Justine June B.

Durana BSIT-2A ICT-141

Performance Task 2: Business Organization Analysis
1. Business Organization Overview

 Sole Proprietorship: Sole proprietors have complete control over their business. They
have no partners (unless the owners are a married couple) and do not operate as a
corporation. A sole proprietorship provides no separation between the business and owner.
The owner assumes all tax obligations and legal liabilities. Many sole proprietors conduct
business under their own names. By becoming a sole proprietor, an owner can operate the
business under a different name from their own (known as a DBA name, for “doing
business as”). Another benefit of sole proprietorships is that the sole owner of the business
has complete control over all business decisions. Additionally, tax preparation is typically
less time consuming as owners report all profits on their personal tax return. Unlike in other
business structures, in a sole proprietorship, the owner and entity are considered one and the
same. While this may be beneficial in some respects, it also means that the sole proprietor
does not have legal protection and can be held personally liable for the business. Without
this legal separation, personal assets of the owners are not protected; that means vehicles,
houses, and other collateral can be seized because of company debts or if the company is
the target of legal actions.

 Partnership: The most common type of partner is a general partner, who

actively manages and exercises control over the business operations. While limited
partners have limited legal liability. This type of partner cannot manage or exercise
control over the business. A written agreement should outline the partners’ roles,
rights and responsibilities. It can provide clarity on capital interests, profit splitting
and business continuity in case a partner departs.

 Corporation: To form a corporation, articles of incorporation must be filed with

the secretary of state's office in the state in which the corporation is being organized
in this article, we answer the question “What is a corporation?” and explore the pros
and cons of a corporation, list the steps required to start a corporation, and answer
important FAQs. As a separate legal entity, the corporation has a perpetual life. This
means that it can continue as an entity indefinitely until the shareholders/owners
choose to dissolve it. A corporation continues to exist even after the death,
incapacity, or withdrawal of shareholders, directors, or officers. Furthermore, as a
separate legal entity, the corporation is liable for its own debts and can only be held
liable to the extent of the corporation’s assets. Even though shareholders can profit
from the corporation through dividends and stock appreciation, they can’t be held
personally liable for the business’s debts. The assets of a shareholder (owners) are
personal assets that cannot be reached by corporate creditors, unless the "veil" of
corporate limited liability is "pierced." The corporate veil is pierced when the
required corporate formalities, such as having annual directors' and shareholders'
meetings, etc., aren't followed.
Justine June B. Durana BSIT-2A ICT-141
2. Tax Implications
 With a sole proprietorship, you don’t set up a separate legal business entity. Your
profits (if any) are taxed like any other earned income, and your losses can be
used to offset other income, up to certain limits. In addition, you will typically be
subject to self-employment taxes to cover Social Security and Medicare. In
a limited partnership (LP), one partner becomes the general partner, taking on
unlimited liability for the company (much like a sole proprietor). The other
owners, known as limited partners, have limited liability and usually less of a say
in how the business is run. The other major type of partnership, a limited liability
partnership (LLP), works similarly. The primary difference is that all of the
partners have limited liability. Partnerships, like sole proprietorships, are pass-
through entities, meaning that any profits or losses from the business are passed
through to the individual partners, who must then report them on their personal
tax returns. Partners can also deduct certain partnership-related expenses they
incurred if they were not reimbursed for them. Since the partners are individually
responsible for any taxes, partnerships are not subject to separate business taxes.
They are, however, required to file an informational tax return (Form 1065) with
the Internal Revenue Service (IRS) each year, showing the partnership’s income,
expenses, deductions, and other information. While corps are not pass-through
entities. They must file corporate tax returns every year and pay taxes on their
profits. In fact, they must generally file a tax return even if they didn’t turn a
profit. If they distribute any portion of their profits to shareholders in the form
of dividends, the shareholders are taxed on those individually.

