GOODS and SERVICES
1-*
LO 1-1
See Learning Objective 1: Describe the relationship between
profit and risk and show how businesses and nonprofit
organizations can raise the standard of living for all.
It is important to make sure that students understand the
difference between goods and services. Emphasize that goods
are tangible (can be held or touched) like Nike shoes, while
services are intangible (cannot be held in your hand) like a
haircut.
*
Business -- Any activity that seeks to provide goods and
services to others while operating at a profit.Entrepreneur -- A
person who risks time and money to start and manage a

business. Success in business is often based on the strategy of
finding a need and filling it.
BUSINESS and
ENTREPRENEURSHIP
1-*
LO 1-1
In the United States the entrepreneur is held in high regard.
Most students have heard of Sam Walton and Michael Dell, but
it often adds to the classroom experience if they understand how
these entrepreneurs started their businesses. Sam Walton started
Walmart with just one store in Arkansas in the 1960s. Michael
Dell got his start building computers in his University of Texas
dorm room, ultimately leading to the creation of Dell, Inc.
*
REVENUE, PROFIT AND LOSS
1-*
LO 1-1
Revenue -- The total amount of money a business takes in
during a given period by selling goods and services.
Profit -- The amount of money a business earns above and
beyond what it spends for salaries and other expenses.
Loss -- Occurs when a business’s expenses are more than its
revenues.

About 80,000 businesses in the United States close each year.
*
RISK
1-*
LO 1-1
Risk -- The chance an entrepreneur takes of losing time and
money on a business that may not prove profitable.Not all
businesses make the same amount of profit. Businesses take
risks, but with great risks could come great profit.
Irish entrepreneur Denis O’Brien made billions by selling cell
phones in the poorest and most violent countries in the world.
Big risk, big profit.
*
HOW is TAX MONEY USED?
1-*

LO 1-1
Taxes are used to
provide:HospitalsSchoolsLibrariesPlaygroundsRoadsFire
ProtectionPolice ProtectionEnvironmental ProgramsSupport for
People in Need
Entrepreneurs provide jobs for others, and the taxes they pay
benefit the community.
*
STANDARD of LIVING
1-*
Photo Credit: Walmart Stores
LO 1-1
Standard of Living -- The amount of goods and services people
can buy with the money they have.The U.S. has one of the
highest standards of living in the world.Workers in other
countries may make more money, but prices for products are
higher.
Workers in Japan may make more than Americans, but a bottle

of beer may cost $7 in Japan.
*
QUALITY of LIFE
1-*
LO 1-1
Quality of Life -- The general well-being of a society in terms
of its political freedom, natural environment, education,
healthcare, safety, amount of leisure and rewards that add to
personal satisfaction.
The more money businesses create, the more is available to
improve the quality of life for all citizens.
*
Customers Employees Stockholders Suppliers Dealers
Community Members Media Elected Officials Bankers
Environmentalists
STAKEHOLDERS
1-*
LO 1-1
Stakeholders -- All the people who stand to gain or lose by the
policies and activities of a business and whose concerns the

businesses need to address.
Who are Stakeholders?
*
STAKEHOLDERS
1-*
LO 1-1
*
OUTSOURCING
and INSOURCING
1-*
LO 1-1Outsourcing -- Contracting with other companies (often
in other countries) to do some of the firm’s functions, like
production or accounting.
Insourcing -- Foreign companies opening offices and factories

in the United States.
Outsourcing is the contracting with other companies to do some
of the firm’s functions. As the slide states these companies are
often in other countries. For example, Dell Computers and many
other companies outsource support services to call centers in
India and other Asian nations. This can be an emotional issue
and one that students often do not understand. When discussing
this topic with students, it is important for students to
understand that outsourcing has occurred for years and does not
always involve a company from the United States locating jobs
in another country.
Once students understand outsourcing, the concept of insourcing
can be discussed. For example, Hyundai operates plants in the
United States. Its design and engineering headquarters are in
Detroit, and they produce cars in Montgomery, Alabama. All of
which employ American workers. Insourcing benefits the
American worker such as when Toyota and Honda decided to
build automobile manufacturing plants in Kentucky and Ohio
rather than in Japan.
*
NONPROFIT ORGANIZATIONS
1-*
LO 1-1

Nonprofit Organization -- An organization whose goals do not
include making a personal profit for its owners or organizers.
Nonprofits use the same principles and skills you will learn in
this class.
*
WELL-KNOWN NONPROFITS
in the UNITED STATES
1-*
LO 1-1
United WayAmerican Heart Association
Salvation ArmyAmerican Cancer Society
American Red Cross
This slide provides a listing of well-known nonprofit
organizations in the United States. Some of the better known
nonprofit organizations include: Salvation Army, United Way
and the American Red Cross. Ask students to identify smaller,
local nonprofit organizations and discuss how they contribute to
the community’s quality of life.

