development of accounting can be dated back to ancient

INTRODUCTION TO ACCOUNTING Mesopotamia. During those times, people followed a

FABM1 system of writing and counting money. The development
Mary Ann D. Leopando of accounting may be related to the taxation and trading
ACCOUNTING activities of temples.
The process of identifying, measuring, and
communicating economic information to permit informed The reign of Emperor Augustus (63BC-14AD)
judgements and decisions by users of the information. provided more evidence about the development of
accounting. The Roman government kept detailed
ACCOUNTING financial information of the deeds of Emperor Augustus
Defined as an information system that measures, regarding the stewardship of Roman resources. This is
processes and communicates information, which are evidence by the Res Gestae Divi Augusti (The Deeds of
primarily financial in nature, about an identifiable entity for the Divine Augustus)
the purpose of making economic decisions.
The Roman historians Suetonius and Cassius Dio
ACCOUNTING recorded that in 23BC, Augustus prepared a rationarium
Referred to LANGUAGE OF BUSINESS because (account) which listed public revenues, the amount of
it is the communication link between the entity and the cash in the aerarium (treasury), in the provincial fisci (tax
users of financial information officials), and in the hands of the publican (public
contractors); and it included the names of the freedmen
USERS OF INFORMATION and slaves from whom a detailed account could be
Are decision makers obtained.
1. management of entity
2. employees The evolution of the system of record keeping
3. investors which came to be called as “double entry” was strongly
4. lenders influenced by a Franciscan monk Luca Pacioli, a
5. government mathematician in 14th century in Italy. He is
6. consuming public acknowledged as the father of modern accounting.

HISTORY OF ACCOUNTING The double entry bookkeeping system is defined

It is believed that history of accounting is thousand as any bookkeeping system that has a debit and a credit
of years old and can even be traced to ancient for each transaction. Luca Pacioli’s Summa de
civilizations. A number of history books suggest that early Arithmetica, Geometria, Proportioni et Proportionalita
(Review of Arithmetic, Geometry, Ratio and Proportion) is recording, classifying, and summarizing in a significant
the first book printed with a tretise on bookkeeping. The manner and in terms of money, transactions and events
double-entry bookkeeping system is the system being which are part at least of a financial character and
used to this day. (Sangster et al.2007) interpreting the results thereof.”

The modern profession of the chartered Main functions of Accounting

accountant originated in Scotland in the 19th century
when Queen Victoria granted a royal charter to the
Institute of Accountant in Glasgow. At present times,
accounting standards are already available to guide
accountants in their practice of the profession. Some of
these standards include the PFRS (Philippine Financial
Reporting Standard) and the PAS (Philippine Accounting
Standards)
1. Keeping a systematic record of business transactions
2. Protecting properties of the business
3. Communicating results to various parties in or
connected with the business
4. Meeting legal requirements

Nature of Accounting
1. Accounting is a process
2. Accounting is an art
3. Accounting deals with financial information and
transactions
4. Accounting is a means and not an end.
5. Accounting is an information system.

ACCOUNTING according to AAA

The American Accounting Association (AAA)
defines accounting as “the process of identifying,
measuring, and communicating economic information to
permit informed judgements and decisions by the users
of information”

