COM5024

Lesson 1 Part 1 (Introduction to Accounting, Review of the Fundamentals of Accounting)

Review of Basic Accounting

One of the important players in the economy are business entities. Their prosperity would mean
prosperity for the nation.

- This is true because businesses provide employment.

- Businesses provides the production of goods and services.
- Businesses makes the exchange of goods active.
- When people are employed, they can get income and the income will provide their needs
(paying for education, hospitalizations etc.)
- When they’re employed, they can rely on themselves and not the government. When this
happens, the government can save money and can use this for better priority projects for the
country.
- More infrastructures, more prosperity for the nation.
- Goods and services are one of the variables that is used to compute the GDP. The government
wants this to be higher because we have more goods and services produce and it is good for the
GDP and economy.
- When we have a higher GDP, foreign investments in our country will become higher.
- If there are more goods and services, the people will be more provided.
- When there are less businesses, the government will be forced to import goods and the prices
will be higher. When there are more businesses in a country, the products will cost less.
- Short answer: businesses provide the needs of the people.

An example is the COVID-19 vaccine. The government provides us vaccines using the saved funds. They
do not allow private sectors to buy vaccines so they can track the number of people vaccinated but if
they didn’t, private sectors can provide vaccines for their employees and customers making the
government spend less. Soon, once it is regulated the government will let the private sector buy the
vaccines.

If we let the business entities have the freedom with the products they sell, customers will have more
options with what to buy

- They can choose to buy an expensive version of the product or a cheaper version.

Businesses provide tax to the government.

- When they succeed, they earn more income. When they have more income, they pay more
taxes. When they pay more taxes, the government funds are higher
- 90% of the government funds are from taxes.

Businesses are very important in the economy and the government knows that. They even help
businesses to succeed.

- They provide what businesses need to help them. They want businesses to be successful
because they will help the government to make the nation prosper.
 - Just like now in the pandemic, the government mandated easy loans for businesses to bounce
back from the effect that the pandemic gave to them.

For businesses to prosper, their management must be updated with the information (financial) in order
to make sound decision.

- In businesses, almost all the time, managers decide the decisions and it will always have an
impact to the business.
- They need accounting in their business.
- They can get the necessary information through accounting.

Accounting is the recording of business information

Accounting provides the necessary information for decision making.

- All businesses need accounting.

- Accounting is important to business, and business is important to nation, therefore, accounting
is also important to the nation.

What is a business?

- A business is an organization in which basic resources (inputs) such as materials and labor are
processed to provide goods or services (outputs) to customers or consumers
- Business is a legally-recognized entity designed to sell goods or services to consumers to
generate profit
- Business is an economic unit that aims to sells good and services that will provide adequate
return to its owners.
- Adequate return – the term used to describe how a business can sustain the business for longer
days.
- Objective of a business: to gain income.
- Whatever a business does, they must earn profit.

How can a business be considered legal? Is all business legal?

- They are considered legal if they are registered in the government. They can secure the legality
of a business through a business permit and they can get this from the LGU.
- If they are considered illegal, they will be penalized (forced to pay or close)
- There are businesses whose main objective is not about the profit but to provide the socio civic
purposes they are provided.

To register a business, we must register our business name to the DTI so we can avoid same business
names. Its purpose is to check if you have a same business name.

Street food businesses are not registered but are still legal because the products are allowed and they
are exempted from the business permit requirements.

- To have a business permit, there is a minimum capital required to be a registered business.

- If their capitalization is less than Php 3,000, they are exempted from the business permit
requirements.
- This is allowed because their income is barely enough to sustain their needs.
 - Businesses are excluded from the things the government sustains. Even if the business is small,
it still helps decrease the people they need to sustain.
- There are lots of factors to be registered in a business permit.
- Some are employees, income, amount of business and if you’re the only one in the city are also
considered.

Do they still need accounting?

- Yes, they also need to know what’s going on with their activities. They need to know wherther
they still have funds to finance their socio-civic activities which is the focus of their operations.
- They need to monitor their expenses which is still part of accounting.

Examples of nonprofit organizations

- Churches
- Campus for Christ
- Red Cross
- Their focus is the socio-civic purposes.
- Though that is their focus, they still need to check their funds to continue their purpose. That is
why they still need accounting.

Businesses come in different sizes from as small as a nearby sari-sari store to as big as SM Supermarket.
They come in different forms.

Forms of business entities

- Sole proprietorship
- Partnership
- Corporation
- In other countries, there are hybrid types but they are just tweaks of the said entities.

Sole proprietorship

- Business owned by a single person

- Owner finances the business by their own savings or loans.

Advantages of sole proprietorship

- Ease of formation/easy to form

- Able to oversee the operations of the business – they have the entire control of the daily
operations
- Easy to form decisions - Decision making process is faster because the decision is only one
person.
- You do not share profits – whatever you own, you keep it. You enjoy the profit all by yourself.

Disadvantages of sole proprietorship

- Limited life/easy to dissolve – unforeseen events like debt and bankruptcy. Whatever happens
to the owner will carry on with the business. Even if someone continues the business, it will be
considered a new business as the original one is already dissolved.
 - Capitalization is limited to the single owner.
- Unlimited liability - Liable to all debts to the extent of taking all of their assets.

Partnership

- Business is owned by 2 or more people and they bind themselves to contribute money or
property with the intention of sharing profit.
- By more, there is no limit to a number of partnership.