The Balance Sheet

Financial statements are the final product of the accounting process. They provide information on the financial condition of a company. The balance sheet, one type of financial statement, provides a summary of what a company owns and what it owes on one particular day.

Assets represent everything of value that is owned by a business, such as property, equipment, and accounts receivable. On the other hand, liabilities are the debts that a company owns for example, to suppliers and banks. If liabilities are subtracted from assets (assets — liabilities), the amount remaining is the owners’ share of a business. This is known as owners’ or stockholders’ equity.

One key to understanding the accounting transactions of a business is to understand the relationship of its assets, liabilities, and owners’ equity. This is often represented by the fundamental accounting equation: assets equalliabilities plus owners’ equity.

ASSETS= UABILITIES + OWNERS’ EQUITY

These three factors are expressed in monetary terms and therefore are limited to items that can be given a monetary value. The accounting equation always remains in balance; in other words, one side must equal the other.

The balance sheet expands the accounting equation by providing more information about the assets, liabilities, and owners’ equity of a company at a specific time (for example, on December 31, 1993). It is made up of two parts. The first part lists the company assets, and the second part details liabilities arid owners’ equity. Assets are divided into current and fixed assets.

Cash, accounts receivable and inventories are all current assets. Property, buildings, and equipment make up the fixed assets of a company. The liabilities section of the balance sheet is often divided Into current liabilities (such as accounts payable and income taxes payable) and long-term liabilities (such as bonds and long-term notes). The balance sheet provides a financial picture of a company on a particular date, and for this reason it is useful in two important areas. Internally, the balance sheet provides managers with financial information for company decision-making. Externally, it gives potential investors data

for evaluating the company’s financial position.

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An Accounting Overview

Accounting is frequently called the “language of business” because of its ability to communicate financial information about an organization. Various interested parties, such as managers, potential investors, creditors, and the government, depend on a company’s accounting system to help them make informed financial decisions. An effective accounting system, therefore, must include accurate collecting, recording, classifying, summarizing, inter pretirig, and reporting of information on the financial status of an organization.

In order to achieve a standardized system, the accounting process follows accounting principles and rules. Regardless of the type of business or the amount of money involved, common procedures for handling and presenting financial information are used. Incoming money (revenues) and outgoing money (expenditures) are carefully monitored, and transactions are summarized in financial statements, which reflect the major financial activities of an organization.

Two common financial statements are the balance sheet and the income statement. The balance sheet shows the financial position of a company at one point in time, while the income statement shows the financial perform ance of a company over a period of time.

Financial statements allow interested parties to compare one organization to another and/or to com pare accounting periods within one organization. For example, an investor may compare the most recent income statements of two corporations in order to find out which one would be a better investment.

People who specialize in the field of accounting are known as accountants. In the United States, accountants are usually classified as public, private, or governmental. Public accountants work independently and provide accounting services such as auditing and tax computation to companies and individuals.

Public accountants may earn the title of CPA (Certified Public Accountant) by fulfilling rigorous requirements. Private accountants work solely for private companies or corporations that hire them to maintain financial records, and governmental accountants work for governmental agencies or bureaus. Both private and  accountants are paid on a salary basis, whereas public accountants receive fees for their services. Through effective application of commonly accepted accounting systems, private, public, and governmental accountants provide accurate and timely financial information that is necessary for organizational decisionmaking.

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Multinational Corporations

A company often becomes involved in iritemaslonal trade by exchanging goods or services with another country—importing raw materials it may need for production or exporting finished products to a foreign market. Establishing these trade relationships is the first step in the deveLopment of a multinational business. At this stage, however, the corporation’s emphasis is still on the domestic market. As trade expands, the corporation’s dealings with companies or people outside the “home country” of that corporation increase.

The corporation then begins to view the whole world as a base for production and marketing operations. The next step In the development of a multinational business is focusing on the world market. The company may establish a foreign assembly plant, engage in contract manufacturing, or build a foreign manufacturing company or subsidiary. Therefore, a multinational corporation is a company that is primarily based in one country and has production and marketing activities in foreign countries.

Since World War II, multinational corporations have grown rapidly. The names and products of many of the multinationals have become well-known in the world marketplace: International Business Machines (IBM), Royal Dutch Shell, Panasonic, Coca-Cola, and Volkswagen. Coca-Cola, for example, now has operations in more than 180 countries.

A multinational corporation operates In a complex business environment. Cultural, social, economic, political, and technological systems vary from country to country. In order to operate successfully, a multinational company needs a basic understanding and appreciation of the foreign business environment.

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Why Nations Trade

The sale of goods and services is not restricted to local, regional, or national markets: it often takes place on an international basis. Nations import goods that they lack or cannot produce as efficiently as other nations, and they export goods that they can produce more efficiently. This exchange of goods and services in the world, or global, market is known as international trade. There are three main benefits to be gained from this type of exchange.

First, international trade makes scarce goods available to nations that need or desire them. When a nation lacks the resources needed to produce goods domestically, it may import them from another country. For example. Saudi Arabia imports automobiles; the United States, bananas; and Mexico, computers.

Second, international trade allows a nation to specialize in production of those goods for which it is particularly suited. This often results in increased output, decreased costs, and a higher national standard of living. Natural, human, and technical resources help determine which products a nation will specialize in. Saudi Arabia is able to specialize in petroleum because it has necessary natural resource; Mexico is able to specialize in the production of wooden furniture because it has the human resources to assemble the furniture by hand; and the United States is able to specialize in the computer industry because it has the technical expertise necessary for design and production.

