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Prepared by: NELLY M. TURALLO

Subject Teacher
 Modules
Fundamentals of Accounting 1
5
Types of Business According to Activities
(Definition, Advantages/Disadvantages,
Examples)

COURSE DESCRIPTION

This module in Fundamentals of Accounting 1 is designed for ease of

comprehension, enabling high readability especially for accounting students.
It is designed to develop students' appreciation of accounting as a language of
business and an understanding of basic accounting concepts, principles and
procedures that will help them analyze business transactions.
An introduction to basic concepts and principles of recording and posting
financial information, preparation of trial balance, worksheet and financial
statements. Current assets and liabilities are emphasized

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Subject Teacher
 Modules
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5
MODULE 5
Types of Business According to Activities

Content Standards
The learners demonstrate an understanding of the types of business according
to activities, particularly:
• SERVICE BUSINESS
• MERCHANDISING BUSINESS
• MANUFACTURING BUSINESS

Performance Standards
The students shall be able to differentiate the types of business according to
activities and make a list of businesses in their community according to their
activities.

Learning Competencies
The students should compare and contrast the types of business according to
activities (ABM_FABM11-IIIb-13)

Identify the advantages and business requirements of each type

(ABM_FABM11-IIIb-14)

Specific Learning Objectives

At the end of this lesson, the learners will be able to:
• Review the types of business according to activities
• Describe a service entity and give examples
• Describe a merchandising entity and give examples
• Describe a manufacturing entity and give examples

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2|Page NELLY M. TURALLO, LPT
Subject Teacher
 Modules
Fundamentals of Accounting 1
5
LESSON OUTLINE
 Introduction & Review previous discussion
 Motivation Local Examples and Application
 Instruction Discussion of the subject matter
 Practice Easy-medium-hard questions
 Enrichment More local examples
 Evaluation Quiz

Materials
Writing materials, school pads, projector and slides

Resources
Joselito G. Florendo, Fundamentals of Accountancy, Business, and Management 1,
1st Edition (Rex Bookstore) 2016
Wild, J. (2009). Principles of Accounting 19th ed. McGraw Hill Publishing
Haddock, M., Price, J., & Farina, M. (2012). College
Accounting: A Contemporary Approach 2nd Ed., New York: McGraw-Hill/Irwin
Win Ballada, Basic Accounting Made Easy, 13th Edition
Edwin G. Valencia and Gregorio F. Roxas, Basic Accounting (Concepts, Principles,
Procedures and applications, 4th Edition – 2014-2015
Omar Erasmo G. Ampongan, Fundamentals of Accounting (user friendly)
Franklin T. Agamata and Alfred Lindon F.Berbano, Fundamentals of Accounting
Volume 1, 2013 Edition
https://www.slideshare.net/Jenica19/chapter-5-types-of-business-according-to-
activities

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3|Page NELLY M. TURALLO, LPT
Subject Teacher
 Modules
Fundamentals of Accounting 1
5
INTRODUCTION
Connect and/or review prerequisite knowledge:
• Review the types of business organizations
• Sole / Single proprietorship – owned by one person
• Partnership – owned by partners (two or more persons)
• Corporation – owned by shareholders
• Emphasize that the types of business organizations differ on the
presentation of the equity side but the accounting for assets and liabilities
are essentially the same
• Tell the students that this topic, types of business operations, differs in
terms of the presentation of the statement of comprehensive income (income
statement) and the content statement of financial position (balance sheet)

MOTIVATION
1. Give Local Example and Application
Ask the students how the following earn profits:
• Bruno’s Barber Shop
• Clean Ko Place Mo Cleaning Services
• Tutorial Services
• Manila Hotel
• Cynthia’s Food Vendor
• Susan’s Roses Flower Shop
• Wash Your Problem Laundry Shop
• Bread Pit Bakery
• Cut and Face Parlor
• Fish Be With You Fish Shop

2. After checking their answers, emphasize that because of the nature of their
operations, the presentation of their statement of comprehensive income and the
content of the statement of financial position may differ from each other

Possible Answers

• by providing services
• by selling goods

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4|Page NELLY M. TURALLO, LPT
Subject Teacher
 Modules
Fundamentals of Accounting 1
5
INTRODUCTION
A business is an organization that converts inputs or resources such as material,
labor, and overhead into outputs which are usually either goods or services. In this
module, we will discuss the different types of business according to activities, their
business requirements, and their advantages and disadvantages.

