Business 1.

Service Business

• A person or organization engaged in the regular • a business that provides intangible products
conduct of commercial, industrial or professional (products with no physical form) for a fee
activities, whether for profit or not, in order to • offers professional skills, expertise, advice,
fulfill a purpose, goal, mission or cause. and other similar products.
• The regular conduct or pursuit of a commercial • examples are: repair shops, beauty care,
activity or an economic activity, including health and recreation, transportation,
transactions incidental thereto, by any person communication, consulting, professional,
regardless of whether or not the person is engaged medical and other service companies.
therein is a non-stock, non-profit private 2. Merchandising Business
organization or government entity. (Sec 105, NIRC)
Business • a business that buys products and sells the
same at a higher price for a profit.
• Person or organization • known as "buy and sell" businesses.
• Regular conduct • sells a product without changing its form.
• Commercial, industrial or professional activities • Examples are: grocery stores, convenience
• Lawful transactions stores, distributors, and other resellers.
• Whether for profit or not 3. Manufacturing Business
• To fulfill a purpose, goal, mission or cause
• a business that buys materials and converts
Forms of Business Organization them into a new product.
These are the basic forms of business ownership: • combines raw materials, labor, and overhead
costs in its production process, and sells the
1. Sole Proprietorship manufactured goods to customers.
4. Mixed/Hybrid Business
• a business owned by only one person
• usually adopted by small business entities • companies that can be classified in more than
• easy to set-up and requires low capital one type of business.
• owner faces unlimited liability • example: A restaurant, combines ingredients
• not easy to transfer ownership in making a fine meal (manufacturing), sells a
2. Partnership cold bottle of wine (merchandising), and fills
customer orders (service).
• a business owned by two or more persons
• the partners contribute resources into the Not considered engaged in business:
entity
• the partners divide the profits among • Government agencies and instrumentalities
themselves. • Pure compensation employment (local or abroad,
• generally, all partners have unlimited private or government)
liability. In limited partnerships, creditors • Directorship in a corporation
cannot go after the personal assets of the • Gratuitous transfer of properties by succession or
limited partners. donation
3. Corporation • Isolated or casual transactions by persons not
engaged in trade or business
• a business organization that has a separate
legal personality from its owners Considered engaged in business:
• usually adopted by large business
organizations • Freelancers, agents and consultants
• can generate large amounts of capital from • Broadcast media talents and artists
investments
• not easy to set-up and organize Legal Requirements in Organizing a Business
• ownership is usually represented by shares of
stock. 1. Register Business Name and Entity
• owners (stockholders) enjoy limited liability Depending on the form of the business, it must register with
but have limited involvement in the the following government agencies:
company's operations.
• easy to transfer ownership
1. Sole Proprietorship - Department of Trade and
Basic Types of Business Industry (Business Name Registration)
There are major types of businesses: 2. Partnership or Corporation - Securities and
Exchange Commission (Registration System)
3. Cooperative - Cooperative Development Authority
(Registration System)
2. Secure Business Permits and Licenses • to provide financial information
Depending on the nature of its activities, the business must • about economic entities
secure its permits and licenses in the city or municipality • for the use of interested users
where it conducts its business. Generally the following will
be obtained: Purpose of Accounting

• to provide financial information about the

1. Business Permit or Professional Tax Receipt - from
business that will be useful in making
the City or Municipal Government Unit
economic decisions of the users of the
2. Fire Safety Inspection Certificate - from the Bureau
information
of Fire Protection
3. Barangay Clearance and Community Tax
Certificate - from the barangay where the business Financial Statements
is operating
4. Employer Registration - SSS, HDMF, PHIC, 1. Statement of Financial Position (Balance Sheet)
DOLE (if applicable) 2. Statement of Financial Performance (Income
Statement)
3. Comply with BIR Requirements: 3. Statement of Changes in Owner's Equity
The business entity must also comply with the following 4. Statement of Cash Flows
requirements of the Bureau of Internal Revenue: 5. Notes to the Financial Statements

1. Business registration Users of Accounting Information

2. Issuance of receipts and invoices
3. Keeping of tax and accounting records Internal Users (within the business organization)
4. Withholding of taxes on certain payments
5. Filing and payment of taxes • Owners
• Managers
• Employees
However profitable or noble the purpose of the business
may be, the failure of the business entity to comply with any • Officers
of these requirements might lead to penalties, fines, • Internal Auditors
surcharges or, at worst, closure of the business.
After the registration and securing all the necessary External Users (outside the business organization)
certificates and permits, the company needs to maintain its
accounting records. • Customers
• Suppliers
What is accounting? What is its purpose? Let's get to learn • Creditors
on the next page! • Investors
• External Auditors
Definition of Accounting
• Government Agencies
• Industrial Organizations
Accounting is the art of recording, classifying, and • Public
summarizing in a significant manner and in terms of
money, transactions and events which are, in part at least of
a financial character, and interpreting the results thereof
(American Institute of Certified Public Accountants). Branches of Accounting

