Chapter 2

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free enterprise system

An economic system in which individuals depend on supply and demand and the profit margin to determine what to produce, how to produce, how much to produce, and for whom to produce. The quest for improvement financially and materially motivates consumers and producers.

profit

the advantageous quality of being beneficial

loss

the act of losing

entrepreneur

someone who organizes a business venture and assumes the risk for it

capital

wealth in the form of money or property owned by a person or business and human resources of economic value

service business

a business that performs an activity for a fee

merchandising business

a business that purchases and sells goods

manufacturing business

A business that makes finished goods from raw materials by hand or machinery

sole propietorship

A business owned by only one person

partnership

a contract between two or more persons who agree to pool talent and money and share profits or losses

corporation

a business firm whose articles of incorporation have been approved in some state

charter

a document incorporating an institution and specifying its rights

accounting system

a planned process for providing financial information that will be useful to management

manual accounting system

A system in which accounting information is recorded and proccessed by hand

computerized accounting system

A system in which finical information is recoreded by entering it into a computer

GAAP

a collection of rules and procedures and conventions that define accepted accounting practice

financial reports

Summarized information about the financial status of a business

financial accounting

Accounting information and analyses prepared for people outside the organization.

management accounting

focuses on reporting information to management.

business entity

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

accounting period

A period of time covered by an accounting report

going concern

A business assumes it will continue to operate for many years. At retirement the owner will sell the business to someone else who will continue its operation. This is an example of the application of this accounting concept.

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