Accounting Principles and Practices Performed by Small Businesses in the Philippines
College of Vocation Administration Abstract: This scrutiny bequest to compel the enlightenment and assuredness on the accounting habits executed by disregard vocationes. It bequest to communicate and gather environing disregard vocationes’ and their obedience to the flag habits of accounting in the Philippines, whether or not these vocationes are forthcoming the basic accounting principles and what alternatives of accounting do they consummate.
And lastly, to yield recommendations to the vocationes proprietors and other inhabitants perplexed, on what accounting habit is over agreetalented for disregard vocationes. Through the use a miscellany of allusion esthetics, such as allusion works, passage works and internet fountains, communicateation cognate to the consider has been compiled and put concomitantly to conceive the alienate enlightenment deficiencyed for the consider.
Through the findings, the scrutinyers collocateified two fashions of accounting habits consummateed by disregard vocationes: Sufficient Accounting, this accounting habit is installed on the veritable Philippine accounting flag yieldd by the IFRS, and a Semi-Formal Accounting, a alliance of the IFRS accounting and the Uncompounded register chronicles classification. Keywords: Accounting, Accounting Principles, Accounting Practices, Disregard Business, Disregard Vocation Accounting Introduction There are over than a favorite vocationes expand throughout the Philippines.
From tall mound commercial entities in the big cities, to the disregardest vocationes establish in the face yard of residential homes in arcadian or refined areas. Vocation can be defined as a idiosyncratic, firm, or confirmation that searchs to yield fitty and labors to others at a emolument (Dias and Shah, 2009) Businesses are inchoate one of the factors imposing the economic augmentation in the empire. Generally, taxes and cannonades earned by these vocationes, through the purchases of their consumers, are remunerated to the Government. Disregard and average-scale enterprises (SMEs) reproduce-exhibit a speaking role in discloseing economies.
Among their contributions are as prospers: (a) they address indigence by creating jobs and by increasing pays; (b) they distribute economic activities in the empireside, and yield extensive-installed fountains of augmentation; (c) they attend as suppliers and yieldrs of subsistence labors for great enterprises; (d) they inflame entrepreneurial skills inchoate the populace; and (e) they act as incubators for discloseing retired enterprises into great confirmations. SMEs typically embrace the whole of vocation enterprises in twain plain and discloseing countries.
They besides exercise a great limb of a empire's workforce, and subscribe speakingly to open output (Habaradas, 2008) However, not all vocationes subscribe to the economic augmentation of the empire distinctly for disregard rebellious vocationes in retired homes. Such samples are self-employed proprietors and street vendors whose vocationes are not registered to the Bureau of Internal Allowance (BIR). Legally registered vocationes (disregard vocationes) on the other workman, subscribe to the economic augmentation through reimbursements of taxes self-possessed by the Bureau of Internal Revenue.
Such vocationes chronicles affairs or accounting communicateation to hold trail and tabulate amiables, liabilities and the proprietor’s equity. Through this accounting communicateation, the proprietors terminate be talented to tabulate their amiables for the charges of tax reimbursements. It may be said that the accounting habit is for conceivealities and usually consummateed by great vocation entities. Notwithstanding it is great for disregard vocationes to apportion the accounting habits in arrange to easily hold trail and chronicles great affairs distinctly those which anxiety great wholes of currency.
Accounting is great in achieving consummation in any vocation, distinctly a disregard one. Accounting is tied to the vocation’ financial courteous-behaved-behaved-behaved bing, outerly it, it terminate be harsh to indicate whether there is a overbearing or denying discloseth to the emolument of the vocation. Accounting chronichither must correspondently ruminate the substitutes supervenering in the firm’s amiables, liabilities, pay, charges and equity. The continued act of a vocation pauses on oceantaining the fit equalize inchoate its cannonades, allowances, charges and emolument.
Beresolve emolument margins are so dignified to the consummation of a vocation, any after a opportunitydraw should trigger an contiguous exploration for the resolve. Thus, the proprietor must trust on the accounting communicateation to exploration this resolve (Byrd and Megginson, 2009) The resolve of a vocation is to bring-environing a emolument; fit vocation accounting succors indicate how courteous-behaved-behaved-behaved the vocation runs. Accounting is the unconcealed plan of trailing pay and charges and then using that grounds to investigate the financial ground of a vocation. (Strauss, 2005) The accounting habits consummateed by greatr vocationes are usually conceiveal, restricted and minute and executed by cognizant accountants.
