CRT LEARNING MODULE

Course Code EDU12

Course Title Educational Technology 2
Units 3
Module Title Journalizing Transactions for Single
Proprietorship

Date Developed:
Document No. 001-2020
July 1, 2020
Educational
Date Revised:
Technology 2 Issued by:
July 16, 2020
Module 1: ICT Policies Page 1
Developed by:
and Education CRT
Rainier Dale V. Sulit
 College for Research & Technology of Cabanatuan
HOW TO USE THIS DIGITIZED LEARNING MODULE
Welcome to the module in Journalizing Transactions for Single Proprietorship.
This module contains training materials and activities for you to complete this
module.

The Unit of Competency “Journalize Transaction for Single

Proprietorship” covers the knowledge, skills and attitudes required as part of the
competencies to complete so as to qualify in the National Certification in
Bookkeeping NCIII.

You are required to go through a series of learning activities in order to

complete each learning outcome of the module. Each of the learning outcomes is
provided with Modules. Follow these activities on your own and answer the self-
check at the end of each learning outcome. You may remove a blank answer sheet
at the end of each module (or get the answer sheets from the online facilitator) to
write the answers for each self-check. If you have questions, don’t hesitate to ask
your facilitator for assistance.

This module was prepared to help you achieve the required competency in
Bookkeeping NC III. This will be the source of Information for you to acquire
knowledge and skill in this particular trade independently and at your own pace, with
minimum supervision of help from your instructor.

 Talk to your online facilitator and agree on how you will both organize the
Training of this unit. Read each through the module carefully. It is divided
into sections, which cover all the skills and knowledge you need to
successfully complete this module.
 Work through all the information and complete the activities in each section.
Read Modules and complete self-check. Suggested references are included to
supplement the materials provided in this module.
 Most probably your facilitator will be your supervisor or manager. Your online
facilitator will support and correct you.
 Your online facilitator will tell you about the important things you need
consider when you are completing activities and it is important that you listen
and take notes.
 You will be given plenty of opportunity to ask questions and practice on the
job. Make sure you practice new skills during regular work shifts. This way
you will improve both your speed and memory and also your confidence.
 Talk to more experienced workmates and ask for their guidance.

Date Developed:
Document No. 001-2020
July 1, 2020
Educational
Date Revised:
Technology 2 Issued by:
July 16, 2020
Module 1: ICT Policies Page 2
Developed by:
and Education CRT
Rainier Dale V. Sulit
 Kindly the self-check questions at the LMS (EDMODO) to test your own
progress.
 When you are ready, ask your online facilitator to watch you online via Zoom
or Google Meet to perform the activities outlined in this module.
 Ask your online facilitator work through the activities: ask for written feedback
on your progress. Your online facilitator keeps feedback/pre-assessment
reports for this reason. When you have successfully completed each element,
ask the facilitator to mark on the reports that you are ready for assessment.
 When you have completed this module, and feel confident that you have
sufficient practice, your online facilitator will arrange an appointment with
registered assessor’s to assess you. The results of your assessment will be
recorded in your competency Achievement Record.

Date Developed:
Document No. 001-2020
July 1, 2020
Educational
Date Revised:
Technology 2 Issued by:
July 16, 2020
Module 1: ICT Policies Page 3
Developed by:
and Education CRT
Rainier Dale V. Sulit
 EDUCATIONAL TECHNOLOGY 2

Contents of this Learning Module

No. Module Title Topic Code

1 JOURNALIZE Prepare chart of Module 1.1-1a
TRANSACTIONS accounts
Module 1.2-1
Analyze
Module 1.3-1
documents
Module 1.3-2
Prepare journal
entry

Date Developed:
Document No. 001-2020
July 1, 2020
Educational
Date Revised:
Technology 2 Issued by:
July 16, 2020
Module 1: ICT Policies Page 4
Developed by:
and Education CRT
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 MODULE CONTENT

MODULE TITLE : JOURNALIZING TRANSACTIONS

FOR SINGLE PROPRIETORSHIP

MODULE DESCRIPTOR:
This module covers the knowledge, skills, and attitudes in preparing chart of
accounts, analyze documents and preparing journal entries for Single Proprietorship.

