Actg 121 Reviewer PDF

CHAPTER 1 FORMS OF BUSINESS common fund for the purpose of sharing profit among themselves. A business may be organized and take Most often the partners are also the one of the following three legal forms: manager, Lawyers, ac...

CHAPTER 1 FORMS OF BUSINESS common fund for the purpose of sharing profit among themselves. A business may be organized and take Most often the partners are also the one of the following three legal forms: manager, Lawyers, accountants, engineers and doctors usually put up a Sole Proprietorship professional partnership or consultancy This is a business set up and managed firm which is not subject to tax. by one person. Most small businesses such as beauty parlors, dress shops, Advantages barber shops and bakeries are sole > Ease in managing the business and in proprietor-owned. attracting clients because of more owners involved. Advantages. > Management is more efficient > Only a small amount of capital is because of the division of needed responsibilities among partners. > Its operation can be managed easily by the proprietor. Disadvantages > The owner or proprietor gets all the > No indefinite life since disagreements profits. could easily arise because of many > Ease in formation since only a owners involved. minimum requirement to legally operate > Partners, like sole proprietors, have is needed. unlimited liability. Disadvantages. Since there is only one Corporation owner/manager, it may be This is a business organized as a > Difficult to expand the business and separate legal entity from the sell different products or services investors. It means that it can conduct because of low capital and only one business by itself - enter into contracts, owner-manager. buy and sell properties and stocks. It is > It has no indefinite life. Owner may managed by a Board of Directors just one day want to close it or become elected by the shareholders from incapacitated or die. among themselves. An investor buys > Owner has unlimited liability. It shares of stocks and is called a means that if the business is unable to shareholder. pay its debt, the bank or creditor can attach the owner's personal properties. Advantages. > More capital can be raised because of Partnership the large number of shareholders. This is a business owned by two or more > Can afford to hire experts who can persons called partners who contribute efficiently manage and operate the money, property and talent into a business. > Has perpetual existence > A manufacturing business is one > More stable than a partnership as a which buys raw materials, processes withdrawing shareholder these into finished goods and then sells may sell his shares. these to customers. Examples: shoe > Higher amounts of profit may be factories, and food processors. obtained because of its large resources. > One-man corporations are permitted, TYPES OF BUSINESS ACTIVITIES making it easy for small time entrepreneurs to enter the corporate FINANCING ACTIVITIES playing field. INVESTING ACTIVITIES OPERATING ACTIVITIES Disadvantages. > A shareholder, unlike a sole proprietor MANAGING THE BUSINESS or a partner, has no unlimited liability. The success of any business depends on There is therefore a higher risk many factors, one of which is good involved in corporate debts since management. these can only be paid out of corporate Management may be defined simply as funds, and the personal properties getting things done by using resources cannot be subject to attachment. and directing people as efficiently as > It is subject to more legal and tax possible to be able to accomplish the requirements. goals of the business. > Abuse of power by the Board of Directors could adversely affect the A manager has three objectives: welfare of the corporation and its > that resources are being used shareholders. productively, > customers are satisfied with the TYPES OF BUSINESS OPERATION product or service, and A business carns profit depending on its > business is generating adequate profit type of operation. There are at least three general lines of operation: Management involves four processes: planning, organizing, directing, and A service business is one which controlling provides service, for a fec, to clients or customers. Examples: beauty parlor, Planning starts with determining the barbershop, travel agency, internet goals of the business and lining up shop, school, airline. activities to accomplish these goals, determining required resources, and A merchandising business is one which setting up standards. buys and sells goods or merchandise. Organizing involves creating divisions, Examples: shoe store, bookstore or a appointing managers, designing jobs drugstore. and specific tasks, hiring and defining the roles or duties of each one USERS OF FINANCIAL INFORMATION (managers and staff). OWNER OR INVESTOR Directing