What is Business:

All of the activities necessary to provide the members of an economic system with goods and
services.

The Nature of Business Activity

Businesses engage in three types of activities:
i) financing,
ii) investing, and
iii) operating.

Financing is necessary to start a business, and funds are obtained from both stockholders and
creditors. These funds are invested in the various assets needed to run a business. Once funds
are obtained and investments made in productive assets, a business begins operations, which
may consist of providing goods or services or both.
Define the terms assets, liabilities, and Owners’ equity.

Assets are resources owned by a business. Liabilities are amounts owed to creditors. Put more
simply, liabilities are existing debts and obligations. Owners’ equity is the ownership claim on
net assets.

Which of these items are liabilities of ABC Cleaning Service?

(a) Cash. (b) Dividends.
(c) Accounts payable. (d) Accounts receivable.
(e) Supplies. (f) Service revenue.
(g ) Equipment. (h) Rent expense.
(i) Salaries and wages payable.

The liabilities are (c) Accounts payable and (i) Salaries and wages payable.