Number of Hours:
72 hours

LEARNING OUTCOMES:
At the end of this module you MUST be able to:
1. Prepare chart of accounts
2. Analyze documents
3. Prepare journal entry

Date Developed:
Document No. 001-2020
July 1, 2020
Educational
Date Revised:
Technology 2 Issued by:
July 16, 2020
Module 1: ICT Policies Page 5
Developed by:
and Education CRT
Rainier Dale V. Sulit
LEARNING OUTCOME # 1: PREPARE CHART OF ACCOUNT

Contents:

1. Definition and functions of Bookkeeping and Accounting

2. Types of business organization
3. Types of business activities
4. Basic Accounting Equation
5. Basic Financial Statement

Assessment Criteria
1. List of asset, liability, equity, income and expense account titles are
prepared in accordance with Generally Accepted Accounting Principles.
2. Chart of Accounts is coded according to industry practice.
3. Documents are gathered, checked and verified in accordance with
4. Verification and validation processes.
5. Account titles are selected in accordance with standard selection
processes.
6. Journal entries are prepared in accordance with generally accepted
accounting principles.
7. Debit and credit account titles are determined in accordance with chart of
accounts.
8. Explanation to journal entry is prepared in accordance with the nature of
transaction.

Conditions
The students/trainees must be provided with the following:

1. Calculator
2. Paper
3. Learning Materials
4. Pencil
5. Eraser

Assessment Method:
1. Written Examination
2. Demonstration
3. Observation

Date Developed:
Document No. 001-2020
July 1, 2020
Educational
Date Revised:
Technology 2 Issued by:
July 16, 2020
Module 1: ICT Policies Page 6
Developed by:
and Education CRT
Rainier Dale V. Sulit
 Learning Activities (Study Guide)
1. Using EDMODO app on your phone or the website on your laptop, go to the
BOOKKEEPING NCIII class.
2. Click on the FOLDERS section (on menu bar)
3. Click the folder MODULE 1: Journalizing Transactions for Single Proprietorship.
The digitized Modules, Task Sheets and Job Sheets are available in this folder.

4. All the Self-Checks are contained in the folder MY ACTIVITIES.

Learning Outcome #1
1. Prepare Chart of Accounts

Learning Activities Special Instructions

1. Read Module No. 1.1-1 Contained in the Module 1: Journalizing

(Definition and Functions of Transactions for Single Proprietorship folder in
EDMODO (Module 1.1-1)
Accounting and Bookkeeping)
2. Answer self-check for 1.1-1a The self-checks are available thru the folder
SELF CHECKS. The activity is timed (15
minutes). The results will be immediately be
available after clicking SUBMIT and the system
will run through the items incorrectly answered
(and show the correct answer)
3. Read module No. 1.1-2 (Types Contained in the Module 1: Journalizing
of Business Organization) Transactions for Single Proprietorship folder in
EDMODO (Module 1.1-2).
4. Answer self-check 1.1-2a The self-checks are available thru the folder
5. Answer self-check 1.1-2b SELF CHECKS. The activity is timed (15
minutes). The results will be immediately be
available after clicking SUBMIT and the system
will run through the items incorrectly answered
(and show the correct answer)
6. Read module No. 1.1-3 (Types Contained in the Module 1: Journalizing
of Business Activities) Transactions for Single Proprietorship folder in
EDMODO (Module 1.1-3).
7. Answer self-check 1.1-3a The self-checks are available thru the folder
8. Answer self-check 1.1-3b SELF CHECKS. The activity is timed (15
9. Answer self-check 1.1-3c minutes). The results will be immediately be
available after clicking SUBMIT and the system
will run through the items incorrectly answered
(and show the correct answer)
10. Read module No. 1.1-4 (Basic Contained in the Module 1: Journalizing
Accounting Equation) Transactions for Single Proprietorship folder in
EDMODO (Module 1.1-4).

Date Developed:
Document No. 001-2020
July 1, 2020
Educational
Date Revised:
Technology 2 Issued by:
July 16, 2020
Module 1: ICT Policies Page 7
Developed by:
and Education CRT
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 11. Answer self-check 1.1-4a The self-checks are available thru the folder
12. Answer self-check 1.1-4b SELF CHECKS. The activity is timed (15
13. Answer self-check 1.1-4c minutes). The results will be immediately be
14. Answer self-check 1.1-4d available after clicking SUBMIT and the system
will run through the items incorrectly answered
(and show the correct answer)
15. Read module No. 1.1-5 (Basic Contained in the Module 1: Journalizing
Financial Statement) Transactions for Single Proprietorship folder in
EDMODO (Module 1.1-5).

