Arithmophobia-this refers to generalized fear of all numbers and fear of specific numbers.

It is classified
as anxiety disorder.

Why Business Math? - business math is a type of mathematics that is meant to each people about
money and provide them with the tools they need to make informed financial decisions.

Business Operations that Require Business Math

• Production costs calculation

• Price determination
• Profit measurement
• Financial analysis

Mathematical Skills Needed for Business Math

• Integers
• Fractions, decimals, percentages
• Basic algebra
• Formulas • Statistic
• Graphing

THE FINANCIAL ENVIRONMENT

• System, institution, markets and individual that make the economy operate efficiently •
Suppliers and demanders of funds
 1. Net suppliers
2. Net demanders

The Financial System

• Financial institutions
• Financial intermediaries that channel savings of individuals, businesses, and governments into
loans or investments
• Bank (depository institutions)
• Non- banks (contractual savings organizations)
The Financial System (continued)

• Forums in which the suppliers and demanders of funds transact directly

• Money market (short-term securities)
• Capital market (long-term securities)

Factors Affecting the Choice

• Tax considerations
• Liability exposure

• Start-up and future capital requirements

• Control

• Managerial ability

• Business goals

• Management succession plans

• Cost of formation

Three Basic Forms of Business Ownership

• Sole proprietorship- A business owned and operated by one person.

Advantages of Sole Proprietorship

• Easy, simple and inexpensive to create.

• • Owner makes all business decisions and has control over all aspects of the business.
• The owner receives all profits.
• Privacy – owner is the only one who knows details of the business.
• Secret ideas, formulas, or recipes
• Ability to act quickly in making decisions – no checking with others.
• Tax advantages
• Business itself pays no taxes.
• Taxes are paid as personal income of the owner which is usually lower than corporate taxes.
• Many business expenses are deductible.
• Easy to close/dissolve.
• Pay employees and creditors.
• Sell your equipment.
• Notify customers if possible.
Disadvantages of Sole Proprietorships

• Owner has unlimited liability for all debts and actions of the business

• Difficult to raise capital.

• Banks/lenders consider sole proprietorships to be a high-risk investment

• Needs include paying employees, purchasing equipment and inventory, and running the business •
Expansions can be delayed or halted causing you to lose business to your competition
• Unlimited liability -If you cannot pay business debt with business income, bill collectors can take your
personal assets (home, car)

• Sole proprietorship is limited by his/her skills and abilities.

• Uncertain life

• illness or injury that prevents you from working may cause you to close

• Bankruptcy or incarceration will dissolve your business

• The death of the owner automatically dissolves the business

Liability Features of the Basic Forms of Ownership

• Sole Proprietorship

Claims of Sole Proprietor’s Creditors Sole Proprietor’s Personal Assets

• Partnership- A form of business ownership in which two or more people share the assets,
liabilities, and profits. Always wise to create a partnership agreement. The best partnerships are
built on trust and respect.

Types of Partners

• General partners

– Take an active role in managing a business.

– Have unlimited liability for the partnership’s debts.

– Every partnership must have at least one general partner.

• Limited partners

– Cannot participate in the day-to-day management of a company.

– Have limited liability for the partnership’s deb

Advantages of Partnerships

• Fairly easy & inexpensive to start

• May pay attorney if you develop a partnership agreement

• Combined resources
• Team with partners with different skills, experience, contacts, & capital

• Sharing responsibilities makes business run more efficiently & smoothly

• Increase the amount of capital to run the business. Lenders may be more willing to lend or extend
credit.

Advantages of Partnerships (continued)

• Decreased Competition

• Combining like businesses will decrease or eliminate competition

• Reduced expenses

• When two or more businesses combine expenses are no longer being duplicated

• Business losses are shared by all partners.

• The partnership does not pay income tax on profits. • Each partner pays income tax on her/his
individual share of the profit

Disadvantages of Partnerships

• Unlimited liability

• Each owner in a general partnership has unlimited liability.

• Each partner can lose personal assets to pay business debt

• In a limited partnership, the liability is limited to the amount invested in the business

Liability Features of the Basic Forms of Ownership Partnership

Disadvantages of Partnerships (continued)

• Limited Capital
• Although partners may bring more capital to the business than sole proprietors, it is still limited to
what each can contribute

• Some lenders may still be reluctant to lend large amounts

• Difficulty in ending

• Withdrawing can be complicated if there is no written partnership agreement

• By law profits must be divided equally if no agreement

• Partnerships may lead to disagreements. – Developing a detailed partnership agreement often helps
resolve the conflict because it addresses many issues that cause potential disagreements

•Uncertain life/Transferability

• Unless specified in a detailed partnership agreement, bankruptcy, death & the withdrawal, or
admittance of a new partner dissolves the partnership

• Remaining partners may start a new partnership if they have the money to buy the former partner’s
share

• Corporation- ➢ A business that is chartered by a state and legally operates apart from its
owners. Owned by stockholders who have purchased units or shares of the company.

