1. What do you call a written report outlining your business strategy and a description of the future of your business?

A. Operational Plan
B. Financial Plan
C. Business Plan
D. Strategic Plan

2. Every business entity should have a guiding principle for it to succeed and prosper. It constitutes the purposes of the
owner other than making profit. What is this?
A. Catalogue
B. Brochure
C. Perspective
D. Mission and Vision

3. What form of business is the simplest and easiest one?

A. Corporation
B. Joint Venture
C. Sole Proprietorship
D. Limited Partnership

4. The Filipino Foundation was established for the purpose of helping distressed OFWs. What type of a corporation is
this?
A. Non-Stock Corporation / Non-Profit Corporation
B. Stock Corporation
C. Close Corporation
D. Corporation Sole

5. To establish an enterprise, the owner must consider existing local laws and must obtain a permit from the municipality
where he will do his business. What kind of permit is this?
A. License to operate
B. Driver’s permit
C. Mayor’s permit
D. Barangay permit

1. Mario and James agreed to establish a business venture together. Mario will contribute money while James will
contribute his managerial skills and a portion of a lot he owns at downtown. What type of business are they going to
establish?
A. Sole Proprietorship
B. Joint Venture
C. Corporation
D. Partnership

2. What is the main reason why we need to register our business to the Bureau of Internal Revenue?
A. To become part of nation building through payment of proper business income tax.
B. To receive a subsidy from the government.
C. To be a good citizen of the country.
D. To have a free advertisement.

3. This document is one of the most important one. It shows that you have been give the privilege to operate your business
within the jurisdiction of the municipality or city where your business is located. What kind of permit is this?
A. Congressional Permit
B. Governor’s Permit
C. Barangay Permit
D. Mayor’s Permit
4. If you and your friends decided to establish a corporation, what agency of the government should you apply for a
license other than the Department of Trade and Industry?
A. Department of Budget and Management
B. Securities and Exchange Commission 
C. Bangko Sentral ng Pilipinas
D. Department of Finance

5. These are like guiding stars that will lead you to the success of your business enterprise. What are these?
A. Loyalty, integrity and values
B. Charity, humility and vision
C. Mission, virtue and values
D. Mission, vision and values

6. Which of the following is NOT a requirement in obtaining a barangay permit?

A. DTI registration certificate
B. Valid identification cards
C. Fire safety clearance
D. Barangay clearance

7. In what way you can become part of the community’s economy and fulfillment of social responsibility?
A. By using profit to expand the business
B. By creating jobs for the people
C. By paying business permit fee
D. By donating to a charity

8. Which of the following type of organizational structure allows collaboration among teams and individuals?
A. Line and Staff Organization Structure
B. Functional Organization Structure
C. Line Organizational Structure
D. Project-based structure

9. Mr. Juancho Mariano is planning to establish his business. He talked to the owner of stalls near the market for a
possible rental agreement. The latter agreed to have Mr. Mariano rent one of the stalls. What type contract should they
sign together?
A. Contract of employment
B. Joint venture contract
C. Logistical contract
D. Lease contract

10. What should be the main criteria for hiring people into your business?
A. Neatly dressed and has communication skills
B. Good character without competence
C. Good character and competence
D. Pleasing personality only

1. Conducting performance reviews on credit history shows the financial stability of the supplier. This activity will enable
you to assess your prior knowledge on profit and loss report. FALSE
2. Dealing with distant suppliers might provide you a quick delivery time and extra load costs. FALSE
3. Developing partnership promotes stronger commitments and encourages a greater interest in success for the material
and finished goods. TRUE
4. Value chain and Supply chain are synonymous in nature.
5. In value chain, it starts the process from the source flows outward to the customer.
6. The final stage in the supply chain is the distribution of the product to consumers/customer.
7. Michelle Porter introduced the concept of value chain in his 1985 book "Competitive Advantage: Creating and
Sustaining Superior Performance." FALSE / Michael Porter
8. One of the characteristics need to consider when hiring a qualified candidate is their commitment in developing and
growing their own career as a professional. TRUE
9. If you are hiring someone to do a job that is tiresome in nature, look for a candidate who can cope with pressure, tight
deadlines, and complex customer demands. TRUE
10. Visiting candidate’s social media page will help you acquire more insight into their skills and experience than their
resume. TRUE

