Business a business organization that has a separate legal
personality from its owners
A person or organization engaged in the regular
conduct of commercial, industrial or usually adopted by large business organizations
professional activities, whether for profit or not,
in order to fulfill a purpose, goal, mission or can generate large amounts of capital from
cause. investments
The regular conduct or pursuit of a commercial not easy to set-up and organize
activity or an economic activity, including ownership is usually represented by shares of
transactions incidental thereto, by any person stock.
regardless of whether or not the person is
engaged therein is a non-stock, non-profit owners (stockholders) enjoy limited liability but
private organization or government entity. (Sec 105, have limited involvement in the company's
NIRC) operations.
Business easy to transfer ownership
Person or organization
Basic Types of Business
Regular conduct
There are major types of businesses:
Commercial, industrial or professional activities
Lawful transactions
1. Service Business
Whether for profit or not
a business that provides intangible products
To fulfill a purpose, goal, mission or cause (products with no physical form) for a fee
offers professional skills, expertise, advice, and
other similar products.
Forms of Business Organization
examples are: repair shops, beauty care, health
These are the basic forms of business ownership: and recreation, transportation, communication,
consulting, professional, medical and other
service companies.
1. Sole Proprietorship
2. Merchandising Business
a business owned by only one person
a business that buys products and sells the same
usually adopted by small business entities at a higher price for a profit.
easy to set-up and requires low capital known as "buy and sell" businesses.
owner faces unlimited liability sells a product without changing its form.
not easy to transfer ownership Examples are: grocery stores, convenience
stores, distributors, and other resellers.
2. Partnership
3. Manufacturing Business
a business owned by two or more persons
a business that buys materials and converts them
the partners contribute resources into the entity into a new product.
the partners divide the profits among combines raw materials, labor, and overhead
themselves. costs in its production process, and sells the
generally, all partners have unlimited liability. In manufactured goods to customers.
limited partnerships, creditors cannot go after 4. Mixed/Hybrid Business
the personal assets of the limited partners.
companies that can be classified in more than
3. Corporation one type of business.
example: A restaurant, combines ingredients in 1. Business Permit or Professional Tax Receipt -
making a fine meal (manufacturing), sells a cold from the City or Municipal Government Unit
bottle of wine (merchandising), and fills
customer orders (service). 2. Fire Safety Inspection Certificate - from the
Bureau of Fire Protection
3. Barangay Clearance and Community Tax
Not considered engaged in business: Certificate - from the barangay where the
business is operating
Government agencies and instrumentalities
4. Employer Registration - SSS, HDMF, PHIC,
Pure compensation employment (local or DOLE (if applicable)
abroad, private or government)
Directorship in a corporation
3. Comply with BIR Requirements:
Gratuitous transfer of properties by succession
or donation The business entity must also comply with the following
requirements of the Bureau of Internal Revenue:
Isolated or casual transactions by persons not
engaged in trade or business 1. Business registration
2. Issuance of receipts and invoices
Considered engaged in business: 3. Keeping of tax and accounting records
Freelancers, agents and consultants 4. Withholding of taxes on certain payments
Broadcast media talents and artists 5. Filing and payment of taxes
However profitable or noble the purpose of the business
Legal Requirements in Organizing a Business may be, the failure of the business entity to comply with
any of these requirements might lead to penalties, fines,
surcharges or, at worst, closure of the business.
1. Register Business Name and Entity
After the registration and securing all the necessary
Depending on the form of the business, it must register certificates and permits, the company needs to maintain
with the following government agencies: its accounting records.