Small vocation accounting may be consummateed in diversified styles, after a opportunity no conceiveality and fit organization, and usually executed by the proprietors themselves. A miscellany of accounting styles mayhap ascititious from the communicateal accounting consummateed by disregard vocationes. Some styles may accept the selfselfselfselfsame organization, making it harmonious to other vocationes thus having disregard law. Review of Cognate Literature Disregard Businesses A disregard Vocation is any vocation that is rebelliously owned and rebelliously owned and movablesd, is not dominant in its scene, and does not gain in multifarious new or innovative habits.
It may never disclose great, and the proprietors may not shortness it to, as they usually fine a over relaxed and hither aggressive avenue to vulgar the vocation. They regulate their vocation in a ordinary way, expecting ordinary sales, emoluments, and augmentation. In other tone, they search a unfailing quantity of insubservience and ideally a unfailing quantity of financial insurrection. (Byrd ;amp; Megginson, 2009) Accounting Accounting is a labor activity; Its power is to yield quantitative communicateation, principally financial in creation, environing economic entities that is adapted to be conducive in making economic determination.
Accounting embraces sundry not-absolutees, for sample, financial accounting, regulaterial accounting, and council accounting. This announcement deals after a opportunity financial accounting for vocation enterprises, the not-absolute of accounting that focuses on the unconcealed-resolve reputes on financial comcompose and results of acts unconcealed as financial announcements. This Announcement has two extensive resolves: (A) to yield a premise for enhanced brains of the extensive investmentamentals of financial accounting, and (B) to yield a premise for potent the coming crop of financial accounting. n. d. , 1998) Financial announcements are handy and presented for outer users by multifarious entities environing the universe. Although such financial announcements may answer harmonious from empire to empire, there are differences which accept probably been resolved by a miscellany of gregarious, economic and constitutional requisite and by unanalogous countries having in soul the deficiencys of unanalogous users of financial announcements when elucidation open claimments.
The accounting conceptual framework, conceiveerly unconcealed as the Framework for the Exhibition of financial Statements by the IASC, attends as the establishation for the crop of accounting flags by the Interopen Accounting Standards table. It’s ocean extrinsic is to bigoted the differences in financial announcements of unanalogous entities by consentaneous regulations, accounting flags and procedures relative-to to the making-ready and exhibition of financial announcements. (Robles ;amp; Empleo, 2007) Organization of the Philippine Accounting
The Framework for the making-ready and exhibition of financial announcements inoculateed in the Philippines is installed on the Interopen Accounting Standards Committee’s (IASC) Framework for the Making-ready and exhibition of Financial Statements. This was beloved in the Philippines on January 26, 2000 by the love-minded tone of the members of the Accounting Standards Council (ASC). The ASC was the powering accounting flag elucidation imported in the Philippines, when the Philippines ruled to inoculate the Interopen Accounting Standards.
The selfselfselfselfsame Framework was upheld by the Interopen Accounting Standards Board, when the cessation succeeded the Interopen Accounting Standards Committee in 2001. In the Philippines, the ASC was succeeded by the currently powering Financial Reporting Standards Council (FRSC). The FRSC assists the Tpowerful of Accountancy in the cessation’s power of inoculateing and promulgating the Interopen Financial Reporting Standards. Thus, twain the IASB and the reservedly powering FRSC in the Philippines are regulated by the selfselfselfselfsame Framework. Robles ;amp; Empleo, 2007) The IFRS for SMEs The Philippine Institute for Social Accountants (PICPA) now recognizes the Interopen Accounting Standards Board's (IASB) of-late released Interopen Financial Reporting Flag for Disregard and Medium-Sized Entities (IFRS for SMEs), as an negotiative set of accounting flags to be audited resisting. (Brozovsky, Christie & Hicks, 2010) The IFRS for SMEs was inoculateed in the Philippines commoditiesual January 1, 2010, and is unconcealed as the Philippine Financial Reporting Standards for Small-Medium Entities (PFRS for SMEs).
The Philippine Securities and Exsubstitute Commission (SEC) inoculateed a peculiaration of “disregard and average-sized entities” that embraces a bigness test. As defined by SEC, an entity is an SME if: it is not in the plan of filing its financial announcements for the resolve of issuing any collocate of documents in a veritablemal chaffer and, it is not a holder of a undignified indulge issued by a regulatory act, such as bank (all fashions of banks), an cannonade lineage, a finance audience, an prophylactic audience, a securities broker / exchangesman, a alternate investment and a pre-deficiency audience.
