Examples of Sole Proprietorship 3.

Corporation - is a created by at
CHAPTER 3: include small businesses like Sari- least five, but not more than fifteen
Forms and Types of sari Store, Ukay-ukay Stores or person and with the consents of the
Surplus Stores. government. Corporations raise
Business Organizations
capital by issuing certificates
(FABM) 2. Partnership - two or more called “stocks” or “shares” to
persons own a single business. The interested person.
Topic Overview: owners of partnerships are called
1. Forms of Business Organization - A person who bought these
partners. Partnership is created by
2. Types of Business According to shares from the corporations is a
the mere agreement of the partners.
activities. shareholders. A shareholders is
From then, the partners contribute
part owner of a corporation to the
resources and industry into the
extent of the number of his shares.
AgendA common fund and divide the
Chapter Objectives: profits of the venture among
At the end of this Chapter, students themselves based on their For Example: If Mr. A owns 1,000
must be able to: agreement. of the 10,000 issued shares of DEF
1. Differentiate the forms of Corporations. Mr. A is considered
Advantages:
business organizations. to own 1/10th (1,000/10000) of the
1. Easy to form, subject to less
2. Enumerate the advantages and corporation.
government requirements.
disadvantages of each forms. - Profit of the corporation are
2. Suited to the practice of
3. Compare and contrast the types distributed to shareholders in the
profession.
of business according to activities. form of “dividend”.
3. Some are exempted from
4. Enumerate the advantages,
income tax. Each shareholders will receive a
disadvantages, and business
4. Flexibility of operation. proportional amount of dividend
requirements of each type.
depending on the number os shares
Disadvantages:
Forms of Business Organization he/she has in the corporations.
1. Unlimited liability of the partner
for the debts of the partnership. Advantages:
1. Sole Proprietorship – is a 2. Limited term of existence. 1. Capacity as a legal entity
business owned by one person, 3. Limited capital 2. Practically unlimited life.
called the proprietor, who invests 4. Partners are jointly liable to the 3. Limited liability of stockholders
his/her money or capital in the actions of the other partners. for corporate debts.
business. 4. Wider source of capital
Types of Partnership:
Advantages:
Disadvantages:
1. Easy to form, less government 1. General Partnership – the 1. Activities limited by the articles
requirements. partners are personally liable top of incorporation and corporate by-
2. Fast decision-making, only one creditors of the partnership. laws.
person decides.
2. Possibility of abuse of power of
3. Flexibility of operations. 2. Limited Partnership – some officers.
4. Suited to small business. partners are liable only to the e 3. Subject to more governmental
extent of their capital contribution requirements.
Disadvantages: into the partnership.
1. Limited source of capital.
Examples of Corporations are big
2. Life may be dependent on the
companies like San Miguel
life of owner. Example of Partnership are
Corporation, Philex Mining
3. Management that may be professional firms like Sycip,
Corporation, SM Prime Holding
dependent on the capacity of the Gorres, Velayo and Co. and
Corporation, television giants like
owner. Punongbayan and Araullo
ABS-CBN, GMA and many others.
4. Less credit desirability and less Accounting Firms.
capital raising capacity.
Advantages: service business.
1. Capacity as a legal entity 2. Merchandising Business – buys Examples of power generating
2. Practically unlimited life. from suppliers and sells enterprises are Therma marine Inc.,
3. Limited liability of stockholders merchandise to customers. Hedcor Inc., and Aboitiz Power.
for corporate debts.
4. Wider source of capital It includes reality business who 6. Wasting Asset Enterprises –
sells capital goods (real properties) these businesses explore natural
Disadvantages: such as lots, house and lot and resources such as precious metals,
1. Activities limited by the articles commercial spaces, security natural gas, timber deposits, fish
of incorporation and corporate by- dealers to various customers. and other marine resources for
laws. exhaustion.