1. It is a statement of the financial position of a business which states the assets, liabilities, and owners' equity at a
particular point in time.
A. Balance Sheet
C. Owner’s Equity
B. Income Statement
D. Assets

2. It is the most basic journal which provides columns for date, account titles and explanations, folio or references and a
separate column for debit and credit
entries
A. General Ledger
C. Subsidiary Ledger
B. General Journal
D. All of the above

3. When cash or non-cash items are received, the said cash or non-cash items
must be recorded in what column of a general Journal?
A. Folio
C. Debit
B. Credit
D. None of the above

4. It is the process of recording and organizing a business’s financial transactions which also refers to the different
recording techniques businesses.
A. Journalizing
C. Bookkeeping
B. Posting
D. Accounting

5. Are things or properties that the business owns, example includes cash, account
receivable and repaid expenses.
A. Assets
C. Owner’s Equity
B. Liabilities
D. Revenue
6. It is the obligations of the company, payable in money, goods or services.
A. Assets
C. Owner’s Equity
B. Liabilities
D. Revenue
7. It is the claim of the owner of the business also known as the capital.
A. Assets B. C. Owner’s Equity
B. Liabilities D. Revenue

8. ________ is a record comprising the sales and other income recieved by the
business.
A. Assets C. Owner’s Equity
B. Liabilities D. Revenue

9. The most liquid form of asset that can be used anytime to purchase another
assets or pay liabilities.
A. Inventories C. Payable
B. Cash D. Receivables

10. An example of asset that can be used in the business for a long period of time. Usually more than a year.
A. Inventories C. Receivables
B. Computer D. Cash

11. A type of business that is purely engage in providing all types of service activities such as medical or legal services.
A. Service Business C. Manufacturing business
B. Merchandising business D. Trading Business

12. A type of business that is engage in buying and selling of food products such as Grocery/convenient stores.
A. Service Business C. Forex Trading Business
B. Manufacturing business D. Merchandising business

13. An account name which is the value remaining after liabilities are subtracted
from assets, representing the owner’s held interest in the business (e.g.,
stock, retained earnings)
A. Assets C. Owner’s Equity
B. Liabilities D. Revenue

A. Maria is a fish vendor selling at the local public market. She gets her fish from a supplier at 100.00 pesos per kilo and
sells it at 160.00 per kilo to his customers. How much mark-up did Claire add to his selling price?
A. 40.00 C. 70.00
B. 60.00 D. 50.00

15. What is an account name which is usually the cash that flows out from the
business to pay for some item or service (e.g., salaries, utilities)
A. Assets C. Owner’s Equity
B. Liabilities D. Expenses

1. Which of the following is true about profit and loss statement?

A. It is known as the Net Income and Expense Statement
B. It is known as the Statement of Basic Income
C. It is known as the Cash Flow Statement
D. It is known as the Income Statement
2. Which ratio analysis measures the overall operating efficiency of the firm?
A. Operating profit margin
B. Gross profit margin..
C. Net profit margin.
D. Return on equity.

3. Which of the following are the correct components of the profit and loss statement?
A. revenues, expenses, investments by owners, distributions to owners
B. revenues, losses, expenses, and gains
C. assets, liabilities, and owner’s equity
D. assets, liabilities, and dividends

4. Which of the following has the same result of reducing expenses?

A. Increasing revenue
B. Decreasing revenue
C.Increasing liabilities
D.Decreasing liabilities

5. Which of the following account does not considered in the profit and loss statement?
A. Sales revenue
B. General expenses
C. Bonds
D. Cost of goods sold

6. What happens if cost of goods sold exceeds revenue?

A. Products sold cost more than revenue received
B. Likely time to find something else to do
C. It losing its money over time.
D. All of the above.

7. Which of the following is equal to the profit of a business during an accounting

period?
A. Total cash receipts less total cash payments
B.Total revenues less total cash payments
C.Total cash receipts less total expenses
D.Total revenues less total expenses

8. When is a business said to be in a profit?

A. Income exceeds liability
B. Assets exceed expenditure
C. Income exceeds expenditure
C. Expenditure exceeds income

Sole Proprietorship: The simplest and most basic type of business organization. An individual may establish his own
business and is referred to as a sole proprietor. He may enjoy all the profits gained by his business but he is also the lone
absorber of risks and losses.
Partnership: This requires two or more persons who plan to contribute assets with the goal of sharing income between all
parties involved.
Corporation: A corporation is the most complex type of business formed by at least five to fifteen incorporators.
Majority of these incorporators must be Filipino citizens. A corporation may raise a capital or additional funding through
public offering of shares of stocks.

