Business and Accounting

7/30/2019 Business and Accounting

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BUSINESS - An organization or economic system where goods and services are exchanged for one

another or for money. Every business requires some form of investment and enough customers to

whom its output can be sold on a consistent basis in order to make a profit. Businesses can be privately

owned, not-for-profit or state-owned. An example of a corporate business is PepsiCo, while a mom-and-

pop catering business is a private enterprise.

Different forms of business organization

Sole proprietorship

Also referred to as single proprietorship, a sole proprietorship is the most simple form of business and

the easiest to register, through the Bureau of Trade Regulation and Consumer Protection (BTRCP) of the

Department of Trade and Industry (DTI). It is owned by an individual who has full control/authority of its

own and owns all the assets, as well as personally answers all liabilities or losses. The fact that it is run

by the individual means that it is highly flexible and the owner retains absolute control over it.

The problem, however, is that a sole proprietor has unlimited liability. Creditors may proceed not onlyagainst the assets and property of the business, but also after the personal properties of the owner. In

other words, the law basically treats the business and the owner as one and the same. This uniform

treatment also has important tax implications. Partnerships and corporations may lessen their tax

liability through a myriad of business expenses and other tax avoidance techniques. These tax

deductions may not be applicable to a sole proprietorship. Also, the potential growth and reach of a sole

proprietorship pale in comparison with that of a corporation.

Partnership

A partnership consists of two or more persons who bind themselves to contribute money or industry to

a common fund, with the intention of dividing the profits among themselves. The most common

example of partnerships are professional partnerships, like in the case of law firms and accounting firms.

Just like a corporation, it is registered with the Securities and Exchange Commission (SEC).

A partnership, just like a corporation, is a juridical entity, which means that it has a personality distinct

and separate from that of its members. A partnership may be general or limited. In a general

partnership, the partners have unlimited liability for the debts and obligation of the partnership, pretty

much like a sole proprietorship. In a limited partnership, one or more general partners have unlimited

liability and the limited partners have liability only up to the amount of their capital contributions.

Unlike a corporation, which survives even when a member/stockholder dies or gets out, a partnership is

dissolved upon the death of a partner or whenever a partner bolts out.

Corporation

A corporation is a juridical entity established under the Corporation Code and registered with the SEC. It

must be created by or composed of at least 5 natural persons (up to a maximum of 15), technically

called incorporators. Juridical persons, like other corporations or partnerships, cannot be


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incorporators, although they may subsequenly purchase shares and become corporate

shareholders/stockholders.

The liability of the shareholders of a corporation is limited to the amount of their capital contribution. In

other words, personal assets of stockholders cannot generally be attached to satisfy the corporations

liabilities, although the responsible members may be held personally liable in certain cases. For instance,

the incorporators may be held liable when the doctrine of piercing the corporate veil is applied. The

responsible officers may also be held soliarily liable with the corporation in certain labor cases,

particularly in cases of illegal dismissal.

The biggest businesses take the form of corporations, a testament to the effectiveness of this business

organization. A corporation, however, is relatively more difficult to create, organize and manage. There

are more reportorial requirements with the SEC. Unless you own sufficient number of shares to control

the corporation, youll most likely be left with no participation in the management. The impact of these

concerns, however, is minimized by the army of lawyers, accountants and consultants that assist the

corporations management.

Different classifications of business

1. Service business this provides intangible goods or services to customers. It usually generates profit

by charging for labor or other services rendered to consumers, government or other companies. Below

are examples of service businesses:

Firms which offer professional services, such as accounting, legal, engineering, business consulting,

customer service and architecture

Transportation companies, such as airlines, shipping, land tours and forwarders

Entertainment, such as artists and movie houses

Hotels and restaurants

Apartments

Banks, lending companies and other financial institutions

Telecommunication companies

Event planners

Medical and dental services

Security and janitorial services

Media, blogging and advertising


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Website developers

Graphic designers

Business process outsourcing (BPO) companies

and others

2. Merchandising business this purchase products from other businesses or manufacturers and sell

them to customers. Merchandising companies usually have merchandising inventories in their current

assets account. They usually generate profit by providing markup price on their goods available for sale.