2. Possibility of abuse of power of Merchandising business may either
The distinction of a wasting asset
officers. he be a small business just like
enterprise with an agricultural
3. Subject to more governmental sari-sari store or it may be a big
business is the absence of
requirements. business just lie SM Department
agricultural growing like land
store, Puregold or Ace Hardware.
tilling, animal feeding, and
Examples of Corporations are big
establishment of an environment
companies like San Miguel 3. Manufacturing Business –
conducive for animal or crop
Corporation, Philex Mining produces good and sale. They buy
growth.
Corporation, SM Prime Holding raw material and convert them to
Corporation, television giants like finished product ready for sale.
Examples of wasting assets
ABS-CBN, GMA and many others.
companies are Philex Mining
Examples of manufacturing
Corporation, Lepanto Mining
companies are furniture factories,
TYPES OF BUSINESS Corporation, Philippine National
breweries like San Miguel
ACCORDING TO ACTIVITIES: Oil Company Exploration
Corporation, bakeries, book
Corporation and many others.
published like Real Excellence
1. Service Business - is one who Publishing, beverage produces like
renders services for free. Service Coca-Cola Philippines and many Activity#3
business includes printer rentals, others. Answer the following questions in
restaurants, machine shop, repair the yellow pad paper.
shop, laundry, computer shop, 4. Agricultural Business - grows Questions:
bank, and transport operators such crops, fish, and animals for sale. 1. If you were to out up a business
as bus, taxi and jeepneys. Laws with your friends and/or relatives,
and accounting firms are also Examples of Agricultural which business structure would
service businesses. companies are Banana industry you choose? Why?
just like Ban Wan Company in
Short-Term Service arrangement – Davao. The pineapple industry just 2. Match each of the foregoing
services to clients is rendered like Dole Philippines in Bukidnon business organization to the
instanly or up to few days. and many others. following description;
Example: Restaurant, Machine and
Repair Shop, Laundry Shop, 5. Power Generating Enterprises –
these businesses produce energy Forms of Business Organization
Computer Shop, Transport
Operators, and Hotel Operators. by harnessing the forces of nature
such as heat, wind, biomas, water A. Sole Proprietorship
current to create electricity. C. Corporation
Long-term service arrangement –
F. Mutual Fund
service engagement extends
These businesses differ from the B. Partnership
beyond months to years.
others in the sense that they D.Cooperative
Example: Construction, Bank produce an intangible product –
Financing, and Residential or energy. In law, the selling of ________1. Owned by two or
Commercial Leasing electricity is considered a form of more individuals with the
intentions of dividing profits period assumption of the business:
among themselves. 5. Accrual a. Payment of P5,000 tuition fees
________2. Owned by one person. 6. Monetary Unit b. Payment for P10,000 household
________3. Co-owned by its salaries
members. c. Sale of personal car
ACCOUNTING CONCEPTS
________4. Ownership indicated
AND PRINCIPLES
by shares. Periodicity Assumption – the
________5. Its profit may be presumed indefinite life of the
distributed through dividends. Accounting Assumptions – are business is broken unto distinct
________6. Easiest to form. concepts or principles in the equal time periods call “accounting
________7. Easier to transfer preparation of financial statements. period” over with the financial
ownership and raise funds; no performance and financial
personal liability on the part of the Going Concern Concept – the condition of the business are
owner. financial statements are prepared accounted and reported to users of
________8. Pooling of money on the assumption that the entity the financial statements.
from various investors to generate will continue in operation into the
income from its investments. foreseeable future without the need The length of the accounting
________9. Savings generated by or intention to stop operation. period can either be:
the entity are given to the owners 1. Weekly
as patronage refund. Accounting Entity – the owner and 2. Monthly
________10. An association of the business are two separate and 3.Quarterly
two or more persons to carry on as distinct parties. 4. Semi-Annually
co-owners of a business for profit. 5. Annually
Illustration#1
A business set-up a merchandising Calendar Year – a period which
business by investing P100,000.00
Chapter 4: cash to the business. He used the
starts January 1 and ends
December 31.