The degree or level of easiness or difficulty of starting a business depends on the type of business you will undertake. The
easiest of these is of course, single proprietorship. Successful entrepreneurs started with this type of business because
it is simple to operate and easy to manage.

The following are the steps on how to register a single proprietorship business:
1. Business Name Registration at the Department of Trade and Industry (DTI)
 A name sets an identity of your business and it can become a household name. After you have decided what name you
will use for your business, you need to search the website of the Department of Trade and Industry if the name you have
chosen is unique or has been taken by other entrepreneurs. If it is available, obtain a business name application form and
fill it up then submit it to the nearest DTI office. After processing your  application, DTI will issue a business registration
certificate.
2. Obtain a Barangay Permit
It is important to go to the Barangay where your business is located and apply for a barangay permit allowing you to
operate within the jurisdiction of the barangay. You will be needing a copy of your DTI Certificate of Business
Registration, valid IDs (at least 2), and a barangay clearance.

3. Secure Mayor’s Permit

The Mayor’s Permit is one of the most important documents you will ever need to operate your business . Once you
have obtained a DTI and Barangay certifications, the next step you will do is to register your business at the office of the
municipal or city mayor. The previously mentioned certificates will be attached to the Mayor’s Permit application form
alongside with two valid identification cards.

4. Bureau of Internal Revenue (BIR) Registration

As a law-abiding citizen entrepreneur, you need to register your business with the BIR. By doing so, you will be able to
become part of the development of the country through the taxes from the income of your business.
You may visit the revenue district office covering your business location. Obtain and fill out a BIR form 1901, which is
the valid form for registering a single proprietorship business. You will also need to submit the DTI Certificate of
Registration, Barangay Clearance, Mayor’s Permit, Community Tax Certificate, and valid identification cards. You are
then required to pay a registration fee and register your book of accounts as well as invoices and receipts to be used in the
operation of your business. After going through all the process, you will then receive your certificate of registration or the
BIR form 2303. By doing this, you can become part of building the nation through the equitable taxes that you will pay
out of the income of your business.
Other clearances that must be obtained prior to obtaining the above certificates include 
a) fire safety clearance, 
b) electrical inspection certificate, 
c) occupancy certificate, 
d) lease contract (if the space is rented), and 
e) locational clearance.

These steps are also being undertaken for partnerships and corporations. However, they vary on the requirements needed
and additional agencies to be approached for other permits and licenses such as the Securities and Exchange
Commission (SEC).
Before finally starting and operating your business, make sure you have acquired all additional clearances, licenses or
permits needed. You must also be ready to register with the SSS, Philhealth and Pag-ibig Fund as these may greatly
benefit your employees. After completing all the above steps, it is advisable that you spend time focusing on formulating
your operational and strategic plan for the sustainable growth of your business.

Owning a business is both a prestige and honor. You can also become part of the community’s economy by creating
jobs for the locals.

Organizational Structure
Employees should have a good character and competence to help you accomplish the goal of your business. 
 An organizational structure is a framework that specifies the course of certain activities in order to achieve
an organization's goals.
 It also clearly depicts up to what extent are the duties and responsibilities of every individual in the organization.
The following are some the importance of having an organizational chart even for a startup business like yours:
 a. It is a single picture of the whole organization of the business
 b. It defines the job of each employee
 c. It sustains the efficiency and performance
 d. It boosts confidence among employees

Three of the most popular organizational structures are:

A. Line Organizational Structure
Also referred to as the hierarchical organizational chart and the most common organizational structure due to its
plainness and simplicity.
The top of the chart features the owner or owners, the managers of the different departments. The line of information is of
vertical orientation and it does not allow collaboration between teams of other departments.

B. Functional Organization Structure

This type of structure offers more lines of communication and the flow of information can be both vertical and
horizontal. It allows collaboration among teams and individuals.

