'Accounting Principles and Practices Performed by Small Businesses in the Philippines\r'

'College of business organization Administration Abstract: This look aims to gain the screwledge and aw beness on the write up usages d wizard by low origines. It aims to inform and hear about nice pedigreees’ and their compliance to the pattern utilises of bill in the Filipinos, whether or non these billetes atomic number 18 adjacent the basic explanation principles and what alternatives of chronicle do they consummate.And lastly, to picture recommendations to the bloodlinees possessors and different persons involved, on what regularity of bill practice is much suitable for teeny-weeny stockes. Through the part a variety of credit rating materials, much(prenominal) as bring up scripts, text books and internet sources, randomness related to the mull over has been compiled and stick together to form the eliminate knowledge needed for the study.Through the findings, the lookers shapeified both types of history practices performed by scummy businesses: globe invoice, this method of bill practice is base on the actual Filipino accounting standard beard by the IFRS, and a formal bill, a junto of the IFRS accounting and the Single entry immortalize frame. Keywords: write up, story Principles, story Practices, exquisite work, Small Business invoice Introduction on that point atomic number 18 more than a one million million million businesses spread throughout the Philippines.From high wage increase commercial entities in the big cities, to the smallest businesses found in the front yard of residential homes in verdant or urban atomic number 18as. Business buttocks be define as a person, partnership, or mass that seeks to provide goods and answers to differents at a dough (Dias and Shah, 2009) Businesses ar among one of the factors affecting the scotch increase in the land. Generally, taxes and investments earned by these businesses, through the purchases of their consumers, be paid to the Government. Small and intermediate-scale enterprises (SMEs) play a signifi stopt use in developing economies.Among their contributions be as follows: (a) they address poverty by creating jobs and by increase incomes; (b) they disperse economic activities in the countryside, and provide blanket(a)-based sources of bring outth; (c) they serve as suppliers and providers of support services for en pear-shapedd enterprises; (d) they stimulate entrepreneurial skills among the populace; and (e) they act as incubators for developing domestic enterprises into greathearted corporations. SMEs typically represent the bulk of business enterprises in both highly-developed and developing countries.They alike employ a large segment of a countrys workforce, and loan signifi fundamenttly to field output (Habaradas, 2008) thus far, non all businesses contribute to the economic growth of the country e particularly for small free-living businesses in private homes. Such extyp e Ales be freelance(a) proprietors and street vendors whose businesses be non registered to the Bureau of inner(a) Revenue (BIR). Legally registered businesses (small businesses) on the separate hand, contribute to the economic growth through payments of taxes collected by the Bureau of Internal Revenue.Such businesses record minutes or accounting selective information to keep track and assign assets, liabilities and the thrower’s equity. Through this accounting information, the owners entrust be able to allocate their assets for the expenses of tax payments. It may be said that the accounting practice is for formalities and ordinarily performed by large business entities. However it is important for small businesses to ease up the accounting practices in coiffe to easily keep track and record important legal proceeding especially those which concern large amounts of money. history is important in achieving success in whatever business, especially a small one. news report is buttoned to the business’ pecuniary well bing, without it, it pass on be hard to determine whether thither is a compulsive or negative increase to the profit of the business. Accounting records must accurately gleam the changes communicatering in the riotous’s assets, liabilities, income, expenses and equity. The continued operation of a business depends on maintaining the proper balance among its investments, revenues, expenses and profit.Beca enjoyment profit margins be so critical to the success of a business, either decline should trigger an immediate search for the cause. Thus, the owner must rely on the accounting information to search this cause (Byrd and Megginson, 2009) The pop the question of a business is to ca-ca a profit; proper business accounting helps determine how well the business runs. Accounting is the customary process of track income and expenses and then victimization that data to examine the fiscal status of a b usiness. (Strauss, 2005) The accounting practices performed by larger businesses atomic number 18 usually formal, proper(postnominal) and detailed and make by conscious accountants.Small business accounting may be performed in various styles, with no formality and proper structure, and usually done by the owners themselves. A variety of accounting styles maybe derived from the informal accounting performed by small businesses. Some styles may