These businesses include retailers and trading companies such as the following:

Grocery stores

Department stores

Distributors

Real estate dealers

Car dealers

3. Manufacturing business this converts raw materials, labors and overhead into finished products that

are available for sale to customers. Manufacturing firms includes the following companies:

Car manufacturers

Wine and soft drinks producers

Electronic parts manufacturers

Producers of drugs and other medical products

4. Other businesses. This includes businesses that cant be classified as service, merchandising or

manufacturers. Examples are agriculture and mining companies. These companies are engaged in

producing or exploration of raw or natural materials, such as plants and minerals.

Advantages and Disadvantages of Business Organization Types

It is important to understand the different types of business organizations types such as a sole

proprietorship, partnership, and corporation. A businesss organizational structure influences issues,

legal issues, financial concerns, and personal concerns.

A Sole Proprietorship is a business with one owner who operates the business on his or her own or

employ employees. It is the simplest and the most numerous form of business organization in the


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United States, however it is dangerous as the sole proprietor has total and unlimited liability. Self

contractor is one example of a sole proprietorship.

Advantages of a sole proprietorship

Simplest and least expensive form of business to establish and to dissolve.

The owner is making all the decisions and controlling the whole operations.

All profit flows directly to the owner.

It is subject to fewer regulations.

It has tax advantage: any income is declared as the owners personal income tax return, therefore there

are no corporate income taxes.

Disadvantages of a sole proprietorship

The owner is responsible for all the obligations of the business.

It is difficult to raise capital: it can only use the owners personal saving and consumer loans.

A Partnership is a business with two or more individuals owns and manages the business. Partners share

the unlimited liabilities of the business and operate the business together. There are three classificationof partnerships: general partnership (partner divide responsibility, liability and profit or loss according to

their agreement), limited partnership (in additional at least one general partner, there are one or more

limited partner who have limited liability to the extent of their investment), and limited liability

partnership (all of the partners have limited liability of the business debts; it has no general partners).

Advantages of a partnership

It is relatively easy to form but considerable amount of time should be invested in developing the

partnership agreement.

It is easier to raise capital compared to a sole proprietorship as there are more than one investor.

Any income is declared as the partners personal income tax returns, therefore there are no corporate

income taxes.


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Employees may be motivated and attracted to the business by the inventive to become a partner

Disadvantages of a partnership

Partners are jointly responsible for all the obligations of the business.

Partners must make decision together therefore disputes or conflicts may occur. It may eventually lead

to dissolving the partnership.

A corporation is a limited liability entity doing business owned by multiple shareholders and is overseen

by a board of directors elected by the shareholders. It is distinct from its owners and can borrow money,

enter into contracts, pay taxes and be sued. The shareholders gain from the profit through dividend or

appreciation of the stocks but are not responsible for the companys debts.

Advantages of a corporation

It can raise additional funds through the sale of stock.

Shareholders can easily transfer the ownership by selling their stock.

Individual owner liability is limited to the value of stock they are holding in the corporation.

Disadvantages of a corporation

It is restricted by more regulations, more closely monitored by governmental agencies and are more

costly to incorporate than other forms of the organizations.

Profit of the business is taxed by the corporate tax rate. Dividends paid to shareholders are not

deductible from corporate income, so this part of income is taxed twice as the shareholders must

declare dividends as their personal income and pay personal income taxes too.


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WHAT IS ACCOUNTING?

The systematic recording, reporting, and analysis of financial transactions of a business. The person in

charge of accounting is known as an accountant, and this individual is typically required to follow a set of

rules and regulations, such as the Generally Accepted Accounting Principles. Accounting allows a

company to analyze the financial performance of the business, and look at statistics such as net profit.

The four phases of accounting are as follows:

Recording

Recording is the first phase of accounting in which all monetary information is recorded in order to

make a record that can be used for various needs. Accounting records are used for taxes, budgeting,

reporting and business plans.

Without recording the monetary transactions it will be hard to determine where a business or person

has spent their money. Accounting is used in personal and business situations.

During the recording phase, transactions have to be classified into categories. This is for tax purposes. In

taxation there are different categories that can provide savings.

Classifying

In order to determine how much one spent in each of the categories one has to classify the records. For

example in a business, office supplies can be deducted from the taxes. Dining and entertainment can

also be used as a deduction.