*
KEEPING STRONG EMPLOYEES
at NONPROFITS
1-*
Source: Fast Company, accessed October 2014.
LO 1-1Set ambitious, but realistic goals.Allow all employees to
work with the groups they are serving.Give employees a break.
Nonprofit work is draining.
Since few nonprofits can compete for qualified employees by
offering higher salaries, they must find other ways to recruit,
hire, and retain workers. Many nonprofit workers choose to
accept lower wages in exchange for the feeling that they are
helping a good cause. Since nonprofit work is often exhausting,
managers need to find ways to help employees relax and
celebrate their good works.
*
TEST PREP
1-*
What is the difference between revenue and profit?What is the
difference between standard of living and quality of life?What
is risk? How is it related to profit?What do the terms

stakeholders, outsourcing and insourcing mean?
1) Revenue is the total amount of money a business takes in
during a given period of time. Profit is the amount of money a
business earns above and beyond what it spends for salaries and
other expenses during a given period.
2) Standard of living is the amount of good and services a
person can buy with the money they have. Quality of life refers
to the general well-being of society in terms of its political
freedom, natural environment, education, health care, safety,
amount of leisure, and rewards that add to the satisfaction and
joy that other goods and services provide.
3) Risk is the chance an entrepreneur takes in losing time and
money on a business that may not prove profitable. Usually,
entrepreneurs willing to take the most risk make the highest
profit.
4) Stakeholders are all the people who stand to gain or lose by
the policies and activities of a business and whose concerns the
business needs to address. Outsourcing is contracting with other
companies (often in other countries) to do some or all the
functions of a firm, like its production or accounting tasks.
Insourcing is when foreign companies set up design and
production facilities in the United States.
*
THE UPS and DOWNS
of ENTREPRENEURSHIP

1-*
LO 1-2
The UPS The DOWNS
The freedom to succeed. The freedom to fail.
Make your own decisions. No paid vacations.
High possibility of wealth. No health insurance.
Hire your own staff. No daycare.
See Learning Objective 2: Compare and contrast being an
entrepreneur and working for others.
*
1-*
HOW a FOOD TRUCK HELPED REBUILD
a STORM-STRUCK COMMUNITY
After witnessing the destruction left behind after Hurricane
Sandy, Mike Diamond started Rockaway Plate to serve free
lunches.Now the truck is a profitable business that helps local
teens gain work experience.
*

WHO TAKES the
ENTREPRENEURIAL CHALLENGE?
1-*
LO 1-2Millions of people have started businesses and
succeeded.The number of Hispanic-owned businesses in the
U.S. has grown dramatically.Women now own over one-third of
all businesses.
*
WOMEN in the WORKFORCE
1-*
Source: Bloomberg Businessweek, accessed October 2014.
LO 1-2
In the past 40 years, the number of working women has
increased significantly. A considerable number even out earn
their husbands; something that seemed unheard of in the past. In
1970, there were 0 female CEOs in Fortune 500 companies. In
2014, there were 24 (a record high!).
*
Chart1Women in the WorkplaceWomen in the

WorkplaceWomen College GradsWomen College GradsWomen
Earning More than HusbandsWomen Earning More than
HusbandsWomen's Contribution to Household IncomeWomen's
Contribution to Household Income
1970
2012
0.35
0.49
0.36
0.54
0.04
0.23
0.27
0.36
Sheet119702012Series 3Women in the
Workplace35%49%2Women College Grads36%54%2Women
Earning More than Husbands4%23%3Women's Contribution to
Household Income27%36%5Fortune 500 Women CEOs018To
resize chart data range, drag lower right corner of range.
FIVE FACTORS of PRODUCTION
1-*
LO 1-2Entrepreneurs use what they’ve learned to grow their
businesses and increase wealth.
*

