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Accounting Ch.2

Terms

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free enterprise system
a system where people are free to produce the goods and services they choose.
profit
the amount of money earned over and above the amount spent to keep the business operating.
loss
when a business spends more than they earn, they operate at a loss.
entrepreneurs
transform ideas for products or services into real-world businesses.
capital
money supplied by investors, bankers, or owners of a business
service business
provides a needed service for a fee.
merchandising business
buys finished products and resells them to individuals or other businesses.
manufacturing business
buys raw materials, such as wood or iron ore
sole proprietorship
a business owned by one person.
partnership
a business owned by two or more persons.
corporation
a business organization that is recognized by law to have a life of its own.
charter
gives a corporation certain rights and privileges. The charter spells out the rules under which the corporation is to operate.
accounting system
designed to collect, document, and report on financial transactions affecting the business.
manual accounting system
the accounting information is processed by hand.
computerized accounting system
the financial information is recorded by entering it into a computer.
GAAP (generally accepted accounting principles)
a set of rules that all accountants use to prepare their reports.
financial reports
summarized information about the financial status of a business.
financial accounting
focuses on reporting information to external users.

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