Accounting according to AICPA

The American Institute of Certified Public
Accountant (AICPA) defines accounting as “the art of
 PROCESS OF ACCOUNTING 4. SUMMARIZING
FABM 1 Is the process that involves grouping together the
MARY ANN D. LEOPANDO various accounts referred to in the classifying process.
This is where the accounts are grouped into Assets,
ACCOUNTING PROCESS Liabilities, Owner’s Equity, Revenue, Expenses.
1. Analyzing
2. Recording 5. REPORTING
3. Classifying Involves the preparation of financial summaries
4. Summarizing called Financial Statements (FS).
5. Reporting FS are written documents where the FS user may base
6. Interpreting their decision
A. Income Statement – result of operation
1. ANALYZING B. Balance Sheet – Financial position
1st phase of accounting process C. Cash Flow – the sources and application of cash
The process studying the document presented for
the transaction incurred, the economic events that have 6. INTERPRETING
been taken place, and determine their effects on the It is the last step in the accounting process
business It is the step that directs attention to the
significance of various matters and relationship.
2. RECORDING This step involves the computation of relationship
Involves writing the effects of the transactions and of figures from the financial reports and schedules.
events that have been analyzed. Interpreting is a combination of figures and narrations
This maybe done manually or it may be encoded with the based on the figures presented. The relationship maybe
use of computer in percent or in ratios, maybe within the financial report,
It includes the inputting of information in the accounting or maybe one report in relation to another report.
books called journal
Diagram of accounting system
3. CLASSIFYING  Business Activities
It is the sorting or grouping of similar transactions  Documents/ Supporting papers
and events into specific account titles.  Analyzing, Recording, Classifying, Summarizing
This process is almost like putting all similar information  Reporting with FS (Financial Statement)
in boxes.  Decision by users of FS (Financial Statement)
BUSINESS ENTITY CONCEPT
It is based on the applicability of accounting to
individual economic unit.
The business is separate and distinct to its owner.
DOUBLE ENTRY SYSTEM
It means the value received and the value parted
with
It means that for every transaction or economic
event, there are at least two effects in the accounting
equation.
PURPOSE OF FINANCIAL STATEMENT
The objective of FS is to provide information about
financial position, result of operation, and cash flows of
enterprises and of individuals.
However, FS do not provide all information needed
by their users to enable them to make economic
decisions.
1. INVESTORS
To determine whether to buy, hold, or sell their
investment in equity ownership in the business, and to
assess the ability of the investee to pay the dividends or
to pay returns to investor
2. EMPLOYEES
To determine stability and profitability of employers
and the ability of the employer to pay salaries and fringe
benefits
3. LENDERS
To determine the ability of the borrowers to be on
time in paying the loans granted to them by the creditors.
4. SUPPLIERS
To determine the ability of the customer to pay
debts as they fall due, and the ability of the customer to
remain as continuing buyer

USERS OF FINANCIAL STATEMENTS 5. CUSTOMERS

1. Investors To determine the ability of the enterprise to be a
2. Employees continuing source of supply, and the ability of the
3. Lenders company to exist over a long period of time
4. Suppliers
5. Customers 6. GOVERNMENT AGENCIES
6. Government Agencies To determine the capacity of the enterprise to pay
7. Public enterprise to pay taxes and its compliance; to provide the
8. Management bases for monitoring and regulating the activities of
enterprises and individuals
REASONS WHY FS USERS NEED THE FS (Financial
Statement)
7. PUBLIC BRANCHES OF ACCOUNTING
To determine the activities of the enterprise and FABM1
contribution to the economy in the form of Mary Ann D. Leopando
(a) number of employees, 1. FINANCIAL ACCOUNTING
(b) ownership of assets Branch of accounting primarily handling the
(c) prices of their products recording of transactions of a business, prepares
(d) patronage of local supplier and Financial Reports, to guide external and internal users in
(e) patronage by customers their economic decisions. Prepares FS periodically
(annually, quarterly, monthly, semi-annually). Reports
8. MANAGEMENT should be based on the prescribed by PFRS, and PAS
To determine the activities of the enterprise for
planning, organizing, leading and controlling. 2. MANAGEMENT ACCOUNTING
Focuses on the preparation of financial reports
used by managers in their day-to-day decision making.
Reports generated using management accounting are for
internal users only. As such, management reports need
not follow need not follow accounting standards such as
PFRS and PAS.
Unlike financial reports that are generated
quarterly, semi-annually, or annualy , or annualy,
management reports can be done daily, weekly, or
whenever managers require a specific report.
Management reports typically contain information
regarding the amount of cash on hand , the level of sales
revenue for a particular period, cost incurred, or even the
comparison of actual results with the budgeted amounts.
Aside from the frequency and the intended users
of reports, management accounting differs from financial
accounting in the nature of information produced.