C. Line and Staff Organization Structure

This organizational structure is widely adopted by large companies . Staff are considered specialists who provide advice,
opinions, and technical information to every department.

Potential Suppliers of Raw Materials

Selecting the right suppliers is essential for building a successful business. By employing some supplier's selection
criteria, it is possible to identify enterprises who are reliable and meet your particular needs.

Here are some factors to consider in selecting potential suppliers of raw materials and other inputs:

1. Price
If you focused on managing your finances, a main consideration for selecting suppliers is affordability yet possesses a
good quality product.

2. Reliability
Developing a closer relationship with a reliable supplier means getting quality, timeliness, innovation and
competitiveness, which are all assets in continuously receive throughout the supply chain relationship.

3. Stability
Look for qualified suppliers who have been in business for a long time. Stability is important, when entering into a
long-term contract with a supplier. Conduct performance reviews on their credit history to see if they are financially
stable. It. requires also in finding out what businesses use a specific supplier's services and asking them for a reference.

4. Location
Consider location when selecting suppliers. Dealing with distant suppliers might provide you a longer delivery time and
extra load costs. If you need it fast, a local supplier might be a better option. Be sure to check on the freight policies of
distant suppliers. For instance, bulk orders might get a free shipping or you might combine different orders to reduce
costs.

5. Developing Partnerships
Basically, the supplier’s relationship is at its best when a strategic partnership is made, allowing full facts of the source of
materials and guaranteeing high quality. A supplier is with a stronger business partnership if it provides the following:
 Do in advance what is required from the manufacturer and start to take the leadership role in communication.
  Notify and communicate with the manufacturer if a quality problem is identified that limits production
availability.

This type of partnership promotes stronger commitments and encourages a greater interest in success for the
material and finished goods.

Value/Supply Chain
In business, there are forms to be done that anybody has to see its benefits. One such form is implementing successful
value chain. Value and supply chain often used interchangeably. Yet, there is a difference between these two models.
Supply chain management and value chain management are connected both in the processes involved in getting goods
from the enterprise board, through purchasing, manufacturing, and into the hands of consumers. However, each discipline
views the process from a unique standpoint, and with different objectives.
Figure 1 shows that in supply chain, it starts from the source flows outward to the customer. On the other hand, the value
chain starts with the customer and flows inward to supplier. In addition, Table 1 indicates also on the differences of the
two models:

BASIS SUPPLY CHAIN VALUE CHAIN

Definition The integration of all the activities that starts The series of input activities that focuses on
from the manufacturing of raw material into creating or adding value to the product for its
the finished product and ends when the valued customers which often involves
product reaches the final customer. finding the raw material for manufacturers or
just simply packaging and marketing for
retailers.
Origin Operation Management Business Management
Concept Transmission Added-Value
Structure Product Request - Supply Chain - Customer Customer Request - Value Chain - Product
Goal Customer Satisfaction Gaining competitive strength

Supply Chain

Supply chain defines as a tool of business conversion that reduces costs and maximizes customer satisfaction by
providing the right product at the right price at right time at the right place and. It involves all activities in the
distribution through a product transmission that reaches the final user while remaining profitable and competitive.

Supply chain uses a process that control and plans the operation known as Supply Chain Management. It manages the
flow of raw material, within the business and the flow of finished product to the end user along with full customer
satisfaction.

There are five (5) main elements of supply chain management:

1) Producing and designing a product to meet consumer request

2) Obtaining the raw materials required to produce the products
3) Manufacturing and developing the products
4) Distributing the product to consumers/customer
5) Accepting and processing returns of defective products

When the process done effectively, the costs of materials and efficient transport may reduce its costs for the consumer
while increasing profits for the manufacturer.

Value Chain

Michael Porter pioneered the concept of value chain in his 1985 book "Competitive Advantage: Creating and Sustaining
Superior Performance."

 He used this concept to show businesses add value to their raw materials to produce products that finally sold to
the market.

There are five steps in the value chain process, which allows a company to have a competitive strength over other
competitor. The five steps are:

1) Inbound Logistics: Deals with receiving, storing and inventory control.

