UNIVERSITY OF THE EAST

Graduate School
Manila
GCT7102: Construction Accounting and Financial Management

Forms of
Business
Organizatio
n
By: Ar. Joramae A. Balbin
Learning Outcome:
Forms of business
organizations: advantages
and disadvantages
Business Life Cycle

Financial Management
Objectives
Some accounting concepts, techniques and
conventions as applied in the construction
industry
Financial accounting vs. Management
accounting: role in business organization
 Forms of  Sole proprietorship
Business  Partnership

Organizati 
Corporation
Cooperative
on
 SOLE
PROPRIETORSHIP
Forms of a business structure in which a single
person or individual owns and operates the
Business business. They have complete control over the
business and are responsible for its debts and

Organizati obligations. There is no legal distinction

between the owner and the business, making
the owner personally liable for all financial
on liabilities.
 PARTNERSHIP

Forms of a business structure treated as a

juridical person consists of two or more
Business partners, having a separate legal personality
from that of its members. Partners in a

Organizati partnership have unlimited liability, meaning

they are personally responsible for the debts
and obligations of the business only up to the
on amount of their capital contributions.
 CORPORATION

Forms of a business structure that is separate

from its owners (known as shareholders) and is
Business considered by law to be a distinct legal entity.
This means that the corporation can enter into

Organizati contracts, sue or be sued, and own assets in its

own name.

on must be at least five (5) and not more

than fifteen (15), every incorporator is
subscriber of at least one share, and majority of
the incorporators are residents of the
Philippines
 CORPORATION

Forms of Foreigners can be incorporators

provided that all requirements for incorporators
Business are complied with and provided further that the
business activity of the corporation is not fully

Organizati reserved for Filipino ownership.

All incorporators can be foreigners

on provided that all the requirements for
incorporators under the Corporation Code are
complied with and this is true for registration
under the Foreign Investment Act of 1991 as
amended by RA 8179.
Forms of Business Organization
STOCK NON-STOCK
CORPORATION CORPORATION
a corporation a corporation
with capital stock organized principally for
divided into shares and public purposes such as
are entitled to a portion charitable, educational,
of the profits (dividends) cultural or similar purposes
and a say in the and does not shares of stock
company's management its members.
through the election of a
board of directors.
 COOPERATIVE

Forms of a business structure often formed to

meet the needs of their members in sectors
Business such as agriculture, retail, credit unions, and
housing. They aim to provide goods, services, or

Organizati financial products to their members at a fair

price and may offer benefits

on must be 15 or more natural persons

who are Filipino citizens, of legal age, have a
common bond of interest, and are residing or
working in their intended area of operation
BUSINESS REGISTRATION

SOLE
PARTNERSHIP CORPORATION COOPERATIVE
PROPRIETORSHIP

DTI SEC CDA

DTI - Department of Trade and Industry

SEC - Securities and Exchange Commission
CDA - Cooperative Development Authority
ADVANTAGES & DISADVANTAGES
SOLE
PARTICULARS PARTNERSHIP CORPORATION COOPERATIVE
PROPRIETORSHIP
Unlimited personal Unlimited personal Limited to capital Limited to capital
Liability
liability liability contribution contribution
15 or more
Ownership 1 owner 2 or more 5-15 stockholders
incorporators
derived from
raised by the owner shares of shares of
Capital partners
only stockholders incorporators
contribution
depends of
goes directly to the depends of profit & company policy or dividends based on
Dividends
owner loss sharing distribution od democratic process
dividends
ADVANTAGES & DISADVANTAGES
SOLE
PARTICULARS PARTNERSHIP CORPORATION COOPERATIVE
PROPRIETORSHIP
Retirement/ can busy easily
lot of requirements lot of requirements lot of requirements
Dissolution dissolved
depends on the
goes directly ot the depdends on profit based on
Gain or Losses distribution of
owner & loss sharing democratic process
shareholdings
Fiscal year/ Fiscal year/
Accounting Method Calendar Period Calendar Period
Calendar Period Calendar Period
depends on unity of action unity of action
Ownership, decision Owner has full
partnership based on authority based on authority
making and control control
agreement of baord of directors of baord of directors
Business Life Cycle
The business life cycle is the progression
of a business in phases over time and is most
commonly divided into five stages: launch, growth,
shake-out, maturity, and decline. The cycle is
shown on a graph with the horizontal axis as time
and the vertical axis as dollars or various financial
metrics.
5 01
Stages of Business Life Cycle
This is the first stage of the business life cycle, where the
Introduction owner is starting a new business from scratch and working
to establish a customer base and secure funding.