FINANCIAL ACCOUNTING VS. MANAGEMENT

ACCOUNTING
 Financial accounting summarizes financial
information gathered within a specified period. Thus,
financial accounting provides information that is historical.
Meanwhile, management accounting is a forward-looking.
It contains forecasted information used by managers in
planning.
3. GOVERNMENT ACCOUNTING
According to Sec.109 of PD 1445, government
accounting is defined as an accounting system which
“encompasses the process of analyzing, recording,
classifying, summarizing, and communicating all
transactions involving the receipt and disposition of
government funds and property and interpreting the
results thereof”
All government agency uses government
accounting system called NGAS (New Government
Accounting System). Due to the specialized nature of
government transactions, stricter control should be put in
place to prevent the misuse of the country’s resources.
The government accounting starts after the
declaration of the General Appropriation Act (GAA). The
GAA has the force of law and it states how much an
agency can spend for the year., the agency cannot spend
more than the amount in the GAA.
The govt accounting involves the COA, DBM, BTr,
and the concerned agency.
4. AUDITING
It is an unbiased examination and evaluation of the
FS. It is a process that includes numerous steps to
determine whether or not a company’s financial
statements are presented truthfully.
Accountant that perform the auditing procedure
are specifically called auditors.
Auditors aside from having the competence to
perform their roles, should also be independent from the
company being audited. Audited FS are accompanied by
the auditor’s opinion, w/c is a basis whether or not the FS
are prepared truthfully and without any material error.
5. TAX ACCOUNTING
Encompasses the preparation of tax returns and
consideration of the tax consequences. Accountant in this
field must be familiar with the tax statutes affecting their
clients and must keep up to date on administrative
regulations and court decisions on tax cases.
Tax accounting follows the pronouncements of the
National Internal Revenue Code (NIRC).
6. COST ACCOUNTING
Emphasize the determination and control of cost. It
is concerned primarily with the cost of manufacturing
processes and of manufacturing products but increasing
attention is being given to distribution cost.
7. ACCOUNTING EDUCATION
Deals with the promulgation of accounting
knowledge to various interested parties that will aid them
in achieving their individual goals.
8. ACCOUNTING RESEARCH
Branch of accounting that deals with the creation
of new knowledge. Combining the models produced by
hard sciences in research and testing with the FS, stock
prices, surveys, and experiments, we can gain a specific Cost Cost of Production Report, Other
perspective and basis on the following: Accounting Cost Reports
 Deciding and implementing new accounting and
auditing standards
Accounting N/A
 Presenting unusual economic transactions in the
Education
FS Research result
 Learning how new tax law impact clients and Accounting
employers Research
 Discerning how the accounting profession affects
the capital markets through academic academic
accounting research
PURPOSE OF INFORMATION
TYPES OF REPORT GENERATED

Financial Financial Statement Financial To guide internal users in their

Accounting Accounting economic decisions

Management Management Reports Management Help management in decision

Accounting Accounting making

Government Periodic FS , FS required by the Government Shows the stewardship by the

Accounting government Accounting government of the public funds

Auditing Auditor’s report, auditor’s opinion Auditing Gives credibility to the FS of a

company

Tax Tax returns Tax Helps in determining the amount of

Accounting Accounting taxes payable
Cost Finds the cost of a particular object Accounting N/A
Accounting Education
Varies
Accounting
Accounting Educate students in the field of Research
Education accountancy
Accounting Adds to the knowledge of
Research accountancy INTENDED USERS

FREQUENCY OF REPORTS

Financial External and internal users

Accounting
Financial Periodic (e.g. annually, quarterly,
Management Internal users only
Accounting etc)
Accounting
Management Whenever the management asks
Government External and Internal users
Accounting for a report
Accounting
Government Periodic (e.g. annually, quarterly,
Auditing External users
Accounting etc)

Auditing After every audit of set of FS Tax Taxing authorities

Accounting
Tax Periodic (e.g. annually, quarterly,
Cost Internal users only
Accounting etc)
Accounting
Cost Whenever the management asks
Accounting for a report
 Accounting Students and members of the Accounting None
Education academe Research
Accounting Primarily members of the academe Accounting concepts and principles
Research FABM1
Mary Ann D. Leopando
INTRODUCTION
STANDARD/BASIS OF PRESENTATION Accounting concepts, principles, and assumptions
are essential in the practice of accountancy. FS become
more comparable and more useful to users if these
concepts, principles, and assumptions are followed by
businesses. We can look at these as a set of rules that
Financial PFRS and PAS govern the accounting process.
Accounting Accounting concepts, principles and assumptions
serve as the foundation of accounting in order to avoid
Management None misunderstanding and enhance the understanding and
Accounting usefulness of the FS (Valix et.al 2013)