 2) Operations: Value-creating activities that convert inputs into finished products such as assembly and
manufacturing.
3) Outbound Logistics: Activities concerned with the collection, storage, and distribution of finished
product or service to customers.
4) Marketing and Sales: Involve activities that associated among the general consumers or buyers to
purchase a product.
5) Service: Activities that maintain and enhance the value of the product, such as customer care and
warranty package.

Supply chain is as significant as a value chain to the business world. The two models are difficult to separate in that most
of their functions connect. Both supply and value chains need transportation and storage and end with the consumer
receiving their goods/service. Both have similar goal that is to satisfy the customers with your products while operating
efficiently and effectively, in order to give the business a better bottom line but take somewhat different tracks to get
there.

Recruit Qualified Candidate for One’s Business Enterprise

 Recruiting defines the processes of the companies use to find qualified candidates to fill job openings.

When recruiting, consider your actual needs of your business. An impressive list of qualifications and broad work
experience are necessary, but these are not the only factor to consider when recruiting potential employees. Here are
some ways to improve your recruitment process:

1. S e a r c h f o r A C a r e e r - O r i e n t e d I n d i v i d u a l

 One of the characteristics need to consider when hiring a qualified candidate is their commitment in developing
and growing their own career as a professional. Look for an employee who is working to be loyal and assess
your job as a chance to improve their career and be an asset to the company at the same time.

2.EvaluateforPracticalExperience

 Hiring candidate who is both qualified and experienced in your line of work is very important. To be able for
them to integrate more quickly and become familiar with the job, concentrating on the practical experience of
your potential employee is the key. Naturally, every new employee needs to undergo an adjustment period if a
candidate does not have the required practical experience for the job you are looking for but keep that period as
short as possible.

3.TestYour Applicants
  One of the ways to improve your recruitment process is to implement various strategies that can provide you
data as far as learning abilities and analytical skills of the candidate are concerned. Even they have an impressive
resume, and they come off as self-assured during the interview, it is up to the employer to assess potential
employees, because some of them might not been completely truthful on their resume. In addition, you will
have better understanding on how resourceful they are when presented with a new challenge.

4.Determine Strengths Needed forthe Position

 If you are hiring someone to do a job that is tiresome in nature, you should look for a candidate who have the
necessary mental and psychological strength to cope with pressure, tight deadlines, and complex customer
demands. Determine whether the candidate will be able to stay self-motivated, excited to be an active
participant in business efforts, and willing to put in the extra work to achieve success in the business, even they
are required to perform the task repeatedly.

5.Culture Fit

 Another way to consider when hiring a candidate is their ability to fit in and adjust to your business’s culture. It
means they need to develop enough their social skills, to maintain the positive atmosphere in the workplace.
Since every job involves working with people, and communicating with clients, should hire a person with strong
social skills. Check their work history through interview questions and conduct a reference check with their
former colleagues and bosses to make sure they may not cause future harm to your organization. This should
help you a complete picture of every candidate you interview.

6 . Take them Onboard

 Once you have decided to hire candidate, provide them an actual work pairing them with a more experienced
worker who can mentor and train during his or her initial days in the workplace. In this process, you will
recognize everything about their intelligence, skills, ability to manage with stress, social skills, and weaknesses.

7.Run Social Checks

 Visiting candidate’s social media page will help you acquire more insight into their skills and experience than
their resume. Finding the qualified candidate is not that simple and time-consuming process because of
competition, varying labor force, demographics, and workers’ principles, but it is well-worth something that will
benefit the business in the future. To be successful, you may need to be open-minded and creative.

WHAT ARE BUSINESS RECORDS?

A business record is a document (hard copy or digital) that records business dealing.

Business records include;

 meeting minutes,
 memoranda,
 employment contracts, and
 accounting source documents.

It must be retrievable at a later date so that the business dealings can be accurately reviewed as required. Since business
is dependent upon confidence and trust, not only must the record be accurate and easily retrieved, the process
surrounding its creation and retrieval must be perceived by customers and the business community to consistently
deliver a full and accurate record with no gaps or additions.
IMPORTANCE OF KEEPING GOOD RECORDS

1) Monitor the Progress of the Business

 The good records need to monitor the progress of a business. Records can show whether the business is
improving, which items are selling, or what changes the need to make. Good records can increase the likelihood
of business success.