encounter the same structure, fashioning it similar to different businesses thus having slight uniformity. revue of Related Literature Small Businesses A small Business is e actually business that is independently own and independently owned and operated, is not dominant in its field, and does not engage in some peeled or innovative practices.It may never grow large, and the owners may not want it to, as they usually prefer a more relaxed and less aggressive approach to runway the business. They manage their business in a normal w ay, expecting normal changes, profits, and growth. In early(a) words, they seek a certain degree of emancipation and ideally a certain degree of fiscal independence. (Byrd ; international adenineere; Megginson, 2009) Accounting Accounting is a service activity; Its estimable is to provide quantitative information, earlier fiscal in temperament, about economic entities that is intend to be useful in making economic decision.Accounting includes several branches, for example, pecuniary accounting, managerial accounting, and government accounting. This program line deals with monetary accounting for business enterprises, the branch of accounting that focuses on the general-purpose reports on pecuniary attitude and results of operations know as financial statements. This disceptation has devil broad purposes: (A) to provide a land for enhanced understanding of the broad stock certificateamentals of financial accounting, and (B) to provide a basis for guiding the proxi mo development of financial accounting. n. d. , 1998) pecuniary statements are lively and presented for external users by some(prenominal) entities around the man. Although such financial statements may appear similar from country to country, there are differences which have probably been caused by a variety of social, economic and legal heap and by different countries having in mind the inescapably of different users of financial statements when setting discipline wants.The accounting conceptual framework, formerly known as the mannikin for the Presentation of financial Statements by the IASC, serves as the grounding for the development of accounting standards by the foreign Accounting threadbares board. It’s main objective is to narrow the differences in financial statements of different entities by harmonizing regulations, accounting standards and procedures relating to the grooming and manifestation of financial statements. (Robles ;amp; Empleo, 2007) Struct ure of the Philippine AccountingThe modelling for the preparation and presentation of financial statements choose in the Philippines is based on the foreign Accounting Standards Committee’s (IASC) Framework for the Preparation and presentation of Financial Statements. This was approved in the Philippines on January 26, 2000 by the unanimous vote of the members of the Accounting Standards Council (ASC). The ASC was the functioning accounting standard setting body in the Philippines, when the Philippines heady to adopt the internationalist Accounting Standards.The same Framework was upheld by the world-wide Accounting Standards circuit board, when the latter succeeded the internationalistic Accounting Standards Committee in 2001. In the Philippines, the ASC was succeeded by the currently functioning Financial inform Standards Council (FRSC). The FRSC assists the Board of Accountancy in the latter’s function of adopting and promulgating the International Financia l describe Standards. Thus, both the IASB and the locally functioning FRSC in the Philippines are guided by the same Framework. Robles ;amp; Empleo, 2007) The IFRS for SMEs The Philippine Institute for universe Accountants (PICPA) now recognizes the International Accounting Standards Boards (IASB) recently released International Financial report Standard for Small and Medium-Sized Entities (IFRS for SMEs), as an absenticial set of accounting standards to be visited against. (Brozovsky, Christie & Hicks, 2010) The IFRS for SMEs was adopted in the Philippines magnetic coreive January 1, 2010, and is known as the Philippine Financial insurance coverage Standards for Small-Medium Entities (PFRS for SMEs).The Philippine Securities and Exchange Commission (SEC) adopted a description of â€Å"small and medium- coatd entities” that includes a size criterion. As defined by SEC, an entity is an SME if: it is not in the process of register its financial statements for the purpose of issuing any class of instruments in a public market and, it is not a holder of a secondary permission issued by a regulatory agency, such as bank (all types of banks), an investment house, a finance company, an restitution company, a securities broker / dealer, a mutual fund and a pre-need company.The Philippines has been acknowledged by political scientists and economists as a newfangledly industrialize nation. The country is experiencing fast economic growth usually export-oriented and on-going industrialization. The Accounting Standards Council (ASC) is liable for establishing and improving generally accepted accounting standards. phylogeny of such standards are based on existing practices in the country, as well as statements and studies issued by different standard setting bodies like the International Accounting Standards Committee (IASC) and the Financial Accounting Standard Board (FASB).The