Government NGAS ACCOUNTING CONCEPTS, PRINCIPLES AND

Accounting ASSUMPTIONS
1. Accrual accounting
2. Matching Principle
Auditing PSA
3. Use of judgement and estimates
4. Prudence
Tax NIRC 5. Substance over form
Accounting 6. Going concern assumptions
7. Accounting entity assumptions
Cost None 8. Time period assumptions
Accounting 9. Generally Accepted Accounting Principles (GAAP)
10. International Financial Reporting Standards (IFRS)
and Philippine Financial Reporting Standards (PFRS)
Accounting None
Education
ACCRUAL ACCOUNTING
 The fundamental idea of accrual accounting can
be stated as follows:
“The effects of business transactions should be
recognized in the period in which they occurred. Income
should be recognized in the period when it is earned
regardless of when payment is received. Expenses
should be recognized in the period when it is incurred
regardless of when the expenses are paid”
The opposite of accrual accounting is the CASH
BASIS OF ACCOUNTING. Under the cash basis of
accounting, income is recognized when cash is received
and expenses are recognized when cash is paid. Under
the cash basis accounting, the receipt and / or payment
of cash is a requisite before transactions are recorded in
the accounting records of a company.
MATCHING PRINCIPLE
Matching principle is closely related to accrual
accounting. Under the matching principle, expenses are
recognized in the same period as the related revenue.
Revenue of a business always come with expenses. No
business can generate revenues without incurring
expenses.
The matching principles states that related
revenues are recorded in period 1, the related expenses
should also be recorded in period 1.
USE OF JUDGMENT AND ESTIMATES
Accounting estimates are approximation made by
accountants or the management in the preparation of FS.
The use of reasonable estimates is an essential part of
the preparation of FS and does not undermine their
reliability (International Accounting Standards 8)
There are items in the company’s accounting
records that cannot be exactly measured. Thus, these
items require the use of accounting estimates.
Ex: warranty expense
Warranty is a guarantee made by the seller to the
buyer promising to repair or the things sold if necessary,
within a specified period of time.
According to the matching principle, all related
expenses should also be recorded in the same period the
revenue are recognized. Warranty expense is related to
the revenues generated from the sale of goods. The
problem is what amount of warranty the company should
recognize in the accounting records.
A company is not entirely sure when warranties
will be performed by the company. It can be in the same
period as the related revenues, one year after the date of
sale, or even further into the future. Because of this, the
warranty expense in a company’s accounting record is
usually estimated based on historical data.
However, the use of accounting estimates cannot
be abused by an entity by purposely overestimating
expenses. Some companies overestimate expenses to
decrease net income and decrease the taxes payable.
Judgment used in making accounting estimates should
be backed up by reasonable basis. It is more desirable
to use less judgment in the accounting process because
the use of judgment leads to more subjective FS.
PRUDENCE
Prudence in the accounting sense is also called
conservatism. Some financial transactions are
sometimes uncertain when they will occur. Nevertheless,
we still need to report these transactions if they pertain to
a specific period. In reporting these transactions, an ACCOUNTING EQUATION
accountant needs to apply the concept of prudence. FABM1
When applying the concept of prudence, an accountant MARY ANN D. LEOPANDO
makes sure that income and assets are not overstated
and liabilities and expenses are not overstated. ASSETS
Prudence Are resources that an entity owns in order to
According to Valix et al (2013) “ In the simplest
derive some future benefits.
words, conservatism means in case of doubt, record any
loss and do not record any gain”.
For example, when an accountant is unsure Types of Assets
whether or not to recognize an expense, the concept of A. Current Assets
prudence states that he or she should recognize it in the B. Non-current Assets
accounting records. On the other hand, if an accountant
is unsure whether or not to recognize income, prudence Current assets
states that he or she should not recognize it. Assets shall be classified as current when it satisfies any
of the following criteria:
ALBEIT PRUDENCE 1. It is expected to be realized in, or is intended for sale
Is the preferred course of action when making or consumption in the entity’s normal operating cycle.
judgements; deliberately being too conservative is not an 2. It is held primarily for the purpose of being traded.
allowed practice. 3. It is expected to be realized within 12 months after the
Example, companies might claim that they are just
balance sheet
exercising prudence when recognizing expenses even
though the main purpose is to bloat expenses for lower 4. It is cash or cash equivalent, unless it is restricted
tax payments. from being changed or used to settle liability for at least
12 months after the balance sheet date.
SUBSTANCE OVER FORM
Information presented in the FS of a company Examples of current assets
should truthfully and faithfully represent the financial 1. Cash
condition and financial performance of the company. For 2. Accounts Receivable
this to be possible, an accountant should look at the 3. Notes Receivable
substance of every financial transaction rather than its 4. Supplies
legal form. 5. Inventories
(Search for the other 5 Accounting concepts, principles
6. Prepayments
and Assumption)
CASH PREPAYMENTS OR PREPAID EXPENSES
Any medium of exchange that a bank will accept at Expenses paid in advance.
face value They are assets at the time of payment and will become
CASH ON HAND - Coins, currency, checks, postal expenses through the passage of time
money orders, express money orders, and bank draft. Ex: Prepaid Rent, Prepaid Insurance
Cash that is intended to be deposited with the bank when
a petty cash fund is maintained. NONCURRENT ASSETS/ PLANT ASSETS/ FIXED
PETTY CASH FUND – coins, currency and ASSETS/ PPE
replenishment checks. These are to be used for petty or Tangible assets used in the business that are of a
small payments that cannot be conveniently made with permanent or relatively fixed in nature.
checks Examples:
CASH IN BANKS – Cash deposited in Savings and or Equipment
checking accounts. Machinery
Tools
ACCOUNTS RECEIVABLE Building
Amounts collectible from customers. Land
Claims against debtors, less formal than notes EXCEPT LAND, all fixed assets gradually wear out or
They arise when a business sells it goods or services on lose their usefulness with the passage of time
account or on credit. land
Real property owned and in use in the normal operation
NOTES RECEIVABLE of business
Amount due from others supported by a promissory note.
Claims against debtor evidenced by a written promise to BUILDINGS
pay a certain sum of money at the definite time to the Physical structure on land. These are used in the
order of a specified person or to bearer. business