16. Answer self-check for 1.1-5a The self-checks are available thru the folder
17. Answer self-check for 1.1-5b SELF CHECKS. The activity is timed (15
18. Answer self-check minutes). The results will be immediately be
available after clicking SUBMIT and the system
will run through the items incorrectly answered
(and show the correct answer)

MODULE 1.1-1

Definition and Functions of Bookkeeping and Accounting

Date Developed:
Document No. 001-2020
July 1, 2020
Educational
Date Revised:
Technology 2 Issued by:
July 16, 2020
Module 1: ICT Policies Page 8
Developed by:
and Education CRT
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Learning Objective: After reading this MODULE, you should be able
to:
1. Know the definition and nature of accounting and its role in
business.
2. Explain the definition of bookkeeping.
3. Reiterate the functions of accounting.
4. Determine the fields of accounting.

INTRODUCTION TO ACCOUNTING
Accounting has continuously evolved through generations
to adapt with the ever changing and endless economic needs
of society. As businesses and new generation of society,
accounting and business experts around the world research
and develop new concepts and techniques with the ever-
increasing needs for financial information. Without such
information, many complex economic developments and social
programs may never have been undertaken.

In the business realm, these information helps users of

information make informed judgments regarding with the
allocation of scarce resources under their control. When users
are able to make sound decisions, resources are allocated more
effectively and efficiently to meet the objectives of the
businesses.

Accounting is the system that measures economic

activities, processes the information into reports and
communicates the results to decision makers.

This is the reason why accounting is so called as the

language of the business. A sound understanding of this
language will bring about a better management of the financial
aspects not only of the business, but also to living.

Date Developed:
Document No. 001-2020
July 1, 2020
Educational
Date Revised:
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WHY ACCOUNTING?
Accounting and You

After graduating from college (regardless of your choice of

career), you will be concerned with money, savings and
investment seriously. It is a clear sign of thinking ahead, of
what they see in the future, and which is driven by their vision
that motivates themselves.

Some may venture into investing their resources for

higher yields and interest; some may venture into opening their
own business; some would like to become a bank or finance
manager, financial agents, consultants and accountant; or
engaged in business of selling for profit.

But before making decisions to venture in a certain

undertaking, anyone engaged in business is required of an
understanding of the basic information on the financial reports.

For one to have sound decisions in investing, putting

investment, or any undertaking that requires resources, it is
essential to use information properly and appropriately.

Even in personal experiences, accounting may help in

dealing with financial and economic problems. Such examples
are managing of financial resources properly (including money,
property, credit card and other financial opportunities). Scarce
resources, if used properly, will give better ends to the family
and to the nation itself.

In all of these, accounting plays a vital role in decision-

making, because it provides relevant information analyzing
financial and economic problems. An understanding of
accounting information leads to render utmost needs, if not
more accurately business decisions.

Date Developed:
Document No. 001-2020
July 1, 2020
Educational
Date Revised:
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Accounting and Business

Accounting is an essential tool in making business

decisions, may it be a small business or a large corporation.
Many businesses are always in quest for professional and
business undertaking that may decide on so many things about
the business in order to generate more profit. They must
decide where to establish the business, and how much capital
is needed, and how much to sell their products / services. All
decisions regarding these matters require an understanding of
accounting information.

All businesses from a simple one to the most complicated

one have one thing in common -they accumulate financial
information and need accounting information before making
economic decisions. Therefore, knowledge of the accounting
language and its uses is important to businessmen and
stakeholders.

Accounting plays a vital role in business since it keeps

track of its economic performance, resources and reports its
financial position and results of operation. It is emphasized at
this point that decision-making is also a reason for preparing
accounting records and reports.

Reasons why the financial activities of a business

enterprise must be committed to writing:

1. Future reference – man is unfortunately not biologically

gifted with an infallible capacity to remember. He needs a
record of his activities for future recall or reference.
2. Basis for decision making – the recorded financial
activities of an economic entity would serve as a basis for
decision making.

Date Developed:
Document No. 001-2020
July 1, 2020
Educational
Date Revised:
Technology 2 Issued by:
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 3. Required by law – the law requires that businesses
must put into record their transactions and events for
taxation and regulatory purposes.

WHAT IS THE ROLE OF ACCOUNTING?

As you acquire knowledge of accounting, you will gain

understanding of the way businesses operate and the
reasoning involved in the making of business decisions.