Summarizing

After the recording phase and the classification stage comes summarizing the various categories into a

linear sheet of information that is easier to read. From this one can discover how much was spent, what

was kept, what was paid out, where and other information.


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The summarizing stage makes the interpretation of the data that much easier. One has to be able to

interpret the data to find out what may be changed, what has changed, and where the person or

company is going financially. Often in the interpretation things such as where one can budget better or

where one needs to find money for the next year can be found.

Interpreting

If you look at it from a business standpoint there may be equipment that is needed so interpreting the

data can help find the extra money for the equipment. It can also be used as a phase to determine stock

information.

The four phases of accounting are recording, classifying, summarizing and interpreting. Some people

who work in finance often say that communication, although it is not officially one of the accounting

phases, it should still be considered an important step. This means that good communication must be

observed during all four phases of the accounting cycle to help things run as smoothly as they possibly

can.

The first phase of accounting is recording which can also be called bookkeeping. During this phase, any

financial transactions that have taken place over the financial period, whatever time frame that may be,

must be chronologically recorded in a systematical way. The accounting period can either be each

month, quarterly or at the end of every year. The correct books and databases must also be used.

The second phases of accounting is classifying, which means that all financial items and transactions

must be sorted, organized and grouped under certain names, categories and account depending on the

nature of the transaction for example, travel expenses.

The third phrase is summarizing means that all data has to be summarized at the end. It is essential

that this summarized data is easy to understand for people who work within the accounting department

and for people who are not, as these files may be read by people from all departments within thecompany. Visual aids such as charts and graphs may also be used alongside the data presented.

The final stage of accounting is interpreting which is where people look at the data that has been

recorded, classified and summarized and they interpret that data. By doing this, the people examining

the data will be able to reach informed decisions about the financial status of a company. This data will

also be used to come up with future financial plans for the business.


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Answer:

The following are the users of accounting information system;

Shareholders of a company: Company's shareholders are the real owners of a business and needs

information from those that manage the business on their behalf.

Government: It is the duty of government to protect lives and property and in so doing will need

information concerning every facet of her jurisdiction. Information from businesses in the form of

financial report will help government properly formulate her strategic plan.

Suppliers/ Creditors: Suppliers and creditors of a company need information concerning the financial

position of a company. They need to be convinced that the company is liquid enough to meet with her

obligations upon maturity.

General public: The general publics will some time need information about the finance of a company in

order to protect their interest.

Students: students need information about company's finance to take some decisions that relates to

courtesy visit and demand for bursary

Employees: Employees and lower cadre managers are only interested in a company's financial

statements because they want the safety of their daily bread. They may also want increase in wages and

salaries.

Management: Management in this are the top level managers and they have similar interest with

ordinary managers. The only difference is that management also need this information to make

economic decision that concerns the running of the business.

Tax authority: They are only concerned about the returns that comes to them in the form of tax

revenue.

Trade union: Their concern is to seek a fair wage for their members. Knowing what a company is making

will give them an insight of what to agitate for as fair wage

Professional bodies: Professional bodies need accounting information as a tool that will be used to

educate her members.

Potential investors: For potential investors to be in a position to make investment decision some

analysis has to be made and this can only be made from accounting information.


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Accounting is very related to the business because in business we need to be responsible to the money

that we are holding or to the money that was being used to make our business' stronger. In accounting

using money wisely was being discussed not only spending money wisely but also recording different

transactions that was really necessary to make a report of what do the business needs and what do the

business weakness

Almost every business involves the exchange of money in one way or another. If I go to the store, the

owner had to buy the merchandise, then I pay for it and they have to pay their rent, employees, taxes,

and many other costs.

It is very important to keep careful track of all this money. The store has to make sure what they are

earning is greater than the total cost of running their business. If not, they will have to close shop. They

also have to plan for paying bills, and save money each month so they will have enough to pay taxes

each year. They need to know they are making enough to pay their employees. And they need to make

sure no one is stealing any money from the cash registers, and keep track of the cost of the merchandise

that is stolen from the store.

Keeping track of all this flow of money is called "accounting." In a small store, the shop owner may do

the accounting themselves. If a business is large enough, they are able to hire an "accountant" to do the

accounting. The larger the business the more accountants they may have. It is an essential part of

running a business.

Business and Accounting

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