In this stage, the business begins to grow and expand,

02 Growth attracting more customers and increasing revenue. The
business may also add new products and services, and
increase its marketing efforts.
In this stage, sales continue to increase, but at a slower
03 Shake-out rate, usually due to either approaching market saturation or
the entry of new competitors in the market.

the business reaches a stable level of growth and

04 Maturity profitability, with a well-established customer base and a
strong brand. The focus of the business is on maintaining its
position in the market and maximizing profits.

the business begins to experience declining sales, reduced

05 Decline profits, and a decrease in market share. The owner may
need to make changes to the business model or consider
exit strategies, such as selling the business or closing it
down.
Financial
Managementplanning, organizing, directing, and
controlling of the financial resources of a business
in order to achieve its objectives. It involves
making decisions about how to allocate and invest
capital, managing cash flow, and ensuring that the
business is financially stable and profitable.
Objectives of Financial
Management
 To ensure regular and adequate supply of funds to the concern.
 To ensure adequate returns to the shareholders which will depend
upon the earning capacity, market price of the share,
expectations of the shareholders.
 To ensure optimum funds utilization. Once the funds are procured,
they should be utilized in maximum possible way at least cost.
 To ensure safety on investment, i.e, funds should be invested in
safe ventures so that adequate rate of return can be achieved.
 To plan a sound capital structure- There should be sound and fair
composition of capital so that a balance is maintained between
debt and equity capital.
Role of Chief Financial
Officer (CFO)
senior executive responsible for
managing the financial operations of an
organization and holds the top financial
position in an organization
the role includes developing and
implementing financial strategies, managing
budgets, overseeing financial reporting and
analysis, ensuring compliance with financial
regulations, and building relationships with
stakeholders such as banks and investors.
FINANCIAL MANAGEMENT
ACCOUNTING
focuses on the preparation and
v ACCOUNTING
focused on providing informationto
internal stakeholders, such as

s
dissemination of financial
information that is intended for managers and employees, to help
external stakeholders, such as them make informed decisions about
investors, creditors, regulators, the operations and performance of
and tax authorities.

The purpose of financial

. the business.

Management accounting provides

accounting is to provide detailed information about the costs
information that is transparent, of products and services, the
accurate, and reliable, so that profitability of different products and
external stakeholders can make business units, and other relevant
informed decisions. data that can be used to improve
business processes and make
strategic decisions.
ACCOUNTING CONCEPTS, TECHNIQUES AND CONVENTIONS
as applied in the construction industry