Even if you are not involved directly in accounting

activities, you will need to be sufficiently acquainted with the
language to be able to understand the meaning of accounting
information, how it is compiled, how it can be used and what
its limitations are.

ROLE OF ACCOUNTING IN BUSINESS:

1. Help the owners or management make decisions.
2. Record and analyze business transactions
3. Communicate financial information to all interested parties.

WHAT IS ACCOUNTING?

Accounting has many definitions. In general, accounting has

been defined as a service, process and an art:

1. Accounting is a service activity.

Its function is to provide quantitative
information, primarily financial in nature, about
economic entities that is intended to be useful in
making economic decisions.

2. Accounting is a process.
Accounting is the process of identifying,
measuring and communicating economic
Date Developed:
Document No. 001-2020
July 1, 2020
Educational
Date Revised:
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 information to permit informed judgments and
decisions by users of information.

3. Accounting is an art.
Accounting is the art of recording, classifying
and summarizing in a significant manner and in
terms of money, transactions and events which are,
in part at least, of a financial character, and
interpreting the results thereof.

Accounting vs. Bookkeeping

Many incorrectly identify bookkeeping as the same with

accounting. It is to be taken note that while accounting
process has bookkeeping function, accounting involves the
entire process of identifying, recording, and communicating
economic events. In fact, accounting has many specialized
services:

Auditing An independent examination that ensures the

fairness and reliability of the reports that management submits
to users of accounting information.

Cost Accounting Deals with collection, allocation and control

of cost of manufacturing goods and services.

Financial Accounting Focuses on the recording of business

transactions and the periodic preparation of reports on financial
position and results of operations.

Internal Auditing Concerned with the examination of the

information system, records and operations of the entity to
ensure the effectiveness and efficiency of operations and the
integrity of records.

Date Developed:
Document No. 001-2020
July 1, 2020
Educational
Date Revised:
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Government Accounting Concerned with the identification of
the sources and uses of resources consistent with the
provisions of city, municipal, provincial or national laws.

Tax Accounting Include preparation of tax returns and the

consideration of the tax consequences of proposed business
transactions or alternative courses of action.

Management Accounting Aids business managers in

planning and controlling business operations and in decision
making.

Accounting Systems Installation The design and putting

into place an orderly arrangement of procedures, records,
equipment and devices that will be utilized by the organization
for the logical and orderly gathering, processing and reporting
of financial and other information essential to the efficient
conduct and evaluation of the activities of the same
organization.

Accounting Education Concerned with the teaching of

accounting as a field of study. The curriculum for the
accounting education in business schools and universities
basically includes topical discussions on all the specialized areas
or branches of accounting as well as subjects on income and
business taxation, management and finance.

Accounting and its Nature

Accounting is an interesting field of study that has many

uses in society. Accounting is often called as the “ language of
business” because when confronted with events of a business
nature, all people in the society must use accounting terms and
concepts in order to describe these events. It is therefore
logical that anyone entering the business world should know
Date Developed:
Document No. 001-2020
July 1, 2020
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Date Revised:
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enough of the language to communicate with others and to
understand their communications.

• Accounting is a service activity. It provides to

decisions makers by providing those financial reports that
will guide them in coming up with sounds decisions.
• Accounting is a process. It performs the specific tasks
of collating, processing and communicating financial
information.
• Accounting is a both an art and discipline. The art of
recording, classifying and finalizing the financial data.
• Accounting deals with financial information and
transactions. Accounting records of financial data
transactions. The finalization of reports based on the
given transactions.
• Accounting as an information system. Recognized
and characterized as a storehouse

Phases of Accounting

Business transactions are the economic activities of a

business. Recording these historical events is a significant
function of accounting. Before the effects of transactions can
be recorded, they must be measured. In order that accounting
information will be useful, it must be expressed in terms of a
common financial denominator – money.

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 classified and
summarized. 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
Date Developed:
Document No. 001-2020
July 1, 2020
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Date Revised:
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usually summarize the effects of all business transactions that
occurred during some period. After going through the
preceding phases, it is imperative that the result of the
summarization phase be interpreted to evaluate liquidity,
profitability, and solvency of the business organization.