2) Prepare the Financial Statements

 The good records need to prepare accurate financial statements. These include income (profit and loss)
statements and balance sheets. These statements can help in dealing with the bank or creditors and help
manage the business.

a) An income statement shows the income and expenses of the business for a given period of time.

b) A balance sheet shows the assets, liabilities, and equity in the business on a given date.

3) Identify sources of Income

 The money or property will receive from many sources. The records can identify the sources of income. This
information will help to separate business from non-business receipts and taxable from non-taxable income.

4) Keep Track of the Deductible Expenses

 Keep the record especially the expenses will greatly need when preparing the tax return.

5) Keep Track as the Basis in Property

 The basis is the amount of the investment in property for tax purposes. The basis will be used to figure the gain
or loss on the sale, exchange, or other disposition of property, as well as deductions for depreciation,
amortization, depletion, and casually losses.

TYPES OF RECORDS FOR ACCOUNTING AND TAX OTHER RECORDS

PURPOSES  Purchase order
 Business expenses  Employment applications
 Credit card statements  Emails and other business communications
 Bank statements  Inventory logs
 Annual tax returns  Personnel records
 Quarterly tax filings  Accident reports
 Payroll  Article of incorporation
 Inventory  Permits
 Sales  Licenses
  Income  Trademark registrations and patents
 Petty cash
 Vehicle use log
 Travel log
 Cash register tapes
 Credit card sales receipts
 Invoices
 Cancelled checks
 Check stubs

Financial forms/records usually have set standards of reporting and any differences are very minimal. Samples
obtained from an existing similar project will definitely prove helpful for your design requirements. (p. 219 A
Business Planning by Jorge Cuyugan 1996)

These are:
1. Accounts Receivables – these are valuable not only to decision on extension of credits but also to make
accurate billing and maintenance of good relations with customers. These records will reveal how effective is
your firm’s credit and collection policies.
2. Inventory Records – these records will be used to control your inventory items. In addition, they could also be
used to supply information for your firm’s purchasing, maintenance of economic supply of sticks and computing
turnover ratios.
3. Accounting Payable – these liability record show what your firm owes, facilitates obtaining of available cash
discounts and informs you when payments are due.
4. Sales Records – these could be used in the analysis of the effectiveness in advertising and promotions of your
products, market coverage and profitability. They also serve as a basis for computing your salesmen’s
compensation.
5. Production Records – these records provide a basis for your product costing and detect lost profits/costs as a
result of idle manpower/machineries.
6. Payroll Records – show the total payments you pay your employees and provide a basis for computing some
legal payments.
7. Cash Records – show all receipts and disbursements made by your firm. They contain your firm’s cash flow
and petty cash balances. These records also enable you to know when to time your loans and they may also be
used as assurances for ready cash when needed.
8. Other Accounting Records
 Insurance registers
 Leasehold records
 Investment records

SPECIFIC TYPES OF ACCOUNTING RECORDS

1. Journals
a. Sales Journal (Sales Book) – these are used to record your company’s sales.
b. Purchase Journal (Purchase Book) – these are used to record your company’s purchase.
c. Cash Receipts Journal (Cash Receipts Book) – these are used to record your company’s cash receipts.
d. Cash Payments Journal (Cash Payments Book or Cash Disbursement Book) – these are used to record your
company’s payments in cash.
e. General Journal – these are used to record your company’s transaction mentioned in a, b, c and d.

Journal Transaction Supporting Forms

Sales Journal (S) Sales Sales Invoice
 Purchase Journal (P) Purchases Purchase Invoices
Cash Receipt Journal (CR) Cash Receipts Official Receipts
Cash Payment Journal Cash Payments Cash Vouchers
(CP) General Journal (J) Others Journal Vouchers

2. Ledgers

a) Accounts Receivable Ledgers – contain your company’s individual trade with customers (accounts).
b) Accounts Payable Ledgers – contain your company’s individual accounts with creditors.
c) Plant Ledgers – contain your company’s list of all fixed assets.

WHAT IS BOOKKEEPING?

Bookkeeping

 is the process of recording and organizing a business’s financial transactions.

 It can also refer to the different recording techniques businesses can use.
 also helps you identify areas of profit expansion—areas you might not have noticed without clear financial
reports you can interpret easily. The one who is doing the process is the bookkeeper.