UNUSED SUPPLIES ACCUMULATED DEPRECIATION – BUILDING

Consumable materials bought but not yet used Cumulative part of the cost of the building that has been
Ex: Laboratory supplies, medical supplies, office supplies recognized as expense
Inventories/ merchandise inventory equipment
Goods on hand for sale but remain unsold
Equipment used by the business for it to be able to
perform its main function or objective
Ex: Laboratory Equipment, Medical Equipment, Office
Equipment
ACCUMMULATED DEPRECIATION –EQUIPMENT
Cumulative portion of the cost of the equipment that has
been recognized as expense
LIABILITIES
Are debts owned to creditors and are frequently
described on the balance sheet by titles that include the
word “payable”
CLASSIFICATION OF LIABILITIES
A. Current liabilities
B. Noncurrent liabilities / long term liabilities
Current liabilities
Liabilities that will be due within a short time, one year or
less, to be paid out of current assets.
Ex: Accounts Payable & Notes Payable, Salaries
Payable, Interest Payable, and Taxes Payable
ACCOUNTS PAYABLE
Amount due to third parties for purchases on credit
NOTES PAYABLE
Amounts due to third parties supported by promissory
notes
UNEARNED INCOME
Income received in cash now but to be earned in the
future
OTHER PAYABLES
Payables for expenses already incurred or used up but
not yet paid for.
Ex: Expenses Payable, Salaries Payable, Rent Payable,
Taxes Payable, Utilities Payable
NONCURRENT LIABILITIES/LONG TERM LIABILITIES
Liabilities that will not be due for a comparatively long
time, more than 1 year.
Ex: Mortgage Payable, Mortgage Note Payable
MORTGAGE PAYABLE
Loans payable secured by the entity’s real estate
property
CAPITAL/ OWNER’S EQUITY
The right of the owner in the business entity
It is the residual claim against the assets of the business
after the total liabilities are deducted.
Value of cash and other assets contributed to the
business by the owner.
This account is increased by profits not taken out of the
business and decreased by the losses of the business
OWNER’S DRAWING – withdrawal of investment of the
owner
REVENUES DEPRECIATION EXPENSE – decrease in value of PPE
through mere passage of time in one accounting period
SALES OR SERVICE INCOME – gross income from sale
of company products and services REPRESENTATION EXPENSE – amount paid to
restaurants, hotels for treating customers and others
EXPENSES
The amount of assets consumed or services used in the INTEREST EXPENSE – interest on debts or monetary
process of earning revenue obligations
Ex:
Salaries Expense OTHER EXPENSES – expense that cannot be
Utilities Expense associated definitely with operations.
Rent Expense
Supplies Expense FORMS OF BUSINESS ORGANIZATION
Transportation Expense FABM1
Depreciation Expense MARY ANN D. LEOPANDO

