Accounting Chapter 2: The World of Business and Accounting


Business definitions:

  1. Service business: sells a service, such as accounting, lawn maintenance, painting, legal advice, as opposed to selling a product.
  1. Proprietorship: a business owned by only one person, or a husband and wife.

    Advantage: full control (owner makes all decisions)

    Disadvantage: full liability (owner’s personal property can be taken to cover debts and lawsuits)

Accounting terms:

  1. Accounting is: planning, analyzing, and interpreting financial information. See for more information.

  2. Accounting system: a planned process for providing financial information that will be useful to management (how data will be stored, analyzed and interpreted). Usually computerized software, such as Quicken, Peachtree, SAP, etc. See for more information.
  1. Accounting records: organized summaries of a business’s financial activities. Usually called “The Books”.

Good accounting can help business make good financial decisions.

When records are not accurate, business may:

  1. Financial Statements: Printed records of a company's financial transactions and condition. (Book definition: Financial reports that summarize the financial condition and operations of a business. p6)


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