[FUNACC] (P1) Chapter 2 | Accounting Principles and Reporting Standards

entity

is something that can be recognized as having its own separate identity, such as an individual, a town, a university, or a business.

economic entity

The term ________ usually refers to a business or organization whose major purpose is to produce a profit for its owners.

Social entities

Type of entity that are nonprofit organizations, such as cities, public schools, and public hospitals.

business

A ______ requires investments to enable it to pay for the infrastructure, equipment and personnel.

FUNDAMENTAL BUSINESS MODEL

The model illustrates the way money flows around a business and provides the basis of accounting. To manage a business effectively it is important to know how the cash has been spent and how profitable the products or services have been to the business. The availability of this historic information helps management to make judgments on how to improve the performance of business.

Services

• Activity: Selling people's time

• Structure: Hiring skilled staff and selling their time

• Examples: Software development, Accounting, Legal

Trader

• Activity: Buying and selling products

• Structure: Buying a range of raw materials and manufactured goods and consolidating them, making them available for sale in locations near to their customers or online for delivery

• Examples: Wholesaler, Retailer

Manufacture

• Activity: Designing products, aggregating components and assembling finished products

• Structure: Taking raw materials and using equipment and staff to convert them into finished goods

• Examples: Vehicle Assembly, Construction, Engineering, Electricity, Food and drink, Chemicals, Media, Pharmaceuticals, Water

Raw materials

• Activity: Growing or extracting ______.

• Structure: Buying blocks of land and using them to provide raw materials

• Examples: Farming, Mining, Oil

Infrastructure

• Activity: Selling the utilization of ______.

• Structure: Buying and operating assets (typically large assets); selling occupancy often in combination with services

• Examples: Transport (airport operator, airlines, trains, ferries, buses), Hotels, Telecoms, Sports facilities, Property management

Financial

• Activity: Receiving deposits, lending and investing money

• Structure: Accepting cash from depositors and paying them interest; using the money to provide loans to borrowers, charging them fees and a higher rate of interest than the depositors receive.

• Examples: Bank, Investment house

Insurance

• Activity: Pooling premiums of many to meet claims of a few

• Structure: Collecting cash from many customers; investing the money to pay the losses experienced by a few customers. By understanding the risk accepted and the likelihood of a claim, more premium income can be earned than claims paid.

the sole proprietorship, the partnership, and the corporation.

There are three major legal forms of business entity: (3)

Sole Proprietorship

This business organization has a single owner called the proprietor who generally is also the manager. Sole proprietorships tend to be small service-type (e.g. physicians, lawyers and accountants) businesses and retail establishments. The owner receives all profits, absorbs all losses and is solely responsible for all debts of the business.

Partnership

is a business owned and operated by two or more persons who bind themselves to contribute money, property, or industry to a common fund, with the intention of dividing the profits among themselves. Accounting considers this as a separate organization.

Corporation.

is a business owned by its stockholders. It is an artificial being created by operation of law, having the rights of succession and the powers, attributes and properties expressly authorized by law or incident to its existence. Is a separate legal entity.

One Person Corporation (OPC)

The Revised Corporation Code of the Philippines (Republic Act 11232, effective Feb. 23, 2019) added a new type of corporation, the ____________________. This is a corporation with a single stockholder, who may be a natural person, a trust or an estate.

micro, small and medium enterprises (MSMEs)

Big business may be the country's top taxpayers and highest paying employers. Collectively, though, ______________________ provide employment for 61% of the country's labor force. According to the National Statistics Office, ______ in 2010 accounted for 99.6% of the total business enterprises at 777,687. The 99.6% ism• broken down as follows: micro enterprises, 91.6% and SMEs, 8%.

Republic Act No. 9501

On May 23, 2008, Republic Act No. _____ was signed into law by President Gloria Macapagal-Arroyo. This law seeks to address problems facing MSMEs, particularly the lack of capital and access to credit. The new law also gives the Small Business Corporation, the government financial institution created to assist MSMEs, more financial muscle by increasing its authorized capital stock to P10.0 billion.

Micro

The law also updated the definitions of MSMEs by increasing the net assets threshold:

____ enterprises are those with assets, before financing, of P3.0 (before P1.5 million) or less and employ not more than nine workers.

Small

The law also updated the definitions of MSMEs by increasing the net assets threshold:

____ enterprises are those with assets, before financing, of above P3.0 (before P1.5 million) to P15 million and employ 10 to 99 workers.

Medium

The law also updated the definitions of MSMEs by increasing the net assets threshold:

____ enterprises have assets, before financing, of above P15 million to P100 million and employ 100 to 199 workers.

small-and medium-scale enterprises (SMEs)

In the US, 97% of the 28 million firms are _________________ with less than US$1.0 million annual gross sales. This means that even in advanced economies, ____ make up a big majority in terms of numbers. In China, entrepreneurship has taken 250 million Chinese out of poverty over the last decades.

financing, investing, and operating.

The three types of organizational activities: (3)

Financing Activities

________ are the methods an organization uses to obtain financial resources from financial markets and how it manages these resources. Primary sources of financing for most businesses are owners and creditors, such as banks and suppliers. Repaying the creditors and paying a return to the owners are also this.

Investing Activities

involve the selection and management including disposal and replacement of long-term resources that will be used to develop, produce, and sell goods and services. This include buying land, equipment, buildings and other resources that are needed in the operation of the business, and selling these resources when they are no longer needed.

efficient, effective

An ______ business is one that provides goods and services at low costs relative to their selling prices. An _____ business is one that is successful in providing goods and services demanded by the customers.

Operating Activities

involve the use of resources to design, produce, distribute, and market goods and services. This include research and development, design and engineering, purchasing, human resources, production, distribution, marketing and selling, and servicing.

measured.

Before the effects of transactions can be recorded, they must be _______.

Money

In order that accounting information will be useful, it must be expressed in terms of a common financial denominator which is ______. This serves as both a medium of exchange and a measure of value.

classified and summarized.

By simply measuring and recording transactions, the resulting information will be of limited use. To be useful in making decisions, the recorded data must be ______ and ______.

Classification

_____ reduces the effects of numerous transactions into useful groups or categories.

Summarization

________ of financial data is achieved through the preparation of financial statements or financial reports. These usually summarize the effects of all business transactions that occurred during some period.

interpreted or analyzed

After going through the preceding phases, it is imperative that the result of the summarization phase be ____ or ____ to evaluate the liquidity, profitability and solvency of the business organization.

decision-makers

Accounting provides the _______ with information to make reasoned choices among alternative uses of scarce resources in the conduct of business and economic activities.