SALARIES EXPENSE – salaries for service rendered by

FORMS OF BUSINESS ORGANIZATION
employees
1. Sole Proprietorship
UTILITIES EXPENSE – telephone, water, electricity used
2. Partnership
RENT EXPENSE – rental for the use of equipment, 3. Corporation
office, building, land spaces owned by others.
4. Cooperative
SUPPLIES EXPENSE –laboratory, medical, office
supplies used
SOLE PROPRIETORSHIP
TRANSPORTATION EXPENSE – fare for trips and Simplest form of business organization
travels. Cost of gasoline and oil used for the company
vehicles Only one individual owns the business
 PARTNERSHIP Capitalization Depends on Depends on Depends on
This refers to an association of two or more persons to the needs of the needs of the type of
carry on as co-owners of a business for profit. the business the business the business
as
By the contract of partnership, two or more persons bind prescribed
themselves to contribute money, property, or industry to a by law
common fund with the intention of dividing the profits Life or Term Dependent Dependent Fifty years,
among themselves (Article 1767 New Civil Code) of Existence on the owner on the renewable
CORPORATION partners

This refer to separate body consisting of at least five

Management Manage by Managed by Managed by
individuals treated by law as a unit. “An artificial being Structure the sole one or more the board of
created by operation of law, having the right of proprietor partners directors
succession and the powers, attributes, and properties
expressly authorized by law or incident to its existence”
Profit To Sole owner to Partners To
(Sec.2., The Corporation Code of the Philippines)
Distribution based on stockholders
COOPERATIVE agreement based on
or based on declaration
Is formed primarily to provide service to its owners called law of the board
“members” of directors
ADVANTAGES AND DISADVANTAGES Reporting Municipal Municipal Municipal
requirements Mayor, DTI, Mayor, DTI, Mayor, DTI,
SOLE PARTNER- CORPO- to BIR, SSS, SEC, BIR, SEC, BIR,
PROPRIE- SHIP RATION Pagibig/HDMF, SSS, Pag- SSS, Pag-
TORSHIP Philhealth ibig/HDMF, ibig/HDMF,
Pag- Pag-
Ownership One owner Two or more Five or more big/HDMF ibig/HDMF
Income Sole A partner Pays
Taxation Proprietorship pays corporate
individual income tax.
 pays individual income tax Stockholders 3. Flexibility of 7. Management that
income tax on his share pays on operations may be dependent
of dividend 4. Suited to small on the life of owner
partnership received business
profit are
exempted
from income
PARTNERSHIP
tax, others
are taxed ADVANTAGES DISADVANTAGES
like
corporations.
1. Easy to form, subject 5. Unlimited liability
to less government of the partner for
Liability to Unlimited Unlimited Limited requirements the debts of the
Third Party liability liability for liability of 2. Suited to the practice partnership
general stockholders of a profession 6. Limited term of
partners, 3. Some are exempted existence
limited from income tax 7. Limited capital
liability for 4. Flexibility of operation
limited
partners
CORPORATION
ADVANTAGES DISADVANTAGES
SOLE PROPRIETORSHIP
ADVANTAGES DISADVANTAGES
1. Capacity as a legal 5. Activities limited by
entity the articles of
1. Easy to form, less 5. Limited source of 2. Practical unlimited incorporation and
government capital life corporate by-laws
requirement 6. Life maybe 3. Limited liability of 6. Possibility of abuse of
2. Fast decision- dependent on the stockholders for power of officers
making, only one life of owner corporate debts
person decides