TEST PREP
1-*What are some of the advantages of working for others?What
benefits do you lose as an entrepreneur, and what do you gain?
What are the five factors of production? Which ones seem to be
the most important for creating wealth?
1) When working for others, someone else assumes the
entrepreneurial risk and provides you with benefits (life health
insurance, vacation time, etc.).
2) As an entrepreneur you have the freedom to make your own
decisions and the potential for creating wealth, while sacrificing
the benefits that working for others often provides.
3) The factors of production are land, labor, capital,
entrepreneurship, and knowledge. Of these, entrepreneurship
and knowledge seem to be the most important for creating.
*
WHAT is the
BUSINESS ENVIRONMENT?
1-*
LO 1-3
See Learning Objective 3: Analyze the effect of the economic
environment and taxes on businesses.
*

GOVERNMENT’S ROLE
in BUSINESS
1-*
LO 1-3
Government can promote business by…Minimizing spending
and keeping taxes and regulations to a minimum.Allowing
private ownership of businesses.Minimizing interference with
the free exchange of goods and services.Passing laws that
enable businesspeople to write enforceable
contracts.Establishing a currency that’s tradable in world
markets.Minimizing corruption.
*
Source: Transparency International, October 2014.
CORRUPTION WORLDWIDE
1-*
LO 1-3
Transparency International conducts and publishes the

corruption studies annually. The most corrupt countries on the
list include Somalia and North Korea. The least corrupt
countries are Denmark and New Zealand (tie). Ask the students
- What impact does corruption have on business? Responses
may include: Businesses do not flourish and capitalism and
economic independence are suppressed creating a very negative
business and social environment. Most corrupt countries tend to
be developing countries.
*
ETHICS BEGINS with YOU
1-*
The number of employees calling in sick has reached a five-
year high. 3/5 of all callers were not even sick. Others conduct
personal business at work, play video games and check their
Facebook pages while at work.
What is the problem with this situation?
What are the alternatives?
What are the consequences of each alternative?
What path would you choose?
Is it ethical?
*
BENEFITS of TECHNOLOGY
1-*

LO 1-4Technology -- Everything from phones to copiers and the
various software programs that make businesses more effective,
efficient and productive.Effectiveness -- Producing the desired
result.Efficiency -- Producing goods and services using the least
amount of resources.Productivity -- The amount of output you
generate given the amount of input (example: hours you work).
See Learning Objective 4: Describe the effect of technology on
business.
Technology affects people in all industries.
*
1-*
CONNECTING COMPANIES with GLOBAL FREELANCERS
Since the Great Recession, freelancers are more important than
ever before.Freelance employees don’t even have to live in the
same country as their employers.Elance is taking advantage of
this development with its over 8 million registrants.
business.
*
E-COMMERCE
1-*

LO 1-4E-Commerce -- The buying and selling of goods
online.B2C: Business to ConsumerB2B: Business to Business
business.
*
Source: Inc., January 2014.
CYBER ATTACKS on BUSINESSES
1-*
LO 1-480% of cyber attacks involve weak passwords.Since
2012, there has been an 8% increase in malware attacks with an
average loss of $92,000!Since 2012, there has been a 125%
increase in social media phishing attacks, stealing over $1
billion from businesses.29% of security breaches are hackers
pretending to be you and resetting your passwords.
We keep hearing about security breaches on big businesses, like
Target and Home Depot. However, all businesses are at
risk.There are many, many ways a hacker can hurt your
business. This slide focuses on the five biggest threats to small
business.Ask your students: How can businesses prepare
themselves and protect their employees and customers from
such hacks?
*
DATABASES

and IDENTITY THEFT
1-*
Photo Credit: Jack Spade
LO 1-4Database -- An electronic storage file for
information.Identity Theft -- The obtaining of individuals’
personal information, such as Social Security and credit card
numbers, for illegal purposes.
business.
*
Source: Federal Trade Commission, www.ftc.gov accessed
October 2014.
PROTECT YOURSELF
from IDENTITY THEFT
1-*
LO 1-4
Follow these steps to help protect yourself:Protect your Social
Security Number.Shred financial documents and items with
personal information.Don’t give out personal information unless
you know whom you are dealing with.Use strong
passwords.Never click links in suspicious emails.Monitor your
credit report.
The number of ID theft cases is rising every year. The Federal
Trade Commission estimates that 9 million people per year have
their identities stolen. About 39% of the victims were between
the ages of 18-39 (the same age group of many students).