Basic Accounting P80,000.00 cash to purchase goods Fiscal Year – a period that starts
for sale, and used the rest to pay
Concepts and P10,000.00 rent of the business
any day other than January 1 and
ends any day other than December
Principles premise, P10,000 for local 31.
business taxes. He also paid
P5,000.00 tuition fee of his
children, P10,000 salaries of his ACCRUAL BASIS – it requires
Topic Overview: household help and sold his car for recognition of income when cash is
This chapter discusses the basic P150,000 earning him P15,000 collected rather than when it is
accounting concepts and principles gain. earned or expense when it is paid
in the preparation of financial rather than when it is incurred.
statements. In reporting for the business entity,
only transactions pertaining to the Accrual Basis or method of
The concepts to be introduced in business shall be recorded, such as reporting income or expense has
the following sections have a very the following: the following terms:
pervasive impact on accounting.
You are therefore advised to study a..Purchase of P80,000 goods a. Accrued Income –an income that
them carefully to facilitate your b. Payment for P10,000 rent is already earned but is not yet
understanding of future concepts to c. Payment for P10,000 local collected.
be introduced. business taxes b. Accrued Expense – an expense
BASIC ACCOUNTING that is already incurred but not yet
ASSUMPTIONS The following are non-business paid.
1. Going assumption related transactions (i.e. personal c Deferred Income – an income
2. Accounting entity transaction) and are NOT to be that is already but not yet earned.
3. Periodicity assumption /Accounting recorded in the accounting records d. Prepaid Expense – an expense
that is already paid but not yet
incurred. expenditures that benefits future
accounting periods. These are
recorded in accounting as assets.
2. Period Expenditures – these are
expenditures that benefits only the
current accounting period. These
are recorded as expenses.
Examples of Capital Expenditures:
a. Supplies
b. Inventory
c. Equipment
d. Land
d. Building What do you think it
f. Prepaid Expense should not be included as expenses?
Example: Incurring an unpaid
expense Examples of Period Expenditures: Possible Responses :
a. Salaries
James Enterprise pays employee b. Utilities Salary expense – it should be
salaries on the 3rd and 18th day of c. Rent included since it is related to the
the month. James Enterprise shall d. Interest operations of the business.
pay P30,000 salaries on July 3 next e. Cost of Sales Rent expense – it should be
month. included since the rent is for the
James Enterprise shall split the CASH BASIS ACCOUNTING – business.
P30,000 salaries expenses as It requires recognition of income Utilities expense (home) – should
follows: when it is earned rather than when not be included; it is a personal
it is collected. expense.
James shall record a salaries DUALITY CONCEPT – each Utilities expense (store) – should
expenses of P24,000 in June even transaction is portrayed as a two- be included; it is an expense of the
if the same is not yet paid because fold effect on at least two elements business.
the same is already incurred in of financial statements. Insurance expense – should be
June. This is called Accrued included since the insurance is for
Expense. The other P6,000 shall be Petness First Petshop the business.
recorded as expense in July. Withdrawals – should not be
Juan dela Cruz opened his pet shop included since the withdrawal is
MONETARY UNIT – a financial business called Petness First for personal use
transactions are recorded and Petshop. He opened a bank account
reported in terms of money such as for his business and deposited
the Peso.
The ownership to the goods
PHP500,000. The business earned Accounting
PHP50,000 but he had doubts with
transfer to the customer depending the recorded expense of Concepts and
on the following shipping terms: PHP60,000. He is not sure if he
should include the following items
Principles
a. FOB shipping point – ownership as expenses:
to the goods transfer to the buyer Salary expense P 20,000 The following principles should be
upon arrival at the warehouse of Rent expense 10,000 discussed. After each principle,
the buyer. Utilities expense (at home) 15,000 give a practical example.
b. FOB destination – ownership to Utilities expense (at the store) 10,000 Suggested examples are given
the goods transfer to the buyer Insurance expense 5,000 below.
upon arrival at the warehouse of Withdrawals 10,000 1. Business entity principle – a
the buyer. business enterprise is separate and
Types of Expenditure: TOTAL P60,000 distinct from its owner or investor.
