Chapter 1

I ntroduction to Accounting
and Business
Accounting, 21
st
Edition
Warren Reeve Fess
BUSINESS
CONSIDERATIONS
What is BUSINESS ?
BUSINESS = ones work or occupation
Special task or duty
Commerce or trade
Commercial or industrial establishment

*It is the process of producing goods &
services and then distributing them to
those who desire or need them.

What is BUSINESS ?
In business process, here are several
key ingredients needed to support
economic activity called the FACTORS
OF PRODUCTION.
1) Land (natural resources)
2) Labor (human resource)
3) Capital
4) Entrepreneurship
FACTORS OF PRODUCTION

FACTORS OF PRODUCTION

FACTORS OF PRODUCTION

FACTORS OF PRODUCTION

FACTORS OF PRODUCTION
1) Natural resources include land & that material
that come from land (timber, mineral deposits, oil
deposits, water).
2) Labor (human resource) mental & physical effort
of all workers regardless of their skill or education
3) Capital includes the building, machineries, and
tools used to produce goods & services
4) Entrepreneurship capacity & willingness to
develop, organize and manage a business venture
along w/ any of its risks to make PROFIT.
TYPES OF BUSINESSES
3 BROAD CLASSIFICATIONS OF BUSINESS
ESTABLISHMENTS :
1) Manufacturing companies involved in the
conversion of raw materials into some
tangible, physical product.
Ex : San Miguel Corp., Purefoods, Nestle, Intel
2) Merchandising companies involved in the
selling of finished goods produced by other
businesses. This tangible, physical product is
called merchandise.

TYPES OF BUSINESSES
3 BROAD CLASSIFICATIONS OF BUSINESS
ESTABLISHMENTS : ( contd.)
Merchandisers could either be :
a) Wholesale company that buys its product from the
manufacturer (or another wholesaler) and then sells the
product to the company that eventually sells it to the
consumer.
ex : Puregold, Macro Inc, Super8
b) Retail company that buys its products from a wholesaler
or manufacturer and then sells the product to the end
consumers.
ex: SM stores, Rustans, The Landmark, Bench, and others


TYPES OF BUSINESSES
3 BROAD CLASSIFICATIONS OF BUSINESS
ESTABLISHMENTS : ( contd.)
3) Service companies companies that do not
deal with tangible products, but rather
provides some sort of service as its major
operation.
4) Hybrid companies companies that involved
in more than one type of activity.
(manufacturing, merchandise, and or service).

MOTIVES OF GOING INTO
BUSINESS
PROFIT = the primary motive of a
person/group of persons in engaging in
business activity.
What is PROFIT MOTIVE ?
The basic idea behind it is that a person will do
something only if the benefit derived from doing it
is greater than the sacrifice required in doing it.
A rational person desires to drive the greatest
benefit with the least amount of sacrifice.
MOTIVES OF GOING INTO
BUSINESS
PROFIT = the excess of benefit
(REVENUE) over sacrifice (COSTS).
GROSS PROFIT - the excess of benefit
received over the sacrifice made to
complete a sale.
NET PROFIT the amount that remains
after all costs have been deducted from
the revenue or benefit.

Basic computational procedure to
determine Profit :

Sales or Revenues XX
Less: Cost of goods/services sold XX
Gross profit XX
Less: Selling and admin expenses XX
Net Profit XX

PROFIT vs. SOCIAL
RESPONSIBILITY
SOCIAL RESPONSIBILITY
= ethical theory that an entity, be it an organization or
individual, has an obligation to act to benefit society at
large.
= sharing their benefits with their employees,
community, customers, and general public.
CORPORATE SOCIAL RESPONSIBILITY
= a form of corporate self-regulation integrated into a
business model that monitors and ensures its active
compliance with the spirit of the law, ethical standards,
and international norms.
CHECKLIST FOR STARTING A
BUSINESS
1) Personal Assessment
2) Planning
3) Establishment
4) Implementation
LEGAL FORMS OF BUSINESS
ORGANIZATION
Proprietorship owned by a single
person who has complete control over
business decisions.
Partnership legal arrangement in which
2 or more persons agree to contribute
capital/services to the business and divide
the profits.
Corporation artificial being created by
law and is a legal entity separate and
distinct from its owners.
The End
Chapter 1