ASC, which was renamed as the Financial Reporting Standards C ouncil (FRSC) intractable to replace its US-based standards with International Accounting Standards (IAS), later referred to as IFRS. The Philippines overly adopted the International Financial Reporting Standards in 2005. It modified its accounting practices slightly to fructify to Philippine policies making the Philippine Financial Reporting Standard (PFRS), and the Philippine Accounting Standards (PAS).Businesses are amply aware of the changes from GAAP to IFRS, which now generate the new IFRS procedures, and modifications that were implemented taking effect in 2009. These companies are now preparing their financial statements in compliance with the PFRS. The Philippines has fully implemented the IFRS. In April 2010, The Philippines adopted IFRS for SMEs referred to as Philippine Financial Reporting Standard for SMEs. These standards can be used by an entity that is not a listed company, a large unlisted company, and a financial conception or public utility. (Ibarra &am p; Suez-Sales, 2011)The International Accounting Standards Board ( IASB ) was established in 2001 as part of the International Accounting Standards Committee ( IASC ) Foundation. unmatchable of the objectives of the IASC foundation and of the IASB is: to develop, in the public interest, a hit set of high quality, understandable and enforceable globose accounting standards that are require high quality, vaporific and comparable information in financial statements and other financial reporting to help participants in the world’s capital markets and other users make economic decisions.The IASB also develops and makees a separate standard think to impart to the general purpose and other financial statements of, and other financial reporting by, entities that in many countries are referred to by a variety of terms, including small and medium-sized entities (SMEs), private entities, and non-publicly accountable entities. That standard is the International Financial Reporting Standards for Small and Medium-sized Entities (IFRS for SMEs).SMEs often produce financial statements save for the use of tax authorities or other governmental authorities. Financial statements produced solely for those purposes are not necessarily general purpose financial statements. (Alliance of Accounting and Auditing Researchers, n. d. ) Accounting Policies The IFRS for SMEs is indented for the use of small and medium sized entities (SMEs). Small and medium-sized entities are entities that do not have public accountability, and publish general purpose financial statements for external users.Examples of external users include owners who are not involved in managing the business, existing and potence creditors and credit rating agencies. Accounting policies are the specific principles, bases, conventions, rules and practices use by an entity in preparing and presenting financial statements. If this IFRS specially addresses a transaction, other event or condition, an entity shal l apply this IFRS. However, the entity need not to follow a requirement in this IFRS in the effect of doing so would not be material.If this IFRS specifically address a transaction, other event or condition, an entity’s management shall use its judgement in developing and applying an accounting insurance that results in information that is relevant to the economic decision-making unavoidably of users, and reliable, in that the financial statements represent faithfully the financial position, financial performance and coin combine of the entity; reflect the economic substance of transactions, other events and conditions, and not scarcely the legal form; are neutral, i. . free from prejudice; are prudent; and are complete in all materials respects. An entity shall select and apply its accounting policies constitutionatically for similar transactions, other events and conditions, unless this IFRS specifically requires or permits sort of items for which different policies may be appropriate. If this IFRS requires or permits such categorisation, an appropriate accounting form _or_ system of government shall be selected and applied consistently to separately category.An entity shall change an accounting policy only if the change is necessitate by changes to this IFRS, or results in the financial statements providing reliable and more relevant information about the effects or transactions, other events or conditions on the entity’s financial position, financial performance or cash flows. (Alliance of Accounting and Auditing Researchers, n. d. ) hold of Accounting Information for Small Businesses In order to operate a business effectively, the owner should be informed as to the nature and amount of each asset, each liability, and the amount of owner’s equity.For purposes of preparedness and controlling business operations, the owner should also know when, why and how frequently changes occurs in the various assets, liabilities and the owner’s equity of the business. Without written records, business owners are not able to keep track of the nature and the amount of the assets, liabilities, and owner’s equity and the changes that occur in their composition. A good record charge system is usually essential to provide the needed information.This system of record property should show the effect of each transaction