Accounting is a service activity. Its function is to 1. Financial Accounting

provide quantitative information, primarily financial in 2. Management Accounting
nature, about economic entities that is intended to be useful 3. Tax Accounting
in making economic decisions (Accounting Standards 4. Auditing
Council).
Bookkeeping
Accounting is the process of identifying, measuring and
communicating economic information to permit informed Bookkeeping is the recording of financial transactions and
judgment and decision by users of the information is part of the process of accounting in business (Financial
(American Accounting Association). Accounting 2003, Weygandt; Kieso; Kimmel). It is largely
concerned with the implementation of the accounting
Accounting is an information system that measures, procedures manual and maintenance of the accounting
processes and communicates financial information about records. Bookkeeping is the procedural implementation of
an identifiable economic entity. Accounting.

Accounting Bookkeeper is the person who keeps and maintains the

books of accounts of the business organization. The
• a service activity, a process
bookkeeper is responsible for recording the transactions of • Treasury and banking
the business. • Audit assistance
• Managerial and administrative functions.
Functions of a Bookkeeper
The scope and variety of functions depends on the nature,
General Accounting type, size, organization structure of the business and other
factors.
• Verify deposit of cash collections
• Verify petty cash disbursements Due to the importance of his or her functions, the
Bookkeeper must possess the knowledge, abilities and
• Prepare bank reconciliation
temperaments required to properly fulfill his or her duties
• Record transactions in the journals
and functions. One of the knowledge requirements would be
• Post to the subsidiary and general ledgers
the basic knowledge in Accounting.
• Reconcile general and subsidiary ledgers
• Prepare a draft of the Trial Balance
• Assist the Accountant in the closing of the accounts
and finalization of the financial statements.
• Maintain proper filing and retrieval of accounting
records

Accounts Receivable

• Record sales invoices

• Record cash receipts from customers
• Record sales returns, account adjustments and
credit memos from suppliers
• Issue Statement of Accounts to customers
• Reconcile accounts receivable ledger balance with
unpaid customer invoices.
• Maintain Accounts Receivable Subsidiary Ledger
• Prepare Accounts Receivable reports

Accounts Payable

• Record purchase invoices Recording

• Record payments to suppliers
• Record purchase returns, account adjustments and 1. Identification of Accountable Transactions. Business
debit memos from suppliers transactions or events are analyzed and identified whether
• Receive Statement of Accounts from suppliers they are accountable or not.
• Reconcile accounts payable ledger balance with
unpaid customer invoices. 2. Journalizing. The accountable transactions are
• Maintain Accounts Payable Subsidiary Ledger recorded in the book of original entry known as the journal.
• Prepare Accounts Payable reports The transactions are recorded chronologically using the
appropriate accounts and amounts.
Inventory Accounting
3. Posting. The transactions from the journal are classified
in the book of final entry known as the ledger. The ledger
• Record receipts of inventory from suppliers.
classifies the transactions effecting the increases and
• Record release of inventory to customers decreases for each account.
• Record inventory returns and adjustments
• Prepare purchase requests and Inventory issuance
slips
Summarizing
• Reconcile physical count of inventory to ledger
balances
• Maintain inventory subsidiary ledgers 4. Trial Balance. The summary of accounts balances from
the ledger is prepared in the list of accounts known as the
• Prepare Inventory reports
trial balance. This is the proof that the ledger debit balances
and credit balances are equal and is in balance.
The Bookkeeper may also be assigned to handle other
functions, such as: 5. Adjusting Entries. Adjusting journal entries are made
at the end of the accounting period to assign revenues to the
• Property control and monitoring period in which they are earned and expenses to the period
• Payroll preparation in which they are incurred.
• Remittance of statutory deductions and reports
• Tax bookkeeping
Reporting

6. Financial Statements. The following financial

statements are prepared: statement of financial position,
statement of financial performance, statement of changes in
equity, statement of cash flows and the notes to the financial
statements. These financial statements provide useful
information to interested parties for their decision-making.

7. Closing Entries. The temporary nominal accounts are

eliminated from the accounts by recording and posting the
closing entries. This will prepare the accounting records for
the next accounting period.

8. Post-Closing Trial Balance. After the closing entries

are posted, the post-closing trial balance is prepared to
check that the debit and credit balances of the remaining
accounts are correct.

Optional

9. Recording of Reversing Entries. At the beginning of

the next accounting period, selected adjusting journal entries
made at the previous accounting period are reversed to
“normalize” the recording of the related actual transactions.