Bookkeeping is the primary way business owners can figure out if their business is profitable: keeping an eye on your
numbers lets you identify financial challenges early on and address them before they blossom into full-fledged crises.

In general, a bookkeeper records transaction, sends invoices, makes payments, manages accounts, and prepares financial
statements. Bookkeeping and accounting are similar, but bookkeeping lays the basis for the accounting process—
accounting focuses more on analyzing the data that bookkeeping merely collects.

1. Understand business accounts. In the world of bookkeeping, an account doesn’t refer to an individual bank account.
Instead, an account is a record of all financial transactions of a certain type, like sales or payroll.

There are five basic types of accounts:

 Assets are the cash and resources owned by the business (e.g., accounts receivable, inventory)
 Liabilities are the obligations and debts owed by the business (e.g., accounts payable, loans)
 Revenues or income is the money earned by the business, usually through sales
 Expenses or expenditures is the cash that flows out from the business to pay for some item or service (e.g.,
salaries, utilities)
 • Equity is the value remaining after liabilities are subtracted from assets, representing the owner’s held interest
in the business (e.g., stock, retained earnings)

Bookkeeping begins with setting up each necessary account so you can record transactions in the appropriate categories.
You likely won’t have the same exact accounts as the business next door, but many accounts are common. The table
below shows some frequently used small business accounts and their types. Small business accounts and their types.
2. Set up your business accounts.

Knowing the accounts, you need to track for your business is one thing; setting them up is another. Back in the
day, charts of accounts were recorded in a physical book called the general ledger (GL). But now, most businesses use
computer software to record accounts. It might be a virtual record rather than a hard copy, but the overall file is still
called the general ledger.

There are three main methods for creating a GL:

• Spreadsheet software (e.g., Excel) Spreadsheet software is the cheapest option; Google Sheets doesn’t cost a monthly
fee but trying to craft your own general ledger in a spreadsheet program can spiral quickly into disaster.

• Desktop accounting bookkeeping software (e.g., QuickBooks Desktop) Desktop bookkeeping software usually requires
a high up-front fee, but the software is then yours to keep.

• Cloud-based bookkeeping software (e.g., QuickBooks Online, Wave) With online, cloud-based bookkeeping software,
you have to pay a monthly fee to keep your online subscription, but it’s a much lower cost than that of desktop software.

Alternatively, you can pay an accountant, bookkeeper, or outsourced accounting company to manage your accounts and
ledger for you.

3. Decide on a bookkeeping method.

If you plan to do your own books in house instead of outsourcing to an accounting or bookkeeping firm, you need to
make one crucial choice before you start setting everything up: When choosing, consider the volume of daily
transactions your business has and the amount of revenue you earn. If you are a small business, a complex bookkeeping
method designed for enterprises may cause unnecessary complications. Are you going to use single entry bookkeeping
or double-entry bookkeeping?

With single-entry bookkeeping, you enter each transaction in a straightforward method where only one is made for each
transaction in your books. If a customer pays you a sum, you enter that sum in your asset column only. Makes sense,
right? This method can work if your business is simple—as in, very, very simple. No need of formal accounting training
for this. If you work out of your home, don’t have any equipment or inventory to offer, and don’t venture too frequently
into the realm of cash transactions, you might consider single-entry bookkeeping.

Single-entry bookkeeping

4. Record every financial transaction.

You’ve created your set of financial accounts and picked a bookkeeping system—now it’s time to record what’s actually
happening with your money. It’s crucial that each debit and credit transaction is recorded correctly and in the right
account. Otherwise, your account balances won’t match, and you won’t be able to close your books.

The bookkeeper uses the Book of Accounts to record the business transactions which is to be consolidated later to help
construct financial statement such as the Trial Balance, Income Statement and Balance Sheet.

Each business has a bookkeeper who is in charge to record, maintain and update business records from all sorts of
financial transactions using account title that can be found in the charts of accounts.

What is a Book of Account?

The book of accounts is composed of the Journal and Ledger. It depends on the type of business, some businesses used
special journals when they are engaged merchandising type of business to records business transactions.

 Journal refers to the book of original entry

 the Ledger refers to the book of final entry.
The General Journal is the most basic journal which provides columns for date, account titles and explanations, folio or
references and a separate column for debit and credit entries

The General Ledger is a grouping of all accounts directly traceable to chart of accounts.