Functions of Accounting
The Accounting Process
1.
2. Accounting is a measurement and
comonication process designed to provide a timely
financial information. Its functions are the following:
3.
1. Recording – this is more popularly known as
BOOKKEEPING, which involves putting in to records the
business transaction and events. This is the process of
putting into writing the financial activities of the
enterprise chronologically. The term “chronologically”
would mean that financial activities are recorded in the
order of their actual happening. This can be done
manually, with the use of mechanical devices or
electronically, or the use of computer.
2. Classifying- this involve the grouping of similar items
together in order to make the recording of the different
transaction and events more systematic.
3. Summarizing- this involves the preparation of financial
statement from the recorded and classified transactions
and events of the enterprise.
4. Interpreting- this involves the analysis of financial
statement (by developing financial ratios and explaining
their significance) for the benefit of the readers or users.

BOOKKEEPING DEFINED

Date Developed:
Document No. 001-2020
July 1, 2020
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Date Revised:
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 Bookkeeping is the process of recording and
classifying transactions and events of an enterprise with a
prescribed set of procedures or methods for the purpose of
establishing a basis for communicating financial information
about the enterprise. Technically, the said processes are the
first two functions of accounting.

The term bookkeeping literally means “ keeping of the

books”. The books being referred to are the journal and the
general ledger.

Hence, bookkeeping is basically the recording of the

transactions and events in the journal, and these transactions
and events being classified in the general ledger.

MODULE 1.1-2
Types of Business Organization
Date Developed:
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Learning Objective: After reading this MODULE, you should be able
to:
1. Understand what business is and how it is created.
2. Determine the motivations of engaging in business.
3. Identify the sources of capital requirements.
4. Comprehend the business risks.
5. Distinguish the different types and forms of business organization
as well as their characteristics.

The Creation of Business

Business becomes part of daily lives and part of the

members of the society’s activities for their basic and personal
needs. The use of resources (such as money) is human
responses to businesses. It happens everywhere - in school,
church, street, backyard, supermarket, office, parks, and even
in our home. Almost all people are doing something for profit
on a regular or part-time basis or one-time deal, affecting
almost all aspects of people’s lives. Products found in our
respective homes are produced by businesses. It may be our
food from the local supermarket; books from National
Bookstore; Milk Tea from your favorite milk tea shops; your
clothes and shoes from SM Department Store and medicine
from a Mercury Drug Store.

One may take a bus, a jeep, a taxi, a ship or an airplane

in doing personal activities and patronizing several services for
everyday life and comfort. It is therefore important to take time
to look around at what business is all about and what it’s
various motivator’s roles are.

Business

Date Developed:
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Date Revised:
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 Different people have different standpoint as to the
meaning of business. To others, it means more money,
opportunities and security; but to others, it means risk, abuse
and ravenousness.

However different the views there are in this world, no

one can deny the very existence of the business, which
touched our lives every day as it goes continuously.

So, What is Business?

Business is defined as:

1. An effort primarily geared to meet the interested public’s
legitimate needs, at the required time and place, at an
equitable price, and for reasonable returns to compensate
for the businessman’s efforts and risks taken.

2. Process of producing goods and services and distributing

them to those who desire or need them.

Motivations in Engaging in Business

The motive of an individual or group of persons in

engaging in business is profit. The basic idea behind the
motive is that a person will do something only if the benefit
derived from doing it is greater than the sacrifice or effort
required in doing it. A rational person desires to derive the
greatest benefit with the least amount of sacrifice; and when
this natural desire in one person is pitted against the same
desire in another person, the result is competition.

In business language, profit is the excess of benefit, which

is the revenue or income, over sacrifice, which is the cost

Date Developed:
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either in goods sold or services. Gross profit or gross
income is the excess of sales or revenue over the costs made
to complete a sale while net profit or net income is the amount
that remains after all costs (operating expenses) have been
deducted from the gross profit or gross income. The basic
computational procedure in determining profit is as follows:

Sales or Revenue or Income Php x,xxx.xx

Less:
Cost of Goods/Services Sold x,xxx.xx
Gross Profit Php x,xxx.xx
Less: Operating Expenses x,xxx.xx
Net Profit/Net Income Php x,xxx.xx

Note: Net Income or Profit is generated if gross profit exceeds expenses.