1. Sole Proprietorship - Department of Trade and
Industry (Business Name Registration)
2. Partnership or Corporation - Securities and
Exchange Commission (Registration System)
3. Cooperative - Cooperative Development
Authority (Registration System)
2. Secure Business Permits and Licenses
Depending on the nature of its activities, the business
must secure its permits and licenses in the city or
municipality where it conducts its business. Generally
the following will be obtained:
Definition of Accounting 3. Statement of Changes in Owner's Equity
4. Statement of Cash Flows
5. Notes to the Financial Statements
Accounting is the art of recording, classifying, and
summarizing in a significant manner and in terms
of money, transactions and events which are, in part
at least of a financial character, and Users of Accounting Information
interpreting the results thereof (American Institute
of Certified Public Accountants). Internal Users (within the business organization)
Accounting is a service activity. Its function is to Owners
provide quantitative information, primarily financial Managers
in nature, about economic entities that is intended to Employees
be useful in making economic decisions Officers
(Accounting Standards Council). Internal Auditors
Accounting is the process of identifying, External Users (outside the business organization)
measuring and communicating economic
information to permit informed judgment and Customers
decision by users of the information (American Suppliers
Accounting Association). Creditors
Investors
Accounting is an information External Auditors
system that measures, processes and Government Agencies
communicates financial information about an Industrial Organizations
identifiable economic entity. Public
Accounting Branches of Accounting
a service activity, a process 1. Financial Accounting
to provide financial information 2. Management Accounting
about economic entities 3. Tax Accounting
for the use of interested users 4. Auditing
Purpose of Accounting Bookkeeping
to provide financial information about Bookkeeping is the recording of financial
the business that will be useful in transactions and is part of the process of accounting
making economic decisions of the users in business (Financial Accounting 2003, Weygandt;
of the information Kieso; Kimmel). It is largely concerned with the
implementation of the accounting procedures
manual and maintenance of the accounting records.
Bookkeeping is the procedural implementation of
Financial Statements Accounting.
1. Statement of Financial Position (Balance
Sheet)
2. Statement of Financial Performance (Income
Statement)
Bookkeeper is the person who keeps and maintains Prepare Accounts Payable reports
the books of accounts of the business organization.
The bookkeeper is responsible for recording the
transactions of the business. Inventory Accounting
Record receipts of inventory from suppliers.
Record release of inventory to customers
Functions of a Bookkeeper Record inventory returns and adjustments
Prepare purchase requests and Inventory
issuance slips
General Accounting Reconcile physical count of inventory to
ledger balances
Verify deposit of cash collections Maintain inventory subsidiary ledgers
Verify petty cash disbursements Prepare Inventory reports
Prepare bank reconciliation
Record transactions in the journals
Post to the subsidiary and general ledgers The Bookkeeper may also be assigned to handle
Reconcile general and subsidiary ledgers other functions, such as:
Prepare a draft of the Trial Balance
Assist the Accountant in the closing of the Property control and monitoring
accounts and finalization of the financial Payroll preparation
statements. Remittance of statutory deductions and
Maintain proper filing and retrieval of reports
accounting records Tax bookkeeping
Treasury and banking
Audit assistance
Accounts Receivable Managerial and administrative functions.
Record sales invoices
Record cash receipts from customers The scope and variety of functions depends on the
Record sales returns, account adjustments nature, type, size, organization structure of the
and credit memos from suppliers business and other factors.
Issue Statement of Accounts to customers
Reconcile accounts receivable ledger Due to the importance of his or her functions, the
balance with unpaid customer invoices. Bookkeeper must possess the knowledge, abilities
Maintain Accounts Receivable Subsidiary and temperaments required to properly fulfill his or
Ledger her duties and functions. One of the knowledge
Prepare Accounts Receivable reports requirements would be the basic knowledge in
Accounting.
Accounts Payable
Record purchase invoices
Record payments to suppliers
Record purchase returns, account
adjustments and debit memos from suppliers
Receive Statement of Accounts from
suppliers
Reconcile accounts payable ledger balance
with unpaid customer invoices.
Maintain Accounts Payable Subsidiary
Ledger
Recording prepare the accounting records for the next
accounting period.
1. Identification of Accountable 8. Post-Closing Trial Balance. After the closing
Transactions. Business transactions or events are entries are posted, the post-closing trial balance is
analyzed and identified whether they are prepared to check that the debit and credit balances
accountable or not. of the remaining accounts are correct.
2. Journalizing. The accountable transactions are
recorded in the book of original entry known as the Optional
journal. The transactions are recorded
chronologically using the appropriate accounts and
amounts. 9. Recording of Reversing Entries. At the
beginning of the next accounting period, selected
3. Posting. The transactions from the journal are adjusting journal entries made at the previous
classified in the book of final entry known as the accounting period are reversed to “normalize” the
ledger. The ledger classifies the transactions recording of the related actual transactions.
effecting the increases and decreases for each
account.
Summarizing
4. Trial Balance. The summary of accounts
balances from the ledger is prepared in the list of
accounts known as the trial balance. This is the
proof that the ledger debit balances and credit
balances are equal and is in balance.
5. Adjusting Entries. Adjusting journal entries
are made at the end of the accounting period to
assign revenues to the period in which they are
earned and expenses to the period in which they are
incurred.
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