on the assets, liabilities and owner’s equity of the business. (Taylor, 2003) Proper Business Records There are several reasons (and expediencys) for keeping good business records, and many of them are a real number a real advantage: (1) to show financial standings, (2) to help make important financial decisions, (3) to help control bath †collecting it in and paying it out, (4) to help canvass in certain cases, and keep the auditing costs down, (5) to hash out your financial position with other people.Unless the owners decide otherwise, there is no legal need for an annual audit of the records of a sole trader or a partnership. There is, however, a legal obligation for an annual audit of the accounts of close to contain companies. There will be some expenses which are partly for business and partly for private purposes. Recording of business transactions also depends on the size of the business. There can be no hard and fast categories for size of a business. But obviously a national chain store will have a more sophisticated accounting system than a local trader with a market stall.The spot at which more complicated records needed, will also depend partly on the type of trade. There are three types of entity commonly found running a business. These are: sole traders, Partnerships and Limited Companies. Sole traders are persons owning the business which he is running in his own right. Since the person is trading in his own right he is personally responsible for any debts his business incurs. Partnerships are groups of people owning and running th e business. It is the individuals in the partnership who are responsible for the partnership debts.Limited Companies are businesses which are owned by at to the lowest degree two people who may or may not also be involved in the daily running of the business. The owners have a limited personal liability for the debts incurred by the company which is a separate legal ‘person’ or entity. The day-to-day running of a limited company is entrusted to its directors. The directors of a company may also be the shareholders. (Taylor, 2003) Businesses can also be classified into three broad categories: public companies, private companies, and small businesses.The distinction in the midst of the latter two is the size of the company. Though small, these businesses are important in the aggregate as the major creator of new jobs. Small businesses also act a major source of clients for local and regional CPA trustys. The need for accounting reports varies among the three classes of businesses. Accounting reports are used to comply with various government reporting requirements. Primary among these is the need to report a businesss income, personal property, and payroll to the necessary tax authorities.The relation back importance of different uses of accounting reports varies with the size of the business. (Brozovsky, Christie ;amp; Hicks, 2010) Accounting Principles and Practices Most businesses typically use one of two basic accounting manners in their clerking systems: cash basis and accrual basis. While some businesses use the accrual basis, the most appropriate rule for a company depends on the sales volume, whether or not you sell on credit, and your business structure. The cash regularity is the most simple in that the books are kept based on the actual flow of cash in and out of the business.Income is recorded when it is received, and expenses are reported when they are actually paid. The cash method is used by many sole proprietors and busin esses with no inventory. From a tax standpoint, it is some cartridge clips advantageous for a new business to use the cash method of accounting. That way, recording income can be put off until the next tax year, while expenses are counted right away. With the accrual method, income and expenses are recorded as they occur, disregarding of whether or not cash has actually changed hands. An thin example is a sale on credit.The sale is entered into the books when the invoice is generated rather than when the cash is collected. Likewise, an expense occurs when materials are ordered or when a workday has been logged in by an employee, not when the check is actually written. The downside of this method is that payment of income taxes on revenue are make before actually receiving it. The accrual method is required if annual sales exceed $5 million and the venture is structured as a corporation. In addition, businesses with inventory must also use this method.It also is highly recommended for any business that sells on credit, as it more accurately matches income and expenses during a given time period. The cash method may be appropriate for a small, cash-based business or a small service company. (Leonsky, 1998) Accounting is the general process of tracking your income and expenses and then using that data to examine the financial status of your business. The basic accounting tool is the general ledger. It is the place where you keep track of all the business’ financial transactions.That information is then used to make out financial statements such as balance sheets and income statements. (Strauss, 2007) An accounting system structures the flow of financial information to provide a complete picture of a firm’s financial activities. There are two types of accounting systems performed by small