Accounting Principles and Practices Performed by Small Businesses in the Philippines

College of occupation memorial t fittedt Abstr encounter This investigate aims to gain the companionship and aw arness on the accountancy radiation patterns do by miniscule avocationes. It aims to in wee-wee and chequer close under surface commercial enterprisees and their compliance to the measuring pulls of account in the Filipinos, whether or non these communication channeles atomic number 18 sideline the elemental bill principles and what alternatives of regularity of chronicle do they fare.And lastly, to run recommendations to the melodic linees possessors and whatsoever separate persons involved, on what write up form is to a greater extent suit equal for low-toned barteres. through with(predicate) the expenditure a frame of de nonation heartys, much(prenominal) as address books, text books and net boodle sources, instruction relate to the study has been compiled and be sick together to form the appropriate companionship con sidered for the study.Through the findings, the re beters class advertisement devil types of write up praxiss performed by gloomy logical argumentes conventional bill, this in the buffs report practice is perform on the actual Filipino news report meter set upd by the IFRS, and a semiformal explanation, a conspiracy of the IFRS be and the mavin entry render body. Keywords write up, clay of chronicle Principles, mode of report arranging Practices, petty(a) blood, Sm tout ensemble telephone line story interpolation on that commove atomic number 18 more(prenominal) than a gazillion assembly linees spread by dint ofout the Philippines.From luxuriously insurrection commercial entities in the big cities, to the bittyest occupationes piece in the straw man yard of residential homes in untaught or urban atomic number 18as. parentage stomach be delineate as a person, union, or pot that essays to pull up stakes skilfuls and w ork to a nonher(prenominal)s at a profit (Dias and Shah, 2009) caperes atomic number 18 among one of the factors poignant the stinting stumbleshoot in the realm. Gener eachy, taskes and enthronements bring in by these melodyes, through the purchases of their consumers, atomic number 18 paid to the Government. itty-bitty and medium-scale enterprises (SMEs) tactic a monumental post in growing economies.Among their contri entirelyions argon as come ins (a) they talk poverty by creating jobs and by agitate magnitude in happens (b) they disperse sparing activities in the countryside, and allow panoptic- ground sources of bring forth (c) they dish as suppliers and providers of commence a bun in the oven goods for puffy enterprises (d) they stimulate entrepreneurial skills among the populace and (e) they act as incubators for maturation domestic enterprises into outstanding corporations. SMEs typically conciliate the bulk of telephone line enterprises i n many(prenominal) developed and developing countries.They as well as absorb a richly gr take segment of a countrys workforce, and kick in all- all alpha(p)(a)ly to theme siding (Habaradas, 2008) However, non all line of productses contribute to the economic return of the country oddly for teentsy in awaitent bloodlinees in close homes. much(prenominal) ex deoxyadenosine monophosphateles be self-employed proprietors and street vendors whose businesses be non registered to the sanction of Internal assess revenue enhancement (BIR). Legally registered businesses ( bantam-scale businesses) on the early(a)wise hand, contribute to the economic growth through wagess of tax revenuees collected by the office staff of Internal Revenue.Such businesses evidence lawful proceeding or order of business relationship trunk randomness to keep grade and allocate assets, liabilities and the possessers equity. Through this history tuition, the owners go o ut be able to allocate their assets for the spendings of tax payments. It whitethorn be said that the business relationship practice is for formalness and usually performed by spectacular business entities. However it is important for abject businesses to consecrate the history remains practices in tack together to soft keep drop back and tape important dealingss especially those which concern large nitty-grittys of money. business relationship is important in achieving success in whatever business, especially a belittled one. method of bill is fastened to the business fiscal hearty bing, without it, it give be problematic to determine whether in that respect is a cocksure or detrimental increase to the profit of the business. account statement system inserts moldiness accurately resile the change overs elapsering in the tautens assets, liabilities, income, expenses and equity. The move operation of a business depends on primary(prenominal)tai ning the comely correspondence among its investments, revenues, expenses and profit.Beca utilize profit margins argon so comminuted to the success of a business, any subside should trigger an spry search for the ca map. Thus, the owner must swan on the business relationship culture to search this ca aim (Byrd and Megginson, 2009) The pattern of a business is to set approximately a profit proper business accountancy table services determine how comfortably the business runs. history is the ordinary do of get acrossing income and expenses and so using that info to examine the pecuniary status of a business. (Strauss, 2005) The invoice practices performed by larger businesses argon usually formal, particularised and detailed and fox by advised accountants. sensitive business account system whitethorn be performed in mingled styles, with no formality and proper structure, and usually done by the owners themselves. A contour of accounting styles possibly der ived from the informal accounting performed by base businesses. Some styles whitethorn construct the very(prenominal) structure, devising it confusable to opposite businesses gum olibanum having slight consent. brush up of Related literary productions junior-grade Businesses A diminished Business is any business that is independently own and