Approximately 16% of the victims had a personal relationship
with the thief.Top five states for identity theft (per capita):
Arizona, California, Nevada, Texas, and Florida.Ask the
students – How often do you throw away mail or other
documents with your personal information on it without
shredding it? (It is becoming imperative that we shred all
documents with personal info and keep the sharing of private
info such as credit card, bank account info, and social security
numbers to a very limited number of people.)
*
USING EMPOWERMENT
to COMPETE in TODAY’S MARKET
1-*
LO 1-5Customers want quality products at a good price with
excellent customer service.Because business is more customer-
driven, some managers give frontline employees more decision-
making power.Empowerment -- Giving frontline workers the
responsibility, authority, and freedom to respond quickly to
customer requests.
See Learning Objective 5: Demonstrate how businesses can
meet and beat competition.
*
DEMOGRAPHY
1-*

LO 1-6Demography -- The statistical study of the population in
terms of size, density and characteristics like, age, race, gender
and income.
See Learning Objective 6: Analyze the social changes affecting
businesses.
*
Source: U.S. Census Bureau, www.census.gov, accessed
October 2014.
DEMOGRAPHY of the U.S. by
AGE
1-*
LO 1-6
businesses.
This slide highlights the age of the population in the United
States. Demography is the statistical study of the human
population in terms of its size, density, and other characteristics
such as age, race, gender, income, etc. The slide gives insight
into the aging of the population with 66% of the population
older than 24 years old. Ask the students -- How will the aging
of the population impact businesses? (Businesses will need to
reexamine their approach to marketing and human resources in
order to meet the challenges facing them. While some

businesses will fail, other new businesses will emerge creating
new opportunities.)
*
Chart1Under 18 - 23.7%18 to 24 - 10%25 to 34 - 12.7%35 to 44
- 13%45 to 54 - 14.5%55 to 64 - 12.3%65 and Over - 13.8%
% by Age Group
0.237
0.1
0.127
0.13
0.145
0.123
0.138
Sheet1% by Age GroupUnder 18 - 23.7%23.70%18 to 24 -
10%10%25 to 34 - 12.7%12.70%35 to 44 - 13%13%45 to 54 -
14.5%14.50%55 to 64 - 12.3%12.30%65 and Over -
13.8%13.80%
CURRENT DEMOGRAPHY
of the U.S. by RACE
1-*
October 2014.
LO 1-6
businesses.
This side shows the current demography of the U.S. based by
the races respondents listed. Note to the students that the

numbers will not add up to 100% exactly because of the amount
of respondents that listed more than one race.
*
Chart1White - 72.4%Hispanic - 16.3%Black - 12.6%Asian -
9.1%
Race
71
16
13
9
Sheet1RaceWhite - 72.4%71Hispanic - 16.3%16Black -
12.6%13Asian - 9.1%9To resize chart data range, drag lower
right corner of range.
PROJECTED DEMOGRAPHY
of the U.S. by RACE in 2050
1-*
October 2014.
LO 1-6
businesses.
This slide gives insight into the changing ethnic landscape of
the United States. Legal and illegal immigrants have had a
dramatic effect on many states. Many local services, such as
health care and education, are making efforts to adapt. Some
changes include changing signs, brochures and websites to
reflect this change in demographics. Ask the students - What

changes have you noticed in your particular city? (Answers
may vary, but might include bilingual signs in government
offices and the use of emergency room translators in local
hospitals).
*
Chart1White - 47%Hispanic - 29%Black - 13%Asian - 9%
Race
47
29
13
9
Sheet1RaceWhite - 47%47Hispanic - 29%29Black -
13%13Asian - 9%9To resize chart data range, drag lower right
corner of range.
U.S. POPULATION CHANGES
1-*
LO 1-6Diversity has grown from just recruiting minority and
female workers. Population shifts are creating opportunities for
some and limiting others.Growth of single-parent households
have encouraged businesses to implement programs such as
family leave and flextime.
businesses.
When discussing how demographic changes experienced in this
country over the past 30 years have affected businesses, it often
helps to use the grocery store as an example. The grocery store
has evolved from a market selling primarily raw materials used

to produce a meal into stores that now serve pre-made products
which simply involve “heating and eating.” Why? Some would
argue this change has more to do with the two-income and
single-parent household than any other environmental factor.
Engaging students in this discussion is often useful to their
understanding of how businesses must adapt to changing
demographic circumstances.
*
October 2014.
WHO WILL SUPPORT
SOCIAL SECURITY?
Number of Workers per Retiree
1-*
LO 1-6
businesses.
The number of workers per retiree has dropped dramatically
since 1950. Ask the students - What impact will the decline of
the number of workers per retiree have in the future? (In the
future government might have to raise taxes and reduce benefits
for individuals or use a means test in an effort to prevent Social
Security payments from bankrupting the government.)
Chart11950196019701980199020002010202020302040
Workers per Retiree
7