4. Wider source of 7. Subject to more
capital governmental
requirements
PARTNERSHIP
2 Essential elements of partnership
1. Agreement to contribute money, property or industry
to a common fund
2. Intent to divide the profits among contracting parties.
General features of partnership
1. Separate legal existence – partnership has its juridical
personalities separate and distinct from its owners.
2. Mutual agency – means that the act of a partner are
binding even though he or she has no authority to do so
as long as the act concerns the normal business
operations of the partnership
3. Unlimited Liability – general partner
4. Limited Life – partnership ended upon partnership
dissolution or liquidation
partnership dissolution occurs when 1 of the partners
w/draws from the
partnership or if a new partner is admitted.
Partnership liquidation – ends the operation of the
partnership, ends the life of the partnership. Assets are
sold, liabilities are paid, and the remaining assets are
distributed to the partners.
5. Co-ownership of partnership property – In the
formation of partnership, partners contribute money,
property and industry into a common fund. Once a
partner has contributed his or her money and property, it
does not belong to the him anymore. It now belongs to
the partnership and the partners only have proportion
share of partnership assets.
6. Partnership agreement – Articles of Partnership, a
written contract of partners.
Important notes
The contract of partnership can be oral or written. It must
be in written when: (a) an immovable property or real
rights are contributed thereto
(b) the partnership capital exceeds P3,000
When the partnership capital exceeds P3,000 , the
partnership contract must be registered with SEC .
If the partnership fails to register with the SEC, it cannot
acquire legal personality to maintain an action against 3rd
persons, but the partners may file a suit jointly against
3rd party persons.
The contract of partnership is called “Articles of
Partnership”
Classification of partnership
As to type of business
1. Marketing/ trading / merchandising – buy and sell w/o
change in physical form
2. Manufacturing – purchases of raw materials and
converts it to a finished product
3. Service – professional or non-professional
Type of partnership
A. As to liability
1. General partnership – liable for partnership debts up
to the extent of their personal property
2. Limited partnership – liable only up to the extent of
their capital contributions
Type of partners
B. As to Contributions
1. Capitalist partner – contributes money, or property
2. Industrial partner – contributes work, labor or industry
3. Capitalist-industrial partner – contributes money or
property as well as his work or labor
Type of partner
C. As to Participation
1. MANAGING PARTNER – appointed to run business of
the partnership, his appointment may either be in the
Articles of Co-Partnership or may come after the
formation of the partnership
2. SILENT PARTNER – Known as partner but does not
take active participation in running the affairs of the
partnership
3. LIQUIDATING PARTNER – Appointed to liquidate
partnership assets and settle unfinished transactions of
the partnership after dissolution.
CORPORATION
Our law defines corporation as “an artificial being created
by operation of law, having the right of succession and
the powers, attributes, and properties expressly
authorized by law or incident to its existence”
Emphasis in the definition of corporation
1. A corporation is AN ARTIFICIAL BEING – it means
that it is an entity separate and distinct from its owners.
2. A corporation is CREATED BY OPERATION OF LAW
– Individuals cannot form a corporation by themselves.
The law must play a role in the formation of a corporation.
3. A corporation HAS THE RIGHT OF SUCCESSION.
Ownership right can be passed to other persons through
sale, donation, or any mode of transfer
4. THE LAW IS THE SOURCE OF THE POWERS AND
ATTRIBUTES of a corporation. Being the source, the law
can likewise restrict the authority of corporations in
performing acts.
General features of a corporation
1. Separate legal existence – can enter into contract and
transactions under its name
2. Limited Liability
3. Transferable ownership rights
4. Virtually limited life
5. Corporation management – stockholders are owners of
the corporation but they do not manage the business.
Stockholders elect a board of directors to manage the
corporation.
The BOD represents the interest of the stockholders and
they are responsible for creating operating policies for the
company. Stockholders can also be a member of BOD.
6. Government regulations – Corp are subject to stricter
government regulations than sole proprietorship and
partnership. Corp are closely monitored by the
government, being the major contributor to the income of
the whole economy.
Government regulations are designed not only for the
protection of public interest, but also for the stockholders’
as well.
7. Double taxation
In the corporation the income is already taxed before
being distributed to the stockholders. Once the
stockholder receives his share of the income , it is
included in his tax return and will be taxed for the 2nd
time.
8. Dividends
The corporation is not required to distribute to
stockholders the income generated from operations. The
stockholders will only be entitled to receive a share of the
income once the BOD approves the distribution. The
income distributed to stockholders is called dividends
Dividends may be in the form of cash, stock, or property
COOPERATIVES
According to the Cooperative Code of the Philippines, “ a
cooperative is a duly registered association of persons,
with a common bond of interest , who have voluntarily
joined together to achieve a lawful common social or
economic end, making equitable contributions to the
capital required and accepting a fair share of the risks
and benefits of the undertaking in accordance with the
universally accepted cooperative principles”.
Cooperative is an association of individuals who share a
common goal. Membership in a cooperative shall be
voluntary and available to all individuals regardless of the
their social, political, racial, or religious background and
beliefs.
The primary objective of a cooperative is to provide 4. It shall exist for a period not exceeding 50 years from
goods and services to its members and enable them to the date of formation. The cooperative term may be
attain increased income and savings. A cooperative may extended for periods not exceeding 50 years
be formed at least 15 persons for any of the following
5. A cooperative has its set of BOD
purposes:
6. Income of cooperative (called net surplus) belongs to
1. To encourage thrift and savings mobilization among
its members.
the members.
2. To generate funds and extend credit to the members
for productive and provident purposes. TYPE OF BUSINESS ACCORDING TO ACTIVITIES
3. To encourage among members systematic production FABM1
and marketing
MARY ANN D. LEOPANDO
4. To provide goods and services and other
requirements to the members
5. To develop expertise and skills among its members What is business