1. Capital Expenditures – these are
Examples :
If the owner has a barber shop, the When the customer paid Jollibee relevant and material information
cash of the barber shop should be for their order, Jollibee should should be reported.
reported separately from personal have a copy of the receipt to Example:
cash. represent as evidence. The company should report all
The owner had a business meeting When a company incurred a relevant information.
with a prospective client. The transportation expense, a voucher
expenses that come with that should be prepared as evidence. 10. Conservatism principle – also
meeting should be part of the known as prudence. In case of
company’s expenses. If the owner 6. Cost principle – accounts should doubt, assets and income should
paid for gas for his personal use, it be recorded initially at cost. not be overstated while liabilities
should not be included as part of and expenses should not be
the company’s expenses. Example : understated.
When Jollibee buys a cash register,
2. Going concern principle – it should record the cash register at Example: In case of doubt,
business is expected to continue its price when they bought it. expenses should be recorded at a
indefinitely. When a company purchases a higher amount. Revenue should be
laptop, it should be recorded at the recorded at a lower amount.
Example: price it was purchased.
When preparing financial 11. Materiality principle – in case
statements, you should assume that 7. Accrual Accounting Principle – of assets that are immaterial to
the entity will continue indefinitely. revenue should be recognized make a difference in the financial
when earned regardless of statements, the company should
3.Time period principle – financial collection and expenses should be instead record it as an expense.
statements are to be divided into recognized when incurred
specific time intervals. regardless of payment. Example:
A school purchased an eraser with
On the other hand, the cash basis
Example : an estimated useful life of three
principle in which revenue is
Philippine companies are required years. Since an eraser is immaterial
recorded when collected and
to report financial statements relative to assets, it should be
expenses should be recorded when
annually. recorded as an expense.
paid. Cash basis is not the
The salary expenses from January
generally accepted principle today.
to December 2015 should only be Activity#4 Matching. Match the
reported in 2015. following words with their
Example:
definition:
When a barber finishes performing
4. Monetary unit principle – a. Going concern principle
his services he should record it as
amounts are stated into a single e. Time period principle
revenue. When the barber shop
monetary unit h. Monetary unit principle
receives an electricity bill, it
b. Objectivity principle
should record it as an expense even
Example : f. Cost principle
if it is unpaid.
Jollibee should report financial i. Accrual accounting principle
statements in pesos even if they c. Matching principle
8. Matching principle – cost should
have a store in the United States. g. Disclosure principle
be matched with the revenue
IHOP should report financial j. Conservatism principle
generated.
statements in dollars even if they d. Materiality principle
have a branch here in the
Example:
Philippines
When you provide tutorial services _______________1. All relevant
to a customer and there is a information should be included in
5. Objectivity principle – financial
transportation cost incurred related the financial reports
statements must be presented with
to the tutorial services, it should be _______________2. In case of
supporting evidence.
recorded as an expense for that doubt, assets and income should
period. not be overstated.
Example :
9. Disclosure principle – all _______________3. Assume that
the company will continue
indefinitely.
_______________4. All
transactions should be supported
by unbiased evidence.
_______________5. Expenses
should be recorded in the period
when the revenue is
generated.
_______________6. Minimal costs
incurred should be recorded as an
expense.
_______________7. A Philippine
company should report financial
statements in pesos.
_______________8. A barber who
performs services for a client
should record revenue.
_______________9. Statement of
Financial position should be
recorded as of December 31,
2021.
______________10. A company
that purchases furniture should
record it at its acquisition
price.