Sources of Capital Requirement

4. The main source of capital is the entrepreneur

himself/herself, who risks money and property to put up a
business.
5.
6. The business starts when the owner pools
his resources to the business; it is the point where
business starts from organizing to the point of
acquiring needed facilities, equipment and starting its
earning process. An entrepreneur is one who takes
the risk to produce and sell goods or services to offer
quality products to satisfy customers, and eventually
to make profit, and finally, share the profit.
7.
8. The successful entrepreneur is one who
creates new ideas converted to a new innovative
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 product that entices customers to buy because it
offers new features and concepts to make life easier
to the consuming public. If he or she succeeds, he or
she gets back what was invested and receives more
than the amount he or she has invested (this is
called return on capital).
9.
10. Bank and financial institutions are other
sources of capital the bank usually grants
capitalization to the business for an interest and
offers credit facility to businessmen such as big,
medium-sized companies. A government grant is
another source of capital. The government, through
the Department of Trade and Industry offers
capitalization to the new business which basically
offers manufactured Filipino-made products. The
capital structure may involve credit facility on
equipment, supplies and materials.
11.
12. Business Risks
13.
14. Every business is a venture with a 50-50
chance of being successful; it depends on how the
entrepreneur handles the situation with no known
fixed solution to every unique problem. Risks may
either be an internal and external in nature. Internal
risks may involve personal decision (such as closing
the business), embezzlement of the staff/cashier,
labor strike and obsolescence of the products,
facilities or equipment, and inexperience of the
owners of the business.
15.
16. External risks may involve situations that
may or may not be resolved because it might be
outside the control of the entrepreneur such as
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Date Revised:
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 political conflicts, government interventions, force
majeure (such as earthquake, forest fires and such)
and related animal virus and disease.
17.
18. Risk is the product of uncertainty that
needs to be cured right away by instituting safety,
called safety net which is costly to maintain to
safeguard property. Properties such as buildings,
machinery, secret formulas, inventories, and even
cash movements from place to place are properly
insured not only in a limited time but also during the
life of the asset to arrest possible risk. Risk is part
and parcel of a businessman’s life; sometimes
choosing an insurance company involves risk.
19.
20. Business is a community of knowledge that deals
with different aspects of Operations; a knowledgeable
businessman faces less risk than the less-oriented
entrepreneur. Business involves accounting, law, and
economics, social, political, marketing advertising, and other
skills that make an entrepreneur more attentive in solving
business problem. Business is surrounded by risks; whether
from nature or man-made risks, the entrepreneur must see to
it that his business is capable of escaping or preventing risks.
But risks should not be associated with the term gambling,
because business is not a game.

Kinds of Business – According to Organization


 Businesses operate in a complex environment of
legal, political, economic and financial forces that affect
decision making. Two of the most important factors making
up the firm’s operating environment are the legal form of
business and taxes. There are three major forms of business:
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a. Single or Sole Proprietorship A single or sole
proprietorship is a business owned by one person only.
He/she has complete control of the business. He/she
owns all the firm’s assets but solely responsible for all
its liabilities. From legal point of view, the owner is not
separable from the business and is personally liable to
all its debts. In accounting perspective, however, the
business is an entity separate from the owner, hence,
the assets, liabilities and its capital structure pertains
only to the business per se.

b. Partnership A partnership is an association of 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.
It is a legal arrangement in which they may operate
under varying degrees of formality.

c. Corporation A corporation is an artificial being created

by operation of law having rights of succession, and the
powers, attributes and properties are expressly
authorized by law or incident to its existence. Unlike
single or sole proprietorship and partnership, this is
owned by a group of owners called as stockholders (in
case of Stock Corporation) or members (in case of Non-
stock Corporation). Stockholders or members select co-
owners to manage the business and they are called as
Board of Directors (Stock Corporation) or Board of
Members (Non-stock Corporation).
Stockholders or members are not personally liable
to the corporation’s debts. The incorporation process is
initiated by filing the articles of incorporation and other
requirements with the Securities and Exchange

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 Commission (SEC). The articles of incorporation
includes among others the following:
i. Incorporators
ii. Name of the Corporation
iii. Purpose of the Corporation
iv. Capital Stock
v. Authorized Shares
After the corporation is legally formed, it will then issue its
capital stock. Ownership of this stock is evidenced by a stock
certificate. The corporate by-laws which are the rules that
govern the internal management of the company are
established by the board of directors and approved by the
stockholders.

Difference of Single Proprietorship, Partnership &

Corporation
The differences of the three forms of business organization according to ownership against
each other are as follows:

Single Partnership Corporation

Proprietorship

Legal Ease of Relatively little Registration of

Formality formation as it effort in corporations
requires no formation as with SEC may
formal charter. they are be time
required to consuming and
submit articles costly
to the SEC.