The subsidiary ledger is a group of accounts directly associated from the general ledger. This record is created to
maintain individual accounts for customers and vendors whose cash is not being used as a medium of exchange when
purchasing or selling merchandise.

When to Debit? When cash or non-cash items are received, the said cash or non-cash items must be recorded in the
debit column. This means that the debit balance increased. It is called Value Received.

When to Credit? When cash or non-cash items are given, the said cash or non-cash items must be recorded in the credit
column. This means that the credit balance is increased. It is called Value Parted with

5. Balance the books.

The last step in basic bookkeeping is to balance and close the books. When you tally up account debits and credits—
often at the end of the quarter or year—the totals should match. This means that your books are “balanced.”

Assets = Liabilities + Equity

6. Prepare financial reports. Now that you’ve balanced your books, you need to take a closer look at what those books
mean. Summarizing the flow of money in each account creates a picture of your company’s financial health.

• Profit and loss (P&L) statement. Also called an income statement, this report breaks down business revenues, costs,
and expenses over a period of time (e.g., quarter). The P&L helps you compare your sales and expenses and make
forecasts.

• Cash flow statement. Cash flow statements help show where your business is earning and spending money and its
immediate viability and ability to pay its bills.

7. Stick to a schedule.

At least once a week, record all financial transactions, including incoming invoices, bill payments, sales, and purchases.
And make it a priority to close your books regularly too. You may do every month, but at the very least, balance and close
your books every quarter. Another pro tip? Make sure to tackle your books when your mind is fresh and engaged—say, at
the start of the day before you open your doors rather than late at night, after you’ve closed up

8. Store records securely.

Proper record-keeping for small businesses makes the process easier and keeps you compliant with the law. You never
want to waste time chasing down last month’s missing invoice, and you certainly don’t want to find yourself in trouble
with legal requirements

 Cost price – the amount paid to purchase an item

 Selling price: - amount of an item sold
 Profit – amount of money earned from the resale
 Loss - amount of money lost from the resale
 Percentage of Profit and Loss (%) 100 / x profit loss cost

Profit and loss statement focuses on the following components:

1. Revenue
2. Cost of goods sold
 3. Gross Profit
4. Expenses
5. Operating income
6. Net Profit

In general, it splits into 2 sections, the revenue and expenses.

 Revenue — the total amount of income generated by selling of goods or services in given period.
 Expenses — the amount of money spend to generate revenues during the period.

The two main sets of figures in the expenses section are:

A. Cost of goods sold (COGS) - the price/cost you pay to create your products or services.
B. Operating expenses – expenses required to operate the business for a specific period. It
includes rental expenses, payroll, utilities and non-cash expenses such as depreciation.

 Gross profit - the total revenue minus your COGS. It is also known as gross income or gross margin. Gross profit is an
indicator of overall production effectiveness for setting prices and sales targets.

 Operating income - the amount of revenue left after deducting the operational costs from sales revenue. EBIT is also
known as operating profit/EBIT(earnings before interest and taxes) since they both exclude interest expenses and taxes
from their calculations. However, there are cases when operating income can differ from EBIT

 Net Profit - It is the total amount earned after deducting all the expenses, also known as the 'bottom line'

 Gross profit = revenue – cost of goods sold

 Operating income = gross profit – operating expenses
 Net profit = operating profit – (taxes + interest)

A. Gross Profit Margin - measures the profitability of a business that shows the percentage of gross profit in comparison
to sales. The higher the gross profit margin the better the company in managing its cost of sales. To calculate use the
following formula:

Gross profit margin = Gross profit / revenues

B. Operating Profit Margin - reveals the amount that a business has made before financing and other costs are
considered. An increasing operating margin over a period indicates a company whose profitability is improving. To solve,
use the formula:

Operating profit margin = Operating income ÷ Total Revenue

C. Net Profit margin - a profitability ratio that indicates how well a company can convert its revenues into profits. Net
profit margin is the percent of revenue remaining after deducting all expenses. The higher the net profit margin, the
more money a company saves. Decreasing net profits are a symptom of slow sales. To calculate, use the formula:

Net Profit margin = Net Income ⁄ Total revenue x 100