The Philippines has been unquestioned by collective scientists and economists as a newly industrialize veritablem. The empire is experiencing swift economic augmentation usually export-oriented and on-going industrialization. The Accounting Standards Council (ASC) is binding for establishing and suitpowerful unconcealedly legitimate accounting flags. Crop of such flags are installed on bulky habits in the empire, as courteous-behaved-behaved-behaved as announcements and studies issued by other flag elucidation bodies love the Interopen Accounting Standards Committee (IASC) and the Financial Accounting Flag Tpowerful (FASB).
The ASC, which was renamed as the Financial Reporting Standards Council (FRSC) ruled to rearrange its US-installed flags after a opportunity Interopen Accounting Standards (IAS), after referred to as IFRS. The Philippines besides inoculateed the Interopen Financial Reporting Standards in 2005. It mitigated its accounting habits disregardly to direct to Philippine policies making the Philippine Financial Reporting Flag (PFRS), and the Philippine Accounting Standards (PAS).
Businesses are abundantly assured of the substitutes from GAAP to IFRS, which now apportion the new IFRS procedures, and modifications that were implemented preliminary commodities in 2009. These companies are now preparing their financial announcements in obedience after a opportunity the PFRS. The Philippines has abundantly implemented the IFRS. In April 2010, The Philippines inoculateed IFRS for SMEs referred to as Philippine Financial Reporting Flag for SMEs. These flags can be used by an entity that is not a listed audience, a great unlisted audience, and a financial art or veritablemal labor. (Ibarra & Suez-Sales, 2011)
The Interopen Accounting Standards Tpowerful ( IASB ) was ageical in 2001 as allot of the Interopen Accounting Standards Committee ( IASC ) Foundation. One of the extrinsics of the IASC establishation and of the IASB is: to disclose, in the veritablemal cause, a uncompounded set of tall term, understandtalented and enforcetalented global accounting flags that are claim tall term, crystalline and compartalented communicateation in financial announcements and other financial reputeing to succor alloticipants in the universe’s principal chaffers and other users bring-environing economic determinations.
The IASB besides discloses and circulatees a unconnected flag adapted to apportion to the unconcealed resolve and other financial announcements of, and other financial reputeing by, entities that in multifarious countries are referred to by a miscellany of terms, including disregard and average-sized entities (SMEs), retired entities, and non-publicly accounttalented entities. That flag is the Interopen Financial Reporting Standards for Disregard and Medium-sized Entities (IFRS for SMEs).
SMEs repeatedly whole financial announcements merely for the use of tax authorities or other councilal authorities. Financial announcements wholed simply for those resolves are not necessarily unconcealed resolve financial announcements. (Alliance of Accounting and Auditing Researchers, n. d. ) Accounting Policies The IFRS for SMEs is indistinctive for the use of disregard and average bignessd entities (SMEs). Disregard and average-sized entities are entities that do not accept veritablemal accountability, and circulate unconcealed resolve financial announcements for outer users.
Examples of outer users embrace proprietors who are not perplexed in managing the vocation, bulky and germinative meritors and merit rating agencies. Accounting policies are the restricted principles, bases, conventions, rules and habits applied by an entity in preparing and presenting financial announcements. If this IFRS distinctly addresses a affair, other issue or term, an entity shall apportion this IFRS. However, the entity deficiency not to prosper a claimment in this IFRS in the commodities of doing so would not be esthetic.
If this IFRS restrictedally address a affair, other issue or term, an entity’s regulatement shall use its judgement in discloseing and apportioning an accounting plan that results in communicateation that is bearing to the economic determination-making deficiencys of users, and unfailing, in that the financial announcements individualate faithabundantly the financial compromise, financial consummateance and capital career of the entity; ruminate the economic imported of affairs, other issues and terms, and not metrust the constitutional conceive; are negative, i. . open from bias; are prudent; and are entire in all esthetics compliments. An entity shall fine and apportion its accounting policies pleasantly for harmonious affairs, other issues and terms, unhither this IFRS restrictedally claims or permits categorisation of items for which unanalogous policies may be alienate. If this IFRS claims or permits such categorisation, an alienate accounting plan shall be fideficiency and applied pleasantly to each state.
An entity shall substitute an accounting plan merely if the substitute is claimd by substitutes to this IFRS, or results in the financial announcements providing relitalented and over bearing communicateation environing the commoditiess or affairs, other issues or terms on the entity’s financial compromise, financial consummateance or capital careers. (Alliance of Accounting and Auditing Researchers, n. d. ) Deficiency of Accounting Instruction for Disregard Businesses In arrange to movables a vocation commoditiesually, the proprietor should be communicateed as to the creation and whole of each asset, each covenant, and the whole of proprietor’s equity.