6. To acquire lands and provide housing benefits for the
members
7. To insure against losses of the members
8. To promote and advance the economic, social, and
educational status of the members.
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.
3 types of business
1. Service Companies

Other characteristics of a cooperative 2. Merchandising Companies

1. It can be sue and be sued under its own name 3. Manufacturing Companies

2. It has the right of succession

3. Members of a cooperative are subject to limited
liability
SERVICE COMPANIES Advantages and disadvantages of service company
Are firms that generally use their employees to provide ADVANTAGE DISADVANTAGE
intangible products or services to customers.
These services include professional skills, advice, Absence of inventory Rely on human capital
expertise, and other related products. or tangible goods
The primary source of revenues of service companies is
the performance of services often referred to as service Don’t require Inability to standardize services
revenues production facilities ( services vary from one client
to another)
One concept in business is the operating cycle.
Operating cycle is the time it takes for a company to Constant evaluation and
create products, sells the products, and collect cash trainings are required
payment from customers.
Employment benefits are vital
to attract, retain and motivate
Operating cycle of service companies highly skilled employees.
• Cash on hand
• Pays employees & other expenses
Merchandising companies
• Perform services
Sell tangible products.
• Receives payment from customers
Buys finished or almost finished goods from their
suppliers and resells the same to customers.
Merchandising companies primarily earn revenues from
the sale of goods or merchandise , also known as Sales
Revenue or Sales.
2 types of merchandiser Advantages and disadvantages of merchandising
companies
1. Retailer
2. Wholesaler ADVANTAGES DISADVANTAGES

RETAILER
The existence of Holding inventories
A merchandising company that sells goods directly to tangible products involves management and
customers or to final consumers. Goods are sold in small provides a leeway to require cost and security
quantities. merchandising
companies to make
WHOLESALER
customers notice
A merchandising company that sells goods to retailers. their products,
Goods are sold in big quantities or in volumes. thereby promoting
sales.
Operating cycle of merchandising companies
• Cash on Hand Consume less
conversion time,
• Buys goods
effort, and cost
• Stores goods as inventory
• Sells inventory
KINDS OF RETAILER
• Receives payment from customers
1. DEPARTMENT STORES – carry a wide variety of
product lines
2. SUPERMARKET – sells a variety of food and
household products
3. SPECIALTY STORES – carry a variety of models for
one kind or limited product lines. Ex. Cellphone stores
4. CONVINIENCE STORES –carry high turn-over goods, They earn revenues primarily from the sale of
24hrs a day, 7 days a week, their prices are higher than manufactured products. Their products can be sold
those of supermarkets directly to consumers, retailers, and other manufacturers.
5. SUPERSTORES – larger supermarkets and Manufacturing has its operating cycle generally has the
department stores have emerged. Ex; Puregold , S&R, longest period compared to service and merchandising.
Landmark, Savemore The cycle has additional phase which is the production of
goods.
6. FACTORY OUTLET – different manufacturers are
grouped together in one factory outlet mall. The outlets Operating cycle of manufacturing companies
are located in places far from the cities and offers a
• Cash on hand
variety of choices.
• Pays for inputs (material, labor, overhead)
7. DIRECT SELLING – one-on-one selling. One seller
approaches a buyer . Many times the buyers are friends • Converts input into finished goods
or relatives of the seller.
• Stores finished goods as inventory
• Sells inventory
MANUFACTURING COMPANIES
• Receives payment from customers
Manufacturing companies or simply manufacturers , are
relatively complicated organizations than service and
merchandising companies.
They creates their own products. They use raw materials,
components, or parts which are processed using
machines, computers, and labor to produce finished
goods.
Manufacturers typically employ large-scale production
which is done in manufacturing plants.
Advantages and disadvantages of manufacturing
companies

ADVANTAGE DISADVANTAGE

Manufacturing Requires large amount of

companies is in control capital for the operations
of the quality of their and facilities
products, they can
ensure that it meet the
standards set.

It benefits from High conversion cost

products produced that
are easily noticed by
customers, thus
promoting sales

Cost of quality control

Managing inventory