Business Theory - An Introduction to Formal Accounting | ENTRE Institute Reviews

 

A business is described as any corporation, partnership or other type of entity organized for the purpose of conducting commercial, productive, or financial activities. Most businesses are either for-profit or non-profitable entities that conduct business to meet a social objective or further a religious cause. A business may be owned by one individual or by a group. Private schools, legal firms, publishing houses, and charities are examples of businesses.

Businesses normally produce and sell their own products or services and receive payment from customers or other entities for the production or delivery of these goods and services. Almost every business firm sells the same types of products and services over again. The sole purpose of a business firm is to make a profit. In other words, profit is the goal or purpose of a business. Profit can also mean income or a return on investment or simply profit as the synonym. The profit made by a business firm represents the difference between the cost and the value received.

In a nutshell, modern business is defined by profit as the difference between what a firm earns and what it costs to provide its services or its goods to customers. In its simplest form, a profit can be defined as the whole amount obtained from the sale less the total expenses incurred to render the service or the good to the customer. The word "profit" is not a legal term in modern business. In business, profit means the whole profit acquired from the sale of the assets of a business firm. Profits are the result of a process of subtracting costs from the value of the assets. Costs, on the other hand, are items not deducted such as salaries paid to employees and interest on loans.

Under the heading of profit, there are two other important concepts that are equally important to understanding business operations in general. These concepts are cost and the purpose of the business organization. Both cost and the purpose to relate, to a certain extent, to the overall economic objectives of a business organization.

A corporation is a set of individuals or a set of businesses that come together to undertake a specific task or perform a specific function. Examples of such organizations are joint ventures, partnerships, corporations, partnerships, syndicates and trusts. Partnerships are examples of associations formed to undertake a common task. For example, a partnership comes into being when two or more people enter into a partnership to undertake a business activity. Similarly, a syndicate is an association of people who come together to pool resources and make profits.

Limited partnerships refer to the type of partnership in which only one partner is a general partner and each partner is an associate. Each partner contributes his or her personal assets to the partnership in proportion to the value of the investment made by each partner. Limited partnerships come into being when there is investment by individuals, corporate entities or sometimes by governments.

Profit motive forces are at work in every business firm. The profit motive forces motivate firms to produce and sell goods and to promote their sales by developing marketing strategies and other forms of advertising. Companies engage in productive economic activity when they make the maximum possible profit from the activity. Profits are measured by the net income earned by the company at the end of the period of operation.

Many businesses in the U.S. have been established as sole proprietorships. These businesses do not engage in productive economic activity; rather, they are engaged in trading of one form or another. Some of these businesses operate as for profit organizations, while others sell goods that are produced by others. All of these types of businesses, however, fall within the range of what is commonly recognized as profit-earning businesses.