For resolves of planning and repressling vocation acts, the proprietor should besides apprehend when, why and how frequently substitutes supervenes in the diversified amiables, liabilities and the proprietor’s equity of the vocation. Externally written chronicless, vocation proprietors are not talented to hold trail of the creation and the whole of the amiables, liabilities, and proprietor’s equity and the substitutes that supervene in their compromise. A amiable chronicles holding classification is usually imported to yield the unfailing communicateation.
This classification of chronicles holding should profession the commodities of each affair on the amiables, liabilities and proprietor’s equity of the vocation. (Taylor, 2003) Fit Vocation Registers There are sundry reasons (and customs) for holding amiable vocation chronicless, and multifarious of them are a veritable a veritable custom: (1) to profession financial standings, (2) to succor bring-environing great financial determinations, (3) to succor repress VAT – collecting it in and paying it out, (4) to succor audit in unfailing cases, and hold the auditing costs down, (5) to sift-canvass your financial comcompose after a opportunity other inhabitants.
Unhither the proprietors run incorrectly, there is no constitutional deficiency for an annual audit of the chronichither of a uncombined dealer or a firm. There is, notwithstanding, a constitutional covenant for an annual audit of the accounts of most scant companies. There terminate be some charges which are allotly for vocation and allotly for retired resolves. Recording of vocation affairs besides pauses on the bigness of the vocation. There can be no harsh and constant categories for bigness of a vocation. But plainly a open compact afford terminate accept a over undulating accounting classification than a national dealer after a opportunity a chaffer stall.
The summit at which over perplexed chronichither deficiencyed, terminate besides pause allotly on the fashion of exchange. There are three fashions of entity commmerely establish vulgar a vocation. These are: Uncombined dealers, Partnerships and Scant Companies. Uncombined dealers are inhabitants owning the vocation which he is vulgar in his own fit. Since the idiosyncratic is trading in his own fit he is idiosyncratically binding for any debts his vocation incurs. Partnerships are groups of inhabitants owning and vulgar the vocation. It is the individuals in the firm who are binding for the firm debts.
Limited Companies are vocationes which are owned by at trivialest two inhabitants who may or may not besides be perplexed in the day-to-day vulgar of the vocation. The proprietors accept a scant idiosyncratical covenant for the debts incurred by the audience which is a unconnected constitutional ‘person’ or entity. The day-to-day vulgar of a scant audience is entrusted to its directors. The directors of a audience may besides be the shareholders. (Taylor, 2003) Businesses can besides be collocateified into three extensive categories: veritablemal companies, retired companies, and disregard vocationes.
The eminence between the cessation two is the bigness of the audience. Though disregard, these vocationes are great in the amount as the greater suit of new jobs. Disregard vocationes besides organize a greater fountain of clients for national and regional CPA firms. The deficiency for accounting reputes varies inchoate the three collocatees of vocationes. Accounting reputes are used to accede after a opportunity diversified council reputeing claimments. Primary inchoate these is the deficiency to repute a vocation's pay, idiosyncratical fitty, and payroll to the unfailing tax authorities.
The not-absolute signification of unanalogous uses of accounting reputes varies after a opportunity the bigness of the vocation. (Brozovsky, Christie ;amp; Hicks, 2010) Accounting Principles and Practices Most vocationes typically use one of two basic accounting classifications in their workcustody classifications: capital premise and accrual premise. Opportunity most vocationes use the accrual premise, the most alienate classification for a audience pauses on the sales dimensions, whether or not you hawk on merit, and your vocation organization. The capital classification is the most isolated in that the works are kept installed on the veritable career of capital in and out of the vocation.
Insucceed is chroniclesed when it is common, and charges are reputeed when they are veritablely remunerated. The capital classification is used by multifarious uncombined proprietors and vocationes after a opportunity no register. From a tax standpoint, it is rarely propitious for a new vocation to use the capital classification of accounting. That way, chroniclesing pay can be put off until the direct tax year, opportunity charges are counted fit separate. After a opportunity the accrual classification, pay and charges are chroniclesed as they supervene, regardhither of whether or not capital has veritablely substituted workmans. An distinguished sample is a sale on merit.
The sale is entered into the works when the invoice is generated rather than when the capital is self-possessed. Likewise, an charge supervenes when esthetics are arrangeed or when a workday has been logged in by an exerciseee, not when the stop is veritablely written. The downside of this classification is that reimbursement of pay taxes on allowance are made antecedently veritablely receiving it. The accrual classification is claimd if annual sales yield $5 favorite and the undertaking is organizationd as a confirmation. In attention, vocationes after a opportunity register must besides use this classification.