means overseeing the daily MANAGER operation of carrying out the planned LENDER OR CREDITOR activities, leading and motivating SUPPLIER employees. Managers argue, decide, GOVERNMENT approve, solve problems. EMPLOYEE CUSTOMER Controlling means guarding and guiding people, ensuring that tasks are The aforementioned stakeholders are done according to plans and some classified as direct users and external standard of performance, and that users except for management who is an business resources are properly used internal user. The indirect users are and guarded. Controlling prevents the stock exchange, trade associations, commission of error, theft and regulatory bodies, and financial manipulation. analysts who rely on the financial statements in their role of regulating, ACCOUNTING AS A BUSINESS assisting, advising and protecting LANGUAGE clients and investors. Accounting is defined as a service activity whose function is to prepare financial reports that will provide relevant information about the business. It is difficult for users to make financial decisions that are not supported by facts. These facts are contained in the accounting reports. Accounting may also be defined as a process of recording, classifying and TYPES OF ACCOUNTING AREAS AND summarizing transactions and events THE REPORTS PREPARED which are financial in nature and interpreting the results thereof. > Internal reports called managerial reports are prepared for management use. Although management receives the other reports, they also require additional information such as product cost, estimate of profit to be earned for a planned project, comparison of two alternative courses of solving a problem, budgets, among others. This COMPUTERS DO NOT REPLACE information need gave rise to a course ACCOUNTANTS called Management Accounting. > The main source of information of INPUT - PROCESS - OUTPUT stakeholders or users are the financial FINANCIAL REPORTS ILLUSTRATED reports or the so-called general-purpose financial statements. INCOME STATEMENT This information need gave rise to a STATEMENT OF OWNER'S course called Financial Accounting. EQUITY These reports are audited by a Certified STATEMENT OF CASH FLOWS Public Accountant who attests to its fair STATEMENT OF FINANCIAL presentation and validity making it POSITION reliable and acceptable by the stakeholders. > All firms are required to pay taxes to the Bureau of Internal Revenue (BIR). This information need gave rise to a course called Tax Accounting which specializes in the taxpayers such as: Income Tax, VAT, and Percentage Tax. determination of taxes and preparation of various tax returns required to be filled up by taxpayers such as: income tax, vat, and percentage tax. > Some firms, by the nature of their organization/operation, are required to prepare special reports by certain regulatory bodies. For example, banks prepare monthly, quarterly and annual reports to be submitted to Bangko Sentral ng Pilipinas. A business planner submits to the Securities and Exchange Commission a Plan of Merger or a Rehabilitation Plan.  > The regular routine work in accounting QUIZ 1- 9 REVIEWER which includes gathering, measuring, recording and classifying transactions. > Debts or obligations owing to BOOKKEEPING outsiders such as the banks and > Cash, cars, furniture and other suppliers. LIABILITIES properties or resources owned by the > A service activity that provides business. ASSETS information about the business and > A stakeholder interested in the prepares a progress report about its performance evaluation report of financial position and result of employees. MANAGER operation. ACCOUNTING > A store selling electronic gadgets. > The right of the owner over the net MERCHANDISING assets of the business. NET WORTH > Financing, operating and investing > Modern bookkeeping can be traced activities. BUSINESS ACTIVITIES from the book, Summa de Arithmetica > One who is enterprising and uses his written by this author. PACIOLI creative and innovative skills to make > A quantitative plan prepared to show money. ENTREPRENEUR how resources such as money should be > A statement that shows how wealth is spent wisely and productively. BUDGET produced to increase net worth. > Consultancy firms who provide INCOME STATEMENT professional services such as accounting, law, tax. SERVICE PROVIDER > An economic unit which buys and sells goods or services. BUSINESS > This is the primary motive why one buys and sells goods or services. PROFIT > Primary source of capital of a business. OWNERS INVESTMENT > An endeavor, like a business, always has an element of uncertainty. BUSINESS RISK > Amount paid for telephone and electric power services received by the business. EXPENSES > Receipts for goods sold or services rendered. REVENUES > Primary reason for preparing financial reports in accounting. DECISION MAKING