There are two economic principles that help explain how and when specialization Is advantageous. According to the theory of absolute advantage, a nation ought to specialize in the goods that it can produce more cheaply than Its competitors or in the goods that no other nation is able to produce. According to the theory of comparative advantage, a nation ought to concentrate on the products that it can produce most efficiently and profitably. For example, a nation might produce both grain and wine cheaply, but it specializes in the one that will be more profitable.

The third benefit of international trade is its political effects. Nations that trade together develop common interests that may help them overcome political differences. Economic cooperation has been the foundation for many political alliances, such as the European Commutity (EC), founded in 1957.

International trade has done much to improve global conditions. It enables countries to import goods they lack or cannot produce domestically. it allows countries to specialize in certain goods with increased production and decreased prices. Finally, it opens the channels of communication among nations.

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The Target Market

The marketing strategies of determining product, price, placement, and promotion are not planned in isolation. Marketing analysts often look at a combination of these four factors. This combination of the four P’s is known as the marketing mix. The elements of the marketing mix focus on the consumer. In order to develop a successful marketing mix, researchers first ask two important questions:

• Who is going to buy the product?
• What is the potential to sell this product?

The group of customers or consumers who will probably buy the produt is known as the target market. The company directs its marketing efforts toward this group of potential customers who form the target market. Once market researchers have determined the target market they wish to appeal to, the company can develop an appropriate mix of product, price, place ment, and promotion. The company atempts to match consumer needs or mold consumer desires to the product being offered. For example, 1f the target market is middle-class teenagers, the marketing mix might consist of the following:

Product : blue jeans

Price : with the market

Placement : department store

Promotion : advertisements on a “pop music” radio station

A successful marketing mix depends on the knowledge about consumers and their buying habits, gained through market research as well as correct identification of the target market. Strategies of product, price, placement, and promotion are blended in order to reach a chosen group of consumers.

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The Four " P " Marketing Elements

Buying, selling, market research, transportation, storage, advertising these are all part of the complex area of business known as marketing. In simple terms, marketing means the movement of goods and services from manufacturer to customer in order to satisfy the customer and to achieve the company’s objectives.

Marketing can be divided into four main elements that are popularly known as the four P’s:

• Product
• Price
• Placement
• Promotion

Each one plays a vital role in the success or failure of the marketing operation. The product element of marketing refers to the good or service that a company wants to sell. This often involves research and development a new product, research of the potential market, testing of the product to insure quality, and then introduction to the market.

A company next considers the price to charge for its product. There are three pricing options the company may take: above, with or below the prices that its competitors are charging. For example, if the average price of a pair of women’s leather shoes is $47, a company that charges $43 has priced below the market; a company that charges $47 has priced with the market; and a company that charges $53 has priced above the market.

Most companies price with the market, selling their goods or services for average prices established by major producers in the industry. The producers who establish these prices are known as price leaders.

The third element of the marketing process — placement — involves getting the product to the customer. This takes place through the channels of distribution. A common channel of distribution is: manufacturer ----> wholesaler ----> retailer ----> customer

Wholesalers generally sell large quantities of a product to retailers, and retailers usually sell smaller quantities to customers. FInally, communication about the product takes place between buyer and seller. This communication between buyer and seller is known as promotion. There are two major ways promotion occurs: through personal selling, as in a department store; and through advertising, as in a newspaper or magazine. 

The four elements of marketing—product, price, placement, and promotion—work together to develop a successful marketing operation that satisfies customers and achieves the company’s objectives.

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Choosing Your Business Career

CAREERS IN BUSINESS

Business is an increasingly important activity throughout the world today. Consequently, the opportunities for a business career have grown in variety and number. There are now five broad fields, or areas, of business that offer exciting careers:

• Management
• Marketing 
• Accounting
• Finance
• Computers and data processing

Within each of these fields are specific jobs in which you can specialize. For example, within the field of marketing you can specialize in market research, advertising, buying, selling, or distribution. The figure below shows general career opportunities that are available in the various fields of business.

In choosing a business career, there are several questions you may want to ask. For instance, does the work interest you? Are there any areas of business for which you have an aptitude or special capability? What are the opportunities involved, such as salary, chance for advancement, and demand (or need) for the job? Answers to these kinds of questions and careful planning will help you choose a suitable and successful career in business.

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Business Definition

WHAT IS BUSINESS ?

Business is a word that is commonly used in many different languages. But exactly what does it mean? The concepts and activities of business have increased in modem times. Traditionally, business simply meant exchange or trade for things people wanted or needed. Today it has a more technical definition. One definition of business is the production, distribution, and sale of goods and services for a profit. To examine this definition, we will look at its various parts.

First, production is the creation of services or the changing of materials into products. One example is the conversion of iron ore into metal car parts. Next, these products need to be moved from the factory to the marketplace. This is known as distribution. A car might be moved from a factory in Detroit to a car dealership in Miami.

Third is the sale of goods and services. Sale is the exchange of a product or service for money. A car is sold to someone in exchange for money. Goods are products that people either need or want; for example, cars can be classified as goods. Services, on the other hand, are activities that a person or group performs for another person or organization. For instance, an auto mechanic performs a service when he repairs a car. A doctor also performs a service by taking care of people when they are sick.

Business, then, is a combination of all these activities: production, distribution, and sale. However, there is one other important factor. This factor is the creation of profit or economic surplus. A major goal in the functioning of an American business company is making a profit. Profit is the money that remains after all the expenses are paid. Creating an economic surplus or profit is, therefore, a primary goal of business activity.

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