Introduction to Business

any activity that seeks to provide goods and services, while operating at a profit

tangible products such as computers, food, clothing, cars and appliances

intangible products (i.e that can't be held in your hand) such as education, health care, insurance, recreation, tourism and travel

a person who risks time and money to start and manage a business

the total amount of money a business takes in during a given period by selling goods and services

the amount of money a business earns above and beyond what it spends for salaries and other expenses

when a business's expenses are more than its revenues

- the chance an entrepreneur takes of losing time and money on a business that may not prove profitable

- the chance of loss, the degree of probability of loss, and the amount of possible loss

the amount of goods and services people can buy with the money they have

the general well-being of a society in terms of it's

-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

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

contracting with other companies
(often in other countries)
to do some or all of the functions of a firm,
like production or accounting tasks

an organization whose goals do not include
making a personal profit for its owners or organizers

the resources used to create wealth:

- land
- labor
- capital
- knowledge
- entrepreneurship

land and other natural resources
are used to make homes, cars and other products

all the resources in the world have little value
unless entrepreneurs are willing to
take the risk of starting businesses
to use those resources

the surrounding factors that either help or hinder
the development of business

1) economic and legal
2) technological
3) competitive
4) social

environment

- freedom of ownership
- contract laws
- elimination of corruption
- trade able currency
- minimus taxes and regulation

- customer services
- stakeholders recognition
- employee services
- concern for the environment

- diversity
- demographic chances
- family changes

the recording, classifying, summarizing, and interpreting of financial events and transactions to provide management and other interested parties
the information they need to make good decisions

the recording of business transactions

the record book or computer program where accounting data are first entered

the practice of writing every business transactions in two places

a specialized accounting book or computer program
in which information from accounting journals
is accumulated into specific categories and posted so
that managers can find all the information
about one account in the same place

a summary of all the financial data
in the account ledgers
that ensures the figures are correct and balanced

a summary of all the transactions that have occurred
over a particular period

assets
= liabilities + owner's equity

economic resources (things of value)
owned by a firm

the ease with which an asset
can be converted into cash

a six step procedure that results
in the preparation and analysis
for the major financial statements

1. analyze source documents

2. record transactions in journals

3. transfer (post) journal entries to ledger

4. take a trial balance

5. prepare financial statements

6. analyze financial statements

ensures proper documentation of financial transactions for accurate recording and reporting

systematically organizes financial data in
chronological order for easy reference and analysis

consolidates information from journals
into specific accounts in the ledger
for comprehensive record - keeping

summarizes all financial data to ensure
accuracy and balance
before financial statement preparation

verifies the accuracy of ledger information and corrects
any discrepancies before financial reporting

( balance sheet, income statement,
statement of cash flow )

generates comprehensive reports,
including the balance sheet,
income statement,
and statement of cash flows,
to provide insights into the firm's financial
positions and performance

items that can or will be converted into cash
within one year

assets that are relatively permanent,
such as land, buildings, and equipment

long - term assets
( e.g. patents, trademarks, copyrights )
that have no real physical form
but do have value

the accumulated earnings from a firm's profitable,
operations that were reinvested in the business
and not paid out to stockholders in dividends

the financial statement that shows
a firm's profit after costs, expenses and taxes,
it summarizes all of the resources
that have come into the firm (revenue),
all the resources that have left the firm, expenses,
and the resulting net income or net loss

what the business owes to other (debts)

debts due in one year ore more

current liabilities involving money owed to other
for merchandise or services
purchased on credit but not yet paid for

short - term or long - term liabilities
that a business promises to repay
by a certain date

long - term liability's that represent money
lent to the firm that must be paid back

the amount of the business that belongs to the owners
minus any liabilities owed by the business

revenue left over after all costs and expenses,
including taxes, are paid

( or cost of goods manufactured )
a measure of the cost of merchandise sold or cost
of raw materials and supplies used for producing items for resale

how much a firm earned by buying (or making)
and selling merchandise

costs involved in operating a business,
such as rent, liabilities, and salaries

the systematic write - off of the cost
of a tangible asset

the difference between cash coming in and
cash going out of a business

a summary of all the transactions
that have occurred over a particular period

1) the balance sheet

2) the income statements

3) the statement of cash flows

- which reports the firm's financial condition
on a specific date

- the balance sheet details what the company
owns and owes on a certain day

- which summarizes revenues,
cost of goods sold, and expenses (including taxes)
for a specific period and highlights
the total profit or loss
the firm experienced during that period

- shows the revenue a firm earned
selling its products compared to its selling cost
( profit or loss )
over a specific period of time

- which provides a summary of money coming into
and going out of the firm

- it tracks a company's cash receipts and cash payments

- highlights the difference between cash coming in
and cash going out of a business

- to fully understand this important financial information,
you need to know the purpose of
an organization's financial statements

1) Liquidity ratio

2) Leverage Ratio

3) Profitability Ratio

4) Activity Ratio

the assessment of a firm's financial condition
using calculations and interpretations
of financial ratios developed
from the firm's financial statements

- measure a company's ability to meet its
short-term obligations

- include the current ratio
and acid - test ratio

current ratio :

-includes all current assets

- provides a broader measure of a company's ability
to meet short-term obligations,
including the impact of inventory

acid - test ratio

- excludes inventory from the calculation

- includes only the most liquid assets,
such as cash, marketable securities,
and accounts receivable

- provides a more conservative measure
of a company's ability to meet
short - term obligations
by focusing on the most readily available assets