Ownership The owner has The control is The control of

and Control full control, divided among the business is
reaps all profits the partners; in the hands of
but bears all the the profits are the Board of
losses divided also to Directors or
the partners, Members, the
but the losses selected few

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 are to be among
distributed stockholders
among the and members
partners who will
manage the
business. The
profits and
losses are to be
distributed in a
manner agreed
upon by the
BOD/BOM.

Tax Savings Entire income Distribution of Corporations

by the business income is pay taxes on
passes directly subject to final income and the
to the owner. tax, but not complexity in
This is subject to any the subject of
advantageous business taxes taxation
as this does not (i.e. 35% demands the
have double income tax) but advice of the
taxation and subject to qualified tax
has lower tax personal income accountant.
rate compared tax return.
to corporation.
Government Has greatest Relatively more Subject to
Regulation freedom as effort in greater
compared with complying with government
any business government regulations than
form as they regulations as any other forms
have fewer they are being of business.
government monitored by They cannot
regulations Securities and just withdraw
Exchange assets, and
Commission stockholders

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 can only receive
dividends when
they are
declared and
these amounts
may be subject
to limits
imposed by the
law.

Liability Major General Advantage of

disadvantage of partners are the corporation
single or sole personally liable as compared
proprietorship is with the firm’s with other two
that the owner debts. With forms of
is fully liable or unlimited business is that
responsible for liability, they all stockholders
any debts. With are personally are not
unlimited liable with all personally liable
liability, owner’s the debts and with the
personal assets litigations of the business’ debts.
can be claimed business. They are liable
by the creditors only to the
if the business extent of their
fails to pay its investment in
obligations the corporation.

Raising There is a Partnership has Corporations

Capital limitation for the financial can raise capital
single or sole resources of through the sale
proprietorship in several of securities
fund-raising individuals. such as bonds
ability. Connections or to investors who
Resources may sources of funds are lending
be limited to the are far greater money to the
assets of the as compared corporations

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 owner and with sole or and equity
growth may single securities such
depend on his proprietorship. as stocks.
or her ability to
borrow money.

Continuity Upon death or A partnership Corporations

retirement of may dissolve continue to
the owner, the upon exist even after
proprietorship withdrawal or withdrawal,
ceases to exist. death of the death or other
partner, or causes that may
depending on deem to
provisions of terminate the
the partnership. connection of
stockholders to
the corporation.
Management Single or sole Partnership has Corporation has
Base proprietorship broader competent
has to be a jack management management
of all trades to base or base as the
be able for him expertise than board of
to have a sole or single directors
smooth running proprietorship. monitor the
of the business. business, and
they have the
power to hire
experts in the
field of their
business.

21.
Accountants need to understand the three basic forms
of business organization:

According to Ownership
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1. Single or Sole Proprietorship.
A sole proprietorship is a business formed by one person.
This form of business gives individual a means of
controlling the business apart from his or her personal
interest. Legally however, the proprietorship is the same
economic unit as the individual received all profits or
losses and is liable for all obligations of the proprietorship.
The life of a proprietorship ends when the owner wishes it
to, or at the owner’s death or incapacity.

2. Partnership.
This is a business organization with two or more owners.
The owners, called partners, agree on the capital
contributions, management or the firm, distribution of
profit or losses, and other matters pertaining to the
operation of the firm.

3. Corporation.
This is a business organization of not less than five
persons. It is organized by operation of law. A corporation
is a business unit that is legally separate from its owner.
The owners whose ownership is represented by shares or
stocks in the corporation, do not directly control the
operations of the corporation. Instead they elect a board
of directors who run the corporation for the benefit of the
stockholders. In exchange for limited involvement in the
corporation’s actual operations, stockholders enjoy limited
liability. That is, they are liable only for the amount paid
for their shares. If they wish, stockholders can sell their
shares to other persons without affecting corporate
operations. Because of this limited liability, stockholders
are often willing to invest in riskier, but potentially
profitable activities. Also because ownership can be
transferred without dissolving the corporation, the life of

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 corporation is unlimited and not subject to the whims or
health of a proprietor or partner.

According to Nature of Business:

1. Service Concern. This deals with the rendering of
services to the customers.
‘
2. Trading or Merchandising. This type of business deals
with the buying of goods and selling the same goods in
the same form for a profit.

3. Manufacturing Concern. This involves purchase of

raw materials and converting these raw materials
into finished products.

Date Developed:
Document No. 001-2020
July 1, 2020
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Date Revised:
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