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Chapter 2

Terms in this set (20)

Free Enterprise System
A system in which individuals are free to produce the goods and services they choose
Profit
The amount earned above the amount of expense incurred to keep the business operating
Loss
The result when a business spends more money than it earns
Entrepreneur
A person who transforms ideas for products or services into real-world business
Capital
Money supplied by investors, banks, or owners of a business
Service Business
A business that provides a needed service for a fee
Merchandising Business
A business that buys finished goods and resells them to individuals or other businesses
Manufacturing Business
A business that buys raw materials and transforms them into financial products by using labor and machinery
Sole Proprietorship
A business owned by one person
Partnership
A business owned by two or more persons, called partners, who agree to operate the business as co-owners
Corporation
A business organization recognized by law to have a life of its own
Charter
The legal permission granted by a state, that gives a corporation certain rights and privileges and spells out the rules under which the corporation is to operate
Accounting System
A system designed to collect, document, and report on business transactions
Manual Accounting System
A type of accounting system in which information is processed by hand
Computerized Accounting System
A type of accounting system in which information is recorded by entering it into a computer
GAAP
The set of rules that all accountants use to prepare financial reports
Financial Reports
Documents that present summarized information about the financial status of a business
Financial Accounting
The type of accounting that focuses on reporting information to external users
Management Accounting
The type of accounting that focuses on reporting information to management; often referred to as accounting for internal users of accounting information
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
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