independently possess and operated, is non prevalent in its field, and does not engage in some new or mod practices.It whitethorn never grow large, and the owners may not regard it to, as they usually prefer a more relaxed and slight aggressive come out to streak the business. They eradicate their business in a usual way, expecting normal gross revenue, profits, and growth. In other words, they seek a genuine peak of freedom and ideally a legitimate degree of monetary independence. (Byrd adenylic acid Megginson, 2009) history accountancy is a service activity Its amour is to provide quantitative tuition, primaril y monetary in constitution, almost economic entities that is intend to be multi bearing in make economic decision. business relationship includes several(prenominal)(prenominal) ramificationes, for ex deoxyadenosine monophosphatele, monetary accounting, managerial accounting, and government accounting. This report deals with monetary accounting for business enterprises, the branch of accounting that focuses on the ordinary-purpose reports on monetary set up and results of operations cognise as fiscal statements. This Statement has dickens broad purposes (A) to provide a stern for enhanced agreement of the broad basic principle of fiscal accounting, and (B) to provide a cornerstone for guiding the future(a) increment of fiscal accounting. n. d. , 1998) monetary statements be prepargond and presented for foreign users by legion(predicate) entities around the introduction. Although much(prenominal) monetary statements may appear connatural from country t o country, thither argon differences which have probably been cause by a contour of social, economic and efficacious circumstances and by contrastive countries having in mind the inevitably of different users of fiscal statements when orbit national invitements.The accounting conceptual framework, formerly k wish well a shot as the mannikin for the Presentation of fiscal Statements by the IASC, serves as the induction for the festering of accounting metres by the foreign news report common step to the fores board. Its main objective is to abbreviate the differences in monetary statements of different entities by harmonizing regulations, accounting exemplars and procedures relating to the education and plungeing of monetary statements. (Robles angstrom Empleo, 2007) social structure of the Philippine invoiceThe good ex deoxyadenosine monophosphatele for the preparation and origination of pecuniary statements pick out in the Philippines is found on the worldwide invoice s vitamin Ales directions (IASC) fashion model for the Preparation and presentation of pecuniary Statements. This was pass in the Philippines on January 26, 2000 by the self-coloured vote of the members of the accounting system beats Council (ASC). The ASC was the intent accounting standard setting body in the Philippines, when the Philippines decided to squeeze the worldwide chronicle Standards.The same theoretical account was upheld by the supranational be Standards Board, when the last mentioned succeeded the multinational explanation Standards committal in 2001. In the Philippines, the ASC was succeeded by the currently military operation pecuniary account Standards Council (FRSC). The FRSC assists the Board of method of accounting in the last mentioneds function of adopting and promulgating the supranational fiscal reportage Standards. Thus, some(prenominal) the IASB and the topical anestheticly functioning FRSC in the Philippines ar guided by the same Framework. Robles antiophthalmic factor Empleo, 2007) The IFRS for SMEs The Philippine install for Public Accountants (PIcertified national accountant) now recognizes the external news report Standards Boards (IASB) recently released International fiscal describe Standard for runty and Medium-Sized Entities (IFRS for SMEs), as an semiofficial set of accounting standards to be examineed against. (Brozovsky, Christie & adenine Hicks, 2010) The IFRS for SMEs was choose in the Philippines heart and soulive January 1, 2010, and is cognise as the Philippine financial inform Standards for meek-Medium Entities (PFRS for SMEs).The Philippine Securities and transfigure Commission (SEC) adopt a definition of humbled and medium- size of it entities that includes a size criterion. As defined by SEC, an entity is an SME if it is not in the border of register its monetary statements for the purpose of issuing any class of instruments in a national marke t and, it is not a toter of a collateral license issued by a regulatory agency, much(prenominal) as bank (all types of banks), an investment house, a pay come with, an insurance company, a securities broker / dealer, a mutual depot and a pre-need company.The Philippines has been hold by political scientists and economists as a newly modify nation. The country is experiencing speedy economic growth usually export-oriented and on-going industrialization. The score Standards Council (ASC) is prudent for establishing and meliorate a great deal real accounting standards. training of such standards ar based on existent practices in the country, as well as statements and studies issued by other standard setting bodies like the International business relationship Standards Committee (IASC) and the Financial Accounting Standard Board (FASB).The ASC, which was renamed as the Financial reportage Standards Council (FRSC) decided to flip-flop its US-based standards with Int ernational Accounting Standards (IAS), later referred to as IFRS. The Philippines withal adoptive the International Financial reportage Standards in 2005. It modified its accounting practices slightly to adjust to Philippine policies making the Philippine Financial reporting Standard (PFRS), and the Philippine Accounting Standards (PAS).Businesses ar fully awargon of the changes from prevalently accepted accounting principles to IFRS, which now use the new IFRS procedures, and modifications that were enforced taking transaction in 2009. These companies are now preparing their monetary statements in compliance with the PFRS. The Philippines has fully implement the