3. Liability Considerations
 The level of personal liability for business owners varies significantly depending
on the type of business organization they choose. Sole proprietors and general
partners face the highest risk, as they are personally liable for all debts and
obligations of the business. Corporations and limited liability companies (LLCs)
offer limited liability, protecting owners' personal assets from business debts.
However, state laws and the nature of the business can influence these protections.
In certain circumstances, such as fraud or piercing the corporate veil, shareholders
or members may be held personally liable. Understanding these differences is
crucial for business owners to manage their financial risk exposure effectively.
Justine June B. Durana BSIT-2A ICT-141
Performance Task 3: Exploring the Definition and Branches of
Accounting

1. Research and Definition

 Definition of Accounting: Accounting is the process of identifying, measuring,

recording, and communicating financial information to users. It serves as the
language of business, providing insights into a company's financial health and
performance. Accounting information is crucial for decision-making by investors,
creditors, management, and government agencies. It helps organizations track
income, expenses, and overall financial performance, ensuring compliance with
regulations and facilitating effective communication with stakeholders.
Accounting is essential for businesses and non-business organizations alike,
supporting financial control, decision making, risk management, and investor
relations.

 Brief History: The history of accounting can be traced back to ancient civilizations
like Mesopotamia and Egypt, where rudimentary systems were used to record
transactions and track assets. However, the development of double-entry bookkeeping in
medieval Italy is considered a major milestone. This system, attributed to Luca Pacioli,
introduced the concept of debits and credits, providing a structured way to record
financial transactions. He is also known as the “father of accounting”.

The Industrial Revolution led to increased economic activity and the need for more
sophisticated accounting practices. Corporations emerged, and accounting standards were
developed to ensure transparency and comparability of financial information. The 20th
century saw significant advancements in accounting theory, with the development of
frameworks like the Generally Accepted Accounting Principles (GAAP) and
International Financial Reporting Standards (IFRS).

Technological advancements have also revolutionized the accounting field. The advent of
computers and accounting software has automated many manual tasks, enabling faster
and more accurate financial reporting. Additionally, the rise of data analytics and
artificial intelligence is transforming accounting practices, allowing for greater insights
into financial data and improved decision-making.
Justine June B. Durana BSIT-2A ICT-141
2. Exploring the Branches of Accounting:

 Financial Accounting: is the process of recording, analyzing, and reporting

financial information to external users. Its primary purpose is to provide insights
into a company's financial performance, position, and cash flows. Key activities
include transaction analysis, journalizing, posting, trial balance preparation,
adjusting entries, closing entries, and financial statement preparation. The primary
user of this branch are investors, creditors, government agencies, suppliers, and
costumers. By accurately capturing and presenting financial data, financial
accounting helps stakeholders make informed decisions about investing, lending,
and business operations.
 Managerial Accounting: is a branch of accounting that provides financial
information to internal users, such as managers and employees. It helps these
stakeholders make informed decisions about operations and strategies by
providing relevant data for decision-making, supporting planning and control, and
improving efficiency and effectiveness. Key activities include cost accounting,
budgeting, performance evaluation, variance analysis, and decision analysis. This
information is essential for internal stakeholders to make informed decisions and
improve the overall performance of the business.
 Cost Accounting: is a specialized branch of accounting that focuses on
measuring and analyzing the costs of producing goods or services. It provides
internal management with information to improve efficiency, profitability, and
decision-making. Key activities include cost classification, allocation, estimation,
control, and analysis. This information is valuable to managers, engineers,
purchasing agents, and sales representatives, helping them make informed
decisions and improve the overall profitability of the business.
 Auditing: is the independent examination of an entity's financial statements to
provide assurance about their reliability and accuracy. Auditors plan, assess risks,
gather evidence, test controls, and conduct substantive testing to form an audit
opinion. This opinion is valuable to investors, creditors, regulatory bodies, and
management, as it provides confidence in the financial information and helps
protect their interests.
 Tax Accounting: is a specialized area of accounting that focuses on ensuring
compliance with tax laws and regulations. Tax accountants help individuals and
businesses minimize their tax burden by providing tax planning, return
preparation, research, and audit representation services. These services are
valuable to individuals, businesses, non-profit organizations, and fiduciaries who
need assistance with their tax obligations.
Justine June B. Durana BSIT-2A ICT-141
 Government Accounting: is a specialized branch of accounting that focuses on
the financial management of government entities. Its primary purpose is to ensure
transparency, accountability, and compliance with government regulations and
standards. Key activities include revenue recognition, expenditure control,
financial reporting, and internal controls. Users of government accounting
information include legislators, executive agencies, citizens, and auditors. By
providing reliable and accurate financial information, government accounting
helps to promote good governance and public trust.
 Accounting Education: equips individuals with the knowledge and skills
necessary to understand, analyze, and communicate financial information. Its
primary purpose is to prepare students for careers in accounting, finance, and
related fields. Key activities in accounting education include teaching fundamental
accounting principles, financial analysis, auditing, tax accounting, and financial
management. Users of accounting education include students, professionals, and
businesses seeking to enhance their financial literacy and skills. By providing a
strong foundation in accounting, educational programs contribute to the
development of qualified professionals who can support businesses and
organizations in making informed financial decisions.
 Accounting Research: is a systematic investigation of accounting phenomena to
develop new knowledge and understanding. Its primary purpose is to advance the
field of accounting by exploring emerging issues, evaluating existing practices,
and proposing improvements. Key activities in accounting research include
literature reviews, empirical studies, theoretical analyses, and case studies. Users
of accounting research include academic researchers, accounting practitioners,
policymakers, and students. By contributing to the development of new accounting
theories and practices, accounting research helps to improve the quality and
relevance of financial information and supports effective decision-making.