5.75
5.5
5
4.75
4.75
4.5
3.5
2.5
2
Sheet1Workers per RetireeSeries 2Series
3195072.4219605.754.4219705.51.83198052.8519904.7520004.
7520104.520203.520302.520402
WHAT is DIVERSITY?
1-*
LO 1-6The U.S. Equal Employment Opportunity Commission
prohibits laws discriminating against:AgeDisabilityGenetic
informationNational originPregnancyRaceReligionSex
businesses.
*
IMPORTANT CHANGES to the
GLOBAL ENVIRONMENT
1-*

LO 1-7Growth of global competition.Increase of free trade
among nations.Development of efficient distribution
systems.Advances in communication systems.
See Learning Objective 7: Identify what businesses must do to
meet the global challenge, including war and terrorism.
*
INCREASING COSTS of the
GLOBAL ENVIRONMENT
1-*
LO 1-7Wars cost billions of dollars.Tax money is diverted.Cost
of security goes up.Cost of insurance goes up.
meet global challenges, including war and terrorism.
Ask students -- Can terrorism and an economic crisis decrease
economic cooperation and free trade among nations? (This
question is at the same time alarming and thought provoking.
Given recent events, asking students this question will get them
thinking about how the world and events in far away places can
impact their lives.)
*
GOURMET AIRPORT EATERIES

TAKE FLIGHT
1-*
Airport restaurants have more regulations than traditional spots.
People are likely to spend more when travelling.
This has led to more gourmet restaurants popping up in airports.
*
GLOBAL GREENING
1-*
LO 1-7Climate Change -- Movement of the temperature of the
planet up or down over time.Greening -- Trend toward saving
energy and producing products that cause less harm to the
environment.Many companies like GE, Coca-Cola, British
Airways and Shell are adopting green practices.
Links go to each company website’s “green” section.
*
TEST PREP
1-*What are four ways the government can foster

entrepreneurship?What is the difference between effectiveness,
efficiency and productivity? What is empowerment? What are
some of the major issues affecting the economy today?
1) The government can foster entrepreneurship by:
---Allowing private ownership of business.
---Passing laws that enable businesses to write enforceable
contracts.
---Establishing a currency that is tradable in world markets.
---Minimizing corruption in business and in its own ranks.
2) Effectiveness means producing the desired results. Efficiency
means producing goods and services using the least amount of
resources. Productivity is the amount of output you generate
given the amount of input, such as the number of hours you
work.
3) Empowerment is allowing workers to make decisions
essential to producing high-quality goods and services.
4) Technology changes, identity theft, changing demographics,
diversity, climate change, war and terrorism are just several
issues affecting the economy today.
*
The EVOLUTION of BUSINESS
1-*

LO 1-8
Agriculture Era
Manufacturing Era
Service Era
Information-Based Era
See Learning Objective 8: Review how past trends are being
repeated in the present and what they mean for tomorrow’s
college graduate.
This slide along with the next four gives students a sense of
perspective into the evolution of the United States economy.
*
The AGRICULTURAL ERA
1-*
LO 1-8In the 1800s, the agricultural industry led economic
development.Technology, like the harvester and cotton gin,
changed the farming industry making it more efficient.This led
to fewer farmers with larger farms.
college graduate.
Agriculture was the leading industry in the U.S. in the 1800s.
Technology has made farming so efficient, the number of

farmers has dropped from about 33% of the population to about
1%. However, it is still a major industry in the U.S.
*
The MANUFACTURING ERA
1-*As technology improved productivity, fewer workers were
needed in factories.
LO 1-8Industrialization in the 19th and 20th centuries moved
jobs from farms to factories.
college graduate.
*
The SERVICE ERA
1-*
LO 1-8
Make up over 70% of the U.S. economy.Since the mid-1980s,
the service industry generated almost all the increases in
employment. More high-paying jobs in service industries.
college graduate.
*

The INFORMATION
TECHNOLOGY ERA
1-*
LO 1-8
IT affects: AgricultureIndustry Service
college graduate.
*
TEST PREP
1-*What major factor caused people to move from farming to
manufacturing and from manufacturing to the service
sector?What does the future look like for tomorrow’s college
graduates?
1) Efficiencies in agriculture led to the reduction in farms and
growth in industry that caused workers to leave the farm and
come to the cities. The growth of efficiencies in production had
the same effect as in agriculture. As factories became more
efficient and technologically driven, workers migrated to the
service sector.

2) The information-based global revolution will alter all
sections of the economy. It will be an interesting opportunity
for college graduates.
*

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