3 types of business organizations

according to activities:

1. Service Business
SERVICE COMPANIES • Service companies are
firms that generally use their employees to provide
intangible products or services to customers. These
services include professional skills, advice,
expertise, and other related products. (e.g.
accounting firms, law firms, and dry cleaning
establishments, etc. )

Operating Cycle of Service Companies Cash on

hand Performs Services. Pays employees and other
expenses Receives payment from customers

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Subject Teacher
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This type of business offers professional
skills, advice and consultations. Perform
services for a fee Examples: barber shops and
beauty parlors, repair shops, banks, accounting,
auditing and law firms

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2. Merchandising Business

MERCHANDISING COMPANIES • Merchandising companies sell tangible products.

This type of business buys finished or almost finished goods from their suppliers and
resell the same to customers. • Primarily earn revenues from the sale of the goods of
merchandise, also known as sales revenue or sales

THERE ARE TWO TYPES OF MERCHANDISING COMPANIES: • Retailer is a

merchandising company that sells goods directly to customers. • Wholesaler is a
merchandising company that sells goods to retailers. Operating Cycle of
Merchandising Companies Cash on hand Sells inventory Buy goods Receives
payment from customer s Stores goods as inventory

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Subject Teacher
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This type of business buys at wholesale and later sells the products at retail.
They make a profit by selling the merchandise or products at prices that are higher
than their purchase costs. This type of business is also known as "buy and sell".
Companies purchase goods that are ready for sale & then sell these to customers -
buying & selling

Examples are: book stores, sari-sari stores, hardware stores, clothing stores,
supermarkets, and car dealers

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3. Manufacturing Business
MANUFACTURING COMPANIES •
Manufacturing companies or simply
manufacturers, buy materials, convert
them into products, and then sell the
products to other companies or to
the final consumers. Operating Cycle
of Manufacturing Companies Cash on
hand Stores finished goods as inventory
Pays for inputs (materials, labor,
overhead) Receives payment from
customer s Converts inputs into finished
goods Sell inventory

This type of business buys raw

materials and uses them in making a
new product, therefore combining raw
materials, labour and expenses into a
product for sale later on.
Examples are: shoe manufacturing
businesses, car manufacturing plants

Additional information:
There are businesses that may be classified under more than one type of
business. A bakery, for example, combines raw materials in making loaves of bread
(manufacturing), sells hot pandesal (merchandising), and caters customers’ orders in
small coffee table servings of ensaymada and hot coffee (service).

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PRACTICE

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Subject Teacher
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EXERCISES
Stated below the business activity of an organization, try to identify if it is a service
activity, merchandising, or manufacturing business. Place a check under which
business activity they belong
:
1. Provides services to customers
2. Sells goods to customers
3. Raw materials are available
4. Goods to be sold are purchased from a supplier
5. Goods to be sold are produced by the company itself
6. Supplies are used, no goods to be sold
7. Bakery
8. Barber shop
9. Cellphone store
10. Abenson appliances

Business Activity Servicing Merchandising Manufacturing

1. Provides services to
customers

2. Sells goods to
customers

3. Raw materials are

available
4. Goods to be sold are
purchased from a
supplier

5. Goods to be sold are

produced by the
company itself

6. Supplies are used,

no goods to be sold

7. Bakery

8. Barber shop

9. Cellphone store

10. Abenson appliances

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16 | P a g e NELLY M. TURALLO, LPT
Subject Teacher
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5
Key Answers
(1) service
(2) either merchandising or manufacturing
(3) manufacturing
(4) merchandising
(5) manufacturing
(6) service
(7) Manufacturing
(8) service
(9) merchandising
(10) merchandising

Provide local examples. You can use the activity below.

1. Think of five companies/stores who do service, merchandising and manufacturing

2. Each student will explain why those businesses were categorized as service,
merchandising or manufacturing

EVALUATION

Homework activity:

Ask the students to look for a business that is either a service, merchandising or
manufacturing business. Ask them to interview the owner by asking the following
questions. Pick someone from the class to discuss his findings.

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