Cash Basis
Job Costing
Method
Change Accural Basis
Orders Method
Percentage-of-
Progress
completion method
Billing
(PCM)
Accounting Completed-
for contract Method
Materials (CCM)
Retention
 JOB COSTING
ACCOUNTING
CONCEPTS, This is a technique used to track and
allocate the direct and indirect costs associated
TECHNIQUES with a specific construction project. Job costing
AND allows construction companies to accurately
determine the cost of each project and to
CONVENTIONS measure the profitability of each project.
as applied in the
construction
industry
 CHANGE ORDERS
ACCOUNTING
CONCEPTS, This is a technique used to track and
account for changes to the original scope of
TECHNIQUES work on a construction project. Change orders
AND are used to ensure that the client is charged
fairly for any additional work that is required
CONVENTIONS and to ensure that the construction company is
as applied in the fairly compensated for any additional costs.
construction
industry
 PROGRESS BILLING
ACCOUNTING
CONCEPTS, This is a convention used to invoice
clients for work completed to date, rather than
TECHNIQUES invoicing for the entire project upon completion.
AND Progress billing is common in construction
because of the long duration of many
CONVENTIONS construction projects and the need for cash flow
as applied in the to support ongoing operations.
construction
industry
 ACCOUNTING FOR
ACCOUNTING MATERIALS
CONCEPTS, This is a concept used to track and
account for the cost of materials used in a
TECHNIQUES construction project. This includes tracking the
AND cost of materials from purchase to the point of
use, and ensuring that the costs of materials
CONVENTIONS are accurately reflected in the financial
as applied in the statements.
construction
industry
 CASH BASIS
ACCOUNTING METHOD
CONCEPTS, a method of accounting where
transactions are only recognized in the financial
TECHNIQUES statements when cash is received or paid.
AND Under this method, revenue is recognized when
cash is received and expenses are recognized
CONVENTIONS when cash is paid.
as applied in the
construction simple and straightforward view of a
company's financial performance, as it only
industry
considers the actual cash inflows and outflows
 ACCURAL BASIS
ACCOUNTING METHOD
CONCEPTS, a method of accounting where
transactions are recorded in the financial
TECHNIQUES statements when they are earned or incurred,
AND regardless of when payment is received or
made. This method of accounting is based on
CONVENTIONS the accrual accounting concept, which states
as applied in the that revenue should be recognized when
construction earned, and expenses should be recognized
when incurred.
industry
a more comprehensive view of a
company's financial performance and financial
position
 PERCENTAGE-OF-
ACCOUNTING COMPLETION METHOD
CONCEPTS, (PCM) an accounting method used in the
TECHNIQUES construction industry that allows for the
recognition of revenue from a construction
AND project as the work is completed, rather than
CONVENTIONS waiting until the project is completed. The PCM
as applied in the is often used for construction projects with a
clear outcome and a predictable cash flow.
construction
industry
 COMPLETED-
ACCOUNTING CONTRACT METHOD
CONCEPTS, (CCM) an accounting method used in the
TECHNIQUES construction industry to recognize revenue from
a construction project. Under the CCM, revenue
AND from a construction project is not recognized
CONVENTIONS until the project is completed and all obligations
as applied in the have been fulfilled. This means that the costs
incurred during the construction process are
construction recorded as expenses as they are incurred,
industry while the revenue is not recognized until the
project is completed.
 RETENTION
ACCOUNTING
CONCEPTS, a convention method used in
construction where a portion of the payment for
TECHNIQUES a construction project is withheld until the
AND project is completed and the client is satisfied
with the work. Retention is used to protect the
CONVENTIONS client from poor workmanship and to ensure
as applied in the that the construction company has an incentive
construction to complete the work to the client's satisfaction.
industry
Citation:
RA 9520: PHILIPPINE COOPERATIVE CODE OF 2008
RA 386: CIVIL CODE OF THE PHILIPPINES
RA 9266: THE ARCHITECTURE ACT OF 2004

Online:
Russo, K. 2021. Construction Accounting 101: Choose the Right Method. Retrieved from:
https://www.netsuite.com/portal/resource/articles/accounting/construction-accounting-
methods.shtml

Beaver, S. 2021. 8 Key Construction Accounting Best Practices for Contractors. Retrieved from:
https://www.netsuite.com/portal/resource/articles/accounting/construction-accounting-best-
practices.shtml

https://corporatefinanceinstitute.com/resources/valuation/business-life-cycle/

https://www.managementstudyguide.com/financial-management.htm

https://www.sec.gov.ph/faqs/#gsc.tab=0

https://www.dti.gov.ph/
THANK
YOU!