Chapter 1
business increases
Business- a legally-recognized
organizational entity existing within an
economically free country designed to sell
goods and/or provide services to consumers
Profit-oriented enterprise- aims to earn
income or profit through the provision of goods
and/or services to consumers
Non-profit-oriented enterprise- aims to
achieve socio-civic or charitable aims
Forms of Business Enterprises (according to
nature of operations)
1. Service business or service concern-
simplest form of business and provides
services to clients or customers in
exchange for fees, rent, interest or
royalties
2. Merchandising business or trading
concern- purchase goods from suppliers
and, without altering the state of the
goods bought, sell the same at a higher
price than cost
3. Manufacturing business or
manufacturing concern- involves the
most complex activities and actually
produces the goods that it sells to
customers
LEGAL FORMS of Business/ Business
Ownership
 Sole Proprietorship- most basic legal
form of business and has only one owner
Advantages:
1. Easier to form compared to
partnerships and corporations
2. Generally has uncomplicated
transactions and minimal regulatory
requirements
3. Decisions can be arrives at in less time
and implemented faster
4. Proprietor enjoys all the profits earned
by the business
Disadvantages:
1. Proprietor faces financing problems
because of the enterprise’s limited
ability to raise capital once volume of
2. Proprietor does not receive the benefit
of second opinion on decisions made
3. Proprietor bears the risks and losses
which may be incurred in the business
4. Proprietor has unlimited personal
liability for the debts incurred by the
business
 Partnership- an association of two or
more persons who bind themselves to
contribute money, property, or industry to
a common fund with the intention of
dividing the profits among themselves
- Partnerships are governed by
the Civil Code of the Philippines
Advantages:
1. It is easier to organize compared to a
corporation
2. Burden of management is shared
among partners
3. More ideas are exchanged and
brainstormed which results in better
decision-making
4. Can raise more capital than sole
proprietorship
Disadvantages:
1. Depends on the capability of each
partner to invest resources into
the business
2. Plurality of owners may result to
disagreements regarding ideas and
management style, hampering
business operations
3. Life of partnership may be fragile –it
may be dissolved by agreement, by
withdrawal of one or more partners, or
by the death of or incapacity of partner
4. Partners have unlimited personal
liability for partnership debts
 Corporation- the most complex form of
business organizations
- Shareholder- a person who invests in
a corporation
- Certificate of stock- evidence of the
number of shares purchased
- Governed by the Corporation Code of
the Philippines
- Management of operations of the
corporation is centralized in the
corporation’s board of directors
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 Advantages:
1. Has the greatest capacity to
raise capital
2. Can raise capital by selling shares of
stock to the public as a whole
3. Shareholders may transfer their shares
without the need to obtain the consent
of other shareholders
4. Corporations may exist for period no
longer than 50 years, subject to
renewal
5. Limited liability of owners
(shareholders are liable to third
parties for the losses of the
corporation only to the limit of their
fully-paid
investments)
6. If corporation goes bankrupt, lenders
cannot take personal assets of the
stockholders
Disadvantages:
1. The cost of forming and managing a
corporation is relatively high compared
to sole proprietorships and
partnerships
2. Subject to greater scrutiny, regulation,
control and supervision by the
government
3. Management is more complex
4. Has limited powers, as expressly
stated in the Corporation Code of the
Philippines and its own Articles of
Incorporation
5. Subject to higher income tax rate
 Cooperatives- defined by International
Cooperative Alliance’s Statement on
Cooperative Identity as “autonomous
associations of persons united voluntarily
to meet their common economic, social,
and cultural needs and aspirations through
jointly owned and democratically
controlled enterprises”
Economic Decisions
Economic decisions- decisions which affect the
resources it controls and the obligations of the
business to other enterprises
Financial Information- a summary of all
the transactions of the business over a period
of
time. Most important financial information
comes from accounting
Accounting- 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
interpreting the results thereof
- Is a service activity. Its function is to
provide quantitative information,
primarily financial in nature, about
economic entities, that is intended
to be useful in making economic
decisions
- Service function to management. It
basically processes raw data
and converts them to
meaningful information that will
be useful for decision-making
- Is the process of identifying, measuring
and communicating economic
information to permit informed
judgement and decision by users
of the information
Basic purpose of accounting: to supply
financial information to users of the
information to help them make informed
judgements and better decisions
Accounting is language of the business: used to
communicate financial information to interested
parties. Through this, different users of
information understand what is happening in
the business enterprise
Bookkeeping- procedural or mechanical
aspect of accounting and involves set-up,
update and maintenance of accounting records.
It can be done by properly trained non-
accountants
Accounting- interpretation of information
recorded under bookkeeping. Practice of
accountancy can be done only by certified
public accountants
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