3. Practical Application.
Case Scenario: Scenario 1 (A company preparing for an external
audit)

Financial Accounting

 Role: The cornerstone of external audits, financial accounting provides the

primary data and information that auditors examine.
 Specific Tasks:
o Preparing the financial statements (income statement, balance sheet,
statement of cash flows, and statement of retained earnings)
o Ensuring the accuracy and completeness of financial records
o Complying with relevant accounting standards (e.g., GAAP, IFRS)
 Impact: Financial accounting's contribution is crucial to the overall outcome of
an audit. If the financial statements are not accurate or complete, it can lead to
significant audit findings and potential adverse opinions.
Justine June B. Durana BSIT-2A ICT-141
Managerial Accounting

 Role: While not directly involved in the external audit process, managerial
accounting can provide valuable supporting information and analysis.
 Specific Tasks:
o Providing cost and profitability analysis
o Assisting in budgeting and forecasting
o Identifying potential areas of risk or concern
 Impact: Managerial accounting can indirectly influence the audit outcome by
providing insights that can help auditors identify potential issues or areas of focus.
Additionally, well-prepared managerial accounting information can streamline the
audit process and reduce the overall audit fee.

Tax Accounting

 Role: Tax accounting can have a significant impact on the financial statements
and the overall audit process.
 Specific Tasks:
o Preparing tax returns
o Ensuring compliance with tax laws and regulations
o Providing tax advice and planning
 Impact: Errors or omissions in tax accounting can lead to adjustments in the
financial statements, potentially affecting the audit opinion. Additionally, effective
tax planning can reduce the company's overall tax burden, which can improve its
financial performance and reduce audit risks.

REFLECTION:
Managerial accounting, with its focus on analyzing financial
data to inform strategic decisions, has captured my interest. The
field's emphasis on data-driven decision-making resonates deeply
with my aspirations to become a data scientist. I'm fascinated by
the way managerial accounting uses financial metrics to assess
profitability, identify areas for improvement, and guide business
choices. This aligns perfectly with the core skills of a data
scientist which will be my future job, where they leverage data
analytics to uncover insights and solve problems. The ability to
interpret complex financial data, build financial models, and
optimize business processes through data analysis is a powerful
skill set that I believe will be invaluable in my future career.
Furthermore, the intersection of data visualization and financial
reporting within managerial accounting provides a unique
opportunity to communicate complex financial information in a
clear and compelling way, a crucial skill for any future data
scientist. Overall, I find managerial accounting to be a captivating
Justine June B. Durana BSIT-2A ICT-141
field that offers a strong foundation for a successful career in data
science.