businesses: (1) the champion-entry system and (2) the double-entry system. The single-entry record-keeping system is occasionally still found in the very small business. It is not, however, a system recommended for firms that are seek to grow and achieve effective financial planning.A single entry-system neither incorporates a balance sheet nor straight off generates and income statement. A single-entry system is a check book system of accounting reflecting only receipts and disbursements. A double-entry system is a type of accounting system that provides a self-balancing mechanism in the form of two counterbalancing entries for each transaction recorded. It can be done with the record-keeping journals and ledgers found in most office add on retail stores. However, the relatively simple accounting software package programs designed for small firms are preferable. Longenecker, 2006) Conclusion establish on the information gathered by the researchers, the researchers have come up with a conclusion to the verbalize problem. The researcher has classified two types of accounting practice/principles performed by small businesses namely: For mal Accounting and Semi-Formal Accounting. Formal Accounting practice are based on the standards of the International Financial Reporting Standard for Small and Medium-Sized Entities (IFRS for SMEs) The IFRS for SMEs is indented for the use of small and medium sized entities (SMEs).Small and medium-sized entities are entities that are defined as not having public accountability, and do not publish general purpose financial statements for external users. The Semi-Formal Accounting practice is a combination of the Formal Accounting Practice (based on the IFRS for SMEs), and the Single-entry record keeping or booking keeping system. In the Single-Entry system, largely performed by small businesses, business owners record only the most important or essential transactions for the business which usually contain only the following: cash, accounts receivable, accounts payable and taxes.However, by performing this system, the owners still apply some of the standards given by the IFRS for SM Es. Most businesses however, perform only the Single-entry system. It is a much easier and convenient accounting practice that is preferable by the owners of small businesses because of its bigness in storing only the important accounting information needed by such businesses. Recommendation The Single-entry system, for most business owners, is mostly performed for its convenience and completeness. The researcher recommends, however, for the owners to apply the Formal accounting practice.The IFRS for SMEs, established by the IASB, was do specifically for small businesses to use. This accounting standard is scoop up recommended for small businesses to attain uniformity among all other businesses alike. This will not only provide advantage to the owners but also to the users of the accounting information. It is still reminded that small businesses; such as vendors, sari-sari stores, restaurants or eateries; are not recommended to perform such complicated accounting practice but, t hey are still advised to record accounting information.The recommended accounting practice for such businesses is the Single-entry system. The researchers provide progress recommendations toward the persons involved: 1. To the Business Owners of small businesses, they must observe and follow the accounting standards of the International Financial Reporting Standard for Small-Medium Entities (IFRS for SMEs), mentioned in this research, to attain uniformity among other small businesses which practice the accounting standard of the IFRS. 2.To the College of Business Administration and its faculty members, in which they can use this research as an instructional material or instrument in teaching their students about topics relating to the research. 3. To the Graduates of the College of Business Administration, who plans to have their own business or put up a small business; that this research may serve as a prolongation and as a guide for their first locomote in being entrepreneurs. 4. To the Students of the College of Business Administration, in which they can use this research as a reference material to their academic studies.Bibliography 1. Alliance of Accounting and Auditing Researchers. (n. d. ). International / Philippine Financial Reporting Standard for Small and medium-sized entities (IFRS / PFRS for SME’s). n. d. 2. Brozovsky, John, Nancy Christie, ;amp; Sam Hicks. (2010, July). Accounting for small businesses: the role of IFRS. Academic OneFile. Retrieved July 17, 2012, http://go. galegroup. com/ps/i. do? id=GALE%7CA234140898;amp;v=2. 1;amp;u=lyceumph;amp;it=r;amp;p=AONE;amp;sw=w 3. Byrd, Mary Jane ;amp; Megginson, L. C. (2009).Small Business Management An entrepreneur’s Guidebook. (Seventh Edition). virgin York: McGraw-Hill. 4. Dias, Laura ;amp; Shah, A. J. (2009). Introduction to Business. New York: McGraw-Hill. 5. Habaradas, Raymund B. (2008, March). SME development and technology upgrading in Malaysia: lessons for the Philippines. Academic OneFile. Retireved July 17, 2012, http://go. galegroup. com/ps/i. do? id=GALE%7CA204419292;amp;v=2. 1;amp;u=lyceumph;amp;it=r;amp;p=AONE;amp;sw=w 6. Ibarra, Venus and Suez-Sales, M. G. (2011, December). A comparison of the International\r\n'