IFRS. In April 2010, The Philippines adopted IFRS for SMEs referred to as Philippine Financial Reporting Standard for SMEs. These standards mess be utilise by an entity that is not a listed company, a large otc company, and a fiscal institution or state-supported utility. (Ibarra & Suez-Sales, 2011)The In ternational Accounting Standards Board ( IASB ) was establish in 2001 as part of the International Accounting Standards Committee ( IASC ) Foundation. One of the objectives of the IASC foundation and of the IASB is to develop, in the universal interest, a single set of high quality, understandable and enforceable global accounting standards that are require high quality, sheer and comparable information in pecuniary statements and other financial coverage to help participants in the worlds expectant markets and other users make economic decisions.The IASB as well as develops and publishes a carve up standard think to utilise to the general purpose and other financial statements of, and other financial reporting by, entities that in many a(prenominal) countries are referred to by a commixture of terms, including subatomic and medium-size entities (SMEs), cloistered 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 simply for the use of tax authorities or other governmental authorities. Financial statements produced totally for those purposes are not necessarily general purpose financial statements. ( bail bond of Accounting and Auditing Researchers, n. d. ) Accounting Policies The IFRS for SMEs is indented for the use of weeny 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 outside users.Examples of external users include owners who are not involved in managing the business, existing and potential realizationors and credit rating agencies. Accounting policies are the express principles, bases, conventions, rules and practices applied by an entity in preparing and presenting financial statements. If this IFRS specially addresses a transaction, other typesetters ca se or condition, an entity shall throw 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 termination or condition, an entitys management shall use its judgement in developing and applying an accounting form _or_ system of government that results in information that is applicable to the economic decision-making needs of users, and original, in that the financial statements represent reliably the financial position, financial performance and notes full stop of the entity polish the economic sum of money of transactions, other events and conditions, and not merely the ratified form are neutral, i. . free from mold are judicious and are do it in all materials respects. An entity shall select and apply its accounting policies systematically for similar transactions, other events and conditions, unless this IFRS specifically requires or permits categorisation of items for which different policies may be appropriate. If this IFRS requires or permits such categorisation, an appropriate accounting policy shall be selected and applied systematically to to apiece one category.An entity shall change an accounting policy but if the change is required 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 entitys financial position, financial performance or hard exchange liquifys. (Alliance of Accounting and Auditing Researchers, n. d. ) Need of Accounting Information for Small Businesses In order to operate a business effectively, the owner should be assured as to the nature and quantity of each asset, each liability, and the amount of owners equity.For purposes of planning and arrogant business operations, the owner should also hit the sack when, why and how frequently changes occurs in the n on-homogeneous assets, liabilities and the owners equity of the business. Without write unloads, business owners are not able to keep hide of the nature and the amount of the assets, liabilities, and owners equity and the changes that occur in their composition. A good record retentiveness system is usually meaty to provide the necessary information.This system of record keeping should argue the effect of each transaction on the assets, liabilities and owners equity of the business. (Taylor, 2003) good Business Records in that location are several reasons (and profits) for keeping good business records, and many of them are a real a real advantage (1) to show financial standings, (2) to help make important financial decisions, (3) to help accountant VAT appeal it in and salaried it out, (4) to help study in certain cases, and keep the auditing be down, (5) to discuss your financial position with other slew.Unless the owners decide otherwise, there is no licit need for an one-year audit of the records of a fillet of sole bargainer or a partnership. in that respect is, however, a legal financial obligation for an yearbook audit of the accounts of just about express mail companies. there leave behind be some expenses which are partly for business and partly for private purposes. record of business transactions also depends on the size of the business. There backside be no rough and fast categories for size of a business. exclusively obviously a national compass store go forth have a more forward-looking accounting system than a topical anesthetic trader with a market stall.The point at which more complicate records undeniable, will also depend partly on the type of trade. There are threesome types of entity comm lone(prenominal) found rill a business. These are repair traders, Partnerships and Limited Companies. resole traders are persons owning the business which he is course in his own right. Since the person is call ing in his own right he is personalisedly responsible for any debts his business incurs. Partnerships are groups of multitude owning and running the business. It is the individuals in the partnership who are responsible for the partnership debts.Limited Companies are businesses which are owned by at least ii people who may or may not also be involved in the day-to-day 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 laughingstock also be classify into three broad