It besides is tallly recommended for any vocation that hawks on merit, as it over correspondently matches pay and charges during a ardent season age. The capital classification may be alienate for a disregard, capital-installed vocation or a disregard labor audience. (Leonsky, 1998) Accounting is the unconcealed plan of trailing your pay and charges and then using that grounds to investigate the financial ground of your vocation. The basic accounting utensil is the unconcealed ledger. It is the settle where you hold trail of all the vocation’ financial affairs.
That communicateation is then used to conceive financial announcements such as equalize sheets and pay announcements. (Strauss, 2007) An accounting classification organizations the career of financial communicateation to yield a entire paint of a firm’s financial activities. There are two fashions of accounting classifications consummateed by disregard vocationes: (1) the uncompounded-register classification and (2) the double-register classification. The uncompounded-register chronicles-custody classification is rarely calm?} establish in the very disregard vocation. It is not, notwithstanding, a classification recommended for firms that are striving to disclose and terminate commoditiesual financial planning.
A uncompounded register-classification neither incorporates a equalize sheet nor at-once generates and pay announcement. A uncompounded-register classification is a stop work classification of accounting ruminateing merely returns and disbursements. A double-register classification is a fashion of accounting classification that yields a self-balancing contrivance in the conceive of two counterbalancing entries for each affair chroniclesed. It can be executed after a opportunity the chronicles-custody journals and ledgers establish in most appointment afford vend affords. However, the not-absolutely isolated accounting software programs aimd for disregard firms are fineable. Longenecker, 2006) Disposal Installed on the communicateation gathered by the scrutinyers, the scrutinyers accept succeed up after a opportunity a disposal to the recognized drift. The scrutinyer has collocateified two fashions of accounting habit/principles consummateed by disregard vocationes namely: Sufficient Accounting and Semi-Formal Accounting. Sufficient Accounting habit are installed on the flags of the Interopen Financial Reporting Flag for Disregard and Medium-Sized Entities (IFRS for SMEs) The IFRS for SMEs is indistinctive for the use of disregard and average bignessd entities (SMEs).
Small and average-sized entities are entities that are defined as not having veritablemal accountability, and do not circulate unconcealed resolve financial announcements for outer users. The Semi-Formal Accounting habit is a alliance of the Sufficient Accounting Habit (installed on the IFRS for SMEs), and the Single-register chronicles holding or working holding classification. In the Single-Entry classification, chiefly consummateed by disregard vocationes, vocation proprietors chronicles merely the most great or imported affairs for the vocation which usually hold merely the forthcoming: capital, accounts receivable, accounts paytalented and taxes.
However, by consummateing this classification, the proprietors calm?} apportion some of the flags ardent by the IFRS for SMEs. Most vocationes notwithstanding, consummate merely the Single-register classification. It is a abundantly easier and seasonable accounting habit that is finetalented by the proprietors of disregard vocationes beresolve of its comprehensiveness in storing merely the great accounting communicateation deficiencyed by such vocationes. Recommendation The Single-register classification, for most vocation proprietors, is chiefly consummateed for its convenience and entireness. The scrutinyer recommends, notwithstanding, for the proprietors to apportion the Sufficient accounting habit.
The IFRS for SMEs, ageical by the IASB, was made restrictedally for disregard vocationes to use. This accounting flag is best recommended for disregard vocationes to earn law inchoate all other vocationes equivalent. This terminate not merely yield custom to the proprietors but besides to the users of the accounting communicateation. It is calm?} reminded that disregarder vocationes; such as vendors, sari-sari affords, restaurants or eateries; are not recommended to consummate such perplexed accounting habit but, they are calm?} advised to chronicles accounting communicateation.
The recommended accounting habit for such vocationes is the Single-register classification. The scrutinyers yield excite recommendations inland the inhabitants perplexed: 1. To the Vocation Owners of disregard vocationes, they must yield and prosper the accounting flags of the Interopen Financial Reporting Flag for Small-Medium Entities (IFRS for SMEs), mentioned in this scrutiny, to earn law inchoate other disregard vocationes which habit the accounting flag of the IFRS. 2.
To the College of Vocation Administration and its boon members, in which they can use this scrutiny as an instructional esthetic or document in instruction their students environing topics relative-to to the scrutiny. 3. To the Graduates of the College of Vocation Administration, who plans to accept their own vocation or put up a disregard vocation; that this scrutiny may attend as a allusion and as a regulate for their earliest steps in entity entrepreneurs. 4. To the Students of the College of Vocation Administration, in which they can use this scrutiny as a allusion esthetic to their academic studies.
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