Accounting Principles and Practices Performed by Small Businesses in the Philippines

Topics: Business, International Financial Reporting Standards, Financial statements Pages: 12 (4251 words) Published: November 12, 2012
Accounting Principles and Practices performed by Small Businesses in the Philippines

College of Business Administration
Abstract: This research aims to gain the knowledge and awareness on the accounting practices done by small businesses. It aims to inform and learn about small businesses’ and their compliance to the standard practices of accounting in the Philippines, whether or not these businesses are following the basic accounting principles and what alternatives of accounting do they perform. And lastly, to provide recommendations to the businesses owners and other persons involved, on what accounting practice is more suitable for small businesses. Through the use a variety of reference materials, such as reference books, text books and internet sources, information related to the study has been compiled and put together to form the appropriate knowledge needed for the study. Through the findings, the researchers classified two types of accounting practices performed by small businesses: Formal Accounting, this accounting practice is based on the actual Philippine accounting standard provided by the IFRS, and a Semi-Formal Accounting, a combination of the IFRS accounting and the Single entry record system. Keywords: Accounting, Accounting Principles, Accounting Practices, Small Business, Small Business Accounting

There are more than a million businesses spread throughout the Philippines. From high rising commercial entities in the big cities, to the smallest businesses found in the front yard of residential homes in rural or urban areas.

Business can be defined as a person, partnership, or corporation that seeks to provide goods and services to others at a profit (Dias and Shah, 2009)
Businesses are among one of the factors affecting the economic growth in the country. Generally, taxes and investments earned by these businesses, through the purchases of their consumers, are paid to the Government.

Small and medium-scale enterprises (SMEs) play a significant role in developing economies. Among their contributions are as follows: (a) they address poverty by creating jobs and by increasing incomes; (b) they disperse economic activities in the countryside, and provide broad-based sources of growth; (c) they serve as suppliers and providers of support services for large enterprises; (d) they stimulate entrepreneurial skills among the populace; and (e) they act as incubators for developing domestic enterprises into large corporations. SMEs typically comprise the bulk of business enterprises in both developed and developing countries. They also employ a large segment of a country's workforce, and contribute significantly to national output (Habaradas, 2008)

However, not all businesses contribute to the economic growth of the country especially for small independent businesses in private homes. Such examples are self-employed proprietors and street vendors whose businesses are not registered to the Bureau of Internal Revenue (BIR).

Legally registered businesses (small businesses) on the other hand, contribute to the economic growth through payments of taxes collected by the Bureau of Internal Revenue. Such businesses record transactions or accounting information to keep track and allocate assets, liabilities and the owner’s equity. Through this accounting information, the owners will be able to allocate their assets for the expenses of tax payments.

It may be said that the accounting practice is for formalities and usually performed by large business entities. However it is important for small businesses to apply the accounting practices in order to easily keep track and record important transactions especially those which concern large amounts of money.

Accounting is important in achieving success in any business, especially a small one. Accounting is tied to the business’ financial well bing, without it, it will be hard to determine...
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