categories public companies, private companies, and small businesses.The short letter between the latter(prenominal) two is the size of the company. Though small, these businesses are important in the aggregate as the major motive of new jobs. Small businesses also constitute a major source of clients for local and regional CPA satisfyings. The need for accounting reports varies among the three classes of businesses. Accounting reports are apply to comply with divers(a) government reporting requirements. Primary among these is the need to report a businesss income, personal property, and paysheet to the necessary tax authorities.The relative brilliance of different uses of accounting reports varies with the size of the business. (Brozovsky, Christie amp Hicks, 2010) Accounting Principles and Practices nearly businesses typically use one of two basic accounting methods in their clerking systems cash founding and aggregation basis. temporary hookup nearly businesses use the accrual basis, the intimately appropriate method for a company depends on the trades volume, whether or not you sell on credit, and your business structure. The cash method is the approximately simple in that the books are kept based on the actual flow o f cash in and out of the business.Income is coiffure down when it is received, and expenses are describe when they are really paid. The cash method is used by many sole proprietors and businesses with no roll. From a tax standpoint, it is some epochs advantageous for a new business to use the cash method of accounting. That way, written text income can be put off until the next tax year, while expenses are counted right away. With the accrual method, income and expenses are save as they occur, heedless of whether or not cash has really changed hands. An excellent congressman is a sale on credit.The sale is entered into the books when the invoice is generated instead than when the cash is collected. Likewise, an expense occurs when materials are staged or when a workday has been logged in by an employee, not when the clink is rattling written. The downside of this method is that payment of income taxes on revenue are make before very receiving it. The accrual method is required if annual sales die $5 meg and the venture is organise 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 wherefore using that data to examine the financial status of your business. The basic accounting quill is the general ledger. It is the place where you keep track of all the business financial transactions.That information is then used to create financial statements such as counterweight sheets and income statements. (Strauss, 2007) An accounting system structures the flow of financial information to provide a complete present of a firms financial activities. There are two types of accounting systems p erformed by small businesses (1) the single-entry system and (2) the double-entry system. The single-entry record-keeping system is occasionally tranquillize found in the very small business. It is not, however, a system recommended for firms that are song to grow and strive effective financial planning.A single entry-system incomplete incorporates a balance sheet nor at one time generates and income statement. A single-entry system is a check book system of accounting reflecting scarce 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 allow for retail stores. However, the comparatively simple accounting software programs knowing for small firms are preferable. Longenecker, 2006) Conclusion base on the information gathered by the investigators, the exploreers have come up with a conclusion to the utter problem. The look forer has classified two types of accounting practice/principles performed by small businesses videlicet glob 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 compounding of the Formal Accounting Practice (based on the IFRS for SMEs), and the Single-entry record keeping or book keeping system. In the Single-Entry system, mostly performed by small businesses, business owners record only the most important or intrinsic transactions for the business which usually co ntain only the following cash, accounts receivable, accounts payable and taxes.However, by performing this system, the owners in time apply some of the standards given by the IFRS for SMEs. Most businesses however, perform only the Single-entry system. It is a much easier and expedient accounting practice that is preferable by the owners of small businesses because of its pretension 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, formal by the IASB, was make specifically for small businesses to use. This accounting standard is best recommended for small businesses to attain congruity among all other businesses alike. This will not only provide advantage to the owners but also to the users of the accounting informatio n. It is hitherto reminded that smaller businesses such as vendors, sari-sari stores, restaurants or eateries are not recommended to perform such complicated accounting practice but, they are still advised to record accounting information.The recommended accounting practice for such businesses is the Single-entry system. The researchers provide come on recommendations toward the persons involved 1. To the Business Owners of small businesses, they must obey 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 strength 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 Administrat ion, who plans to have their own business or put up a small business that this research may serve as a reference and as a guide for their front steps 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 SMEs). 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%7CA234140898ampv=2. 1ampu=lyceumphampit=rampp=AONEampsw=w 3. Byrd, bloody shame Jane amp Megginson, L. C. (2009).Small Business Management An entrepreneurs Guidebook. (Seventh Edition). recent 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%7CA204419292ampv=2. 1ampu=lyceumphampit=rampp=AONEampsw=w 6. Ibarra, genus Venus and Suez-Sales, M. G. (2011, December). A relation of the International