Advantages of Corporations

• Financial Power

• Can raise money quickly by issuing shares of stock.

• Because it is closely regulated by the government, financial institutions are more willing to lend
larger amounts of capital

• Limited Liability

• Owners are liable only up to the amount of their investments. Personal assets cannot be used to pay
business debt.

Disadvantages of Corporations (continued)

• Difficulty in forming & operating

• Legal assistance is needed to start a corporation

• Lawyer fees can be very expensive

• Must request approval from the government through SEC and register the Articles of Incorporation
• Decisions about value and class of stock and shareholder voting rights Disadvantages of Corporations
(continued)

• Corporations are subject to more government regulations than partnerships or sole proprietorships

. • Reporting & taxation requirements vary from state to state

• Required to keep detailed reports for stockholders and to keep them informed of certain corporate
transactions, meetings, and voting rights

• New charter must be approved if corporate activities change Disadvantages of Corporations

(continued)

• Dual taxation
Corporation is taxed on profits from the company
Shareholders are taxed on the dividends they earn on their investments Disadvantages of
Corporations
• Separate owners and managers

• Stockholders are not generally involved in the day-to-day operation of the corporation

• Stockholders form a board of directors to make decisions about the business & managers carry out
these decisions Disadvantages of Corporations

• Separation of ownership and management provides more opportunity for irregularities or

misunderstandings

Strengths and Weaknesses of the Common Legal Forms of Business Organization

Single Proprietorship
Partnership Corporation

· Owners
· Owner receives all · Can raise more
have limited liability, which
Strengths profits (and sustains funds than sole
guarantees that they cannot
all losses) proprietorships
lose more than they invested
· Borrowing power
· Low organizational · Can achieve large size via
enhanced by more
costs sale of ownership (stock)
owners
· Income included
· More available
and taxed on · Ownership (stock) is
brain power and
proprietor’s personal readily transferable
managerial skill
tax return
 · Income included
· Independence and taxed on partner’s · Long life of firm
personal tax return

· Can hire professional

· Secrecy
managers

· Has better access to

· Ease of dissolution
financing

· Owner · Owners · Taxes generally higher

has unlimited have unlimited because corporate income is
Weaknesses liability – total wealth liability and may have taxed, and dividends paid to
can be taken to to cover debts of owners are also taxed at a
satisfy debts other partners maximum 15% rate

· Limited fund- · Partnership is · More expensive to

raising power tends dissolved when a organize than other business
to inhibit growth partner dies forms

· Difficult to
· Proprietor must · Subject to greater
liquidate or transfer
be jack-of-all-trades government regulation
partnership

· Difficult to give · Lacks secrecy because

employees long-run regulations require firms to
career opportunities disclose financial ratios

· Lacks continuity
when proprietor dies
Hybrid Forms of Business Ownership

• Limited Liability Company (LLC)

• Limited Liability Partnership (LLP)
Both combine various elements of sole proprietorships, partnerships, and corporations into one
package

Sources of Funds

• Equity

• Debt

Bank Organization and Management

• Organizational and Administration

• Certificate of authority to register

• Fit and proper rule

Bank Reserves

– Primary reserves

• Legal reserve or required reserve

• Working reserves • Excess reserves

– Secondary reserves

• Earning assets (short duration and marketable) – Investment reserves

• Earning assets (long-term)

Bank Functions

• Deposit functions MAIN FUNCTIONS

• Loan functions

• Exchange function

• Trust function

• Advisory function
Deposit Function

• Lifeblood of a banking institution

• In a deposit function:

– The bank is the debtor, and the depositor is the creditor

Deposit Function: Types of Deposits

• According to the method of withdrawal

– Demand deposit - which are withdrawn upon presentation of checks during banking hours. This is
what we commonly recognize as current account or checking account. Since banks must always be
ready at all times to meet the depositor’s demand, the bank cannot lend these deposits for long
periods of time. Thus, in general, demand deposits do not earn interest.

– Time deposit - are those which can only be withdrawn after a certain period of time or at a
designated maturity. Time deposits receive interest at varying rates.

Time deposits are sub-divided into:

Time certificate of deposits. These are evidenced by a certificate to the effect that the deposit
can only be withdrawn at maturity or after due notice of withdrawal, usually 30 days and upon
presentation and surrender of the instrument.

Special time deposits. These are normally accounts with specific higher maintaining balance
compared to savings deposits. It gives higher interest than savings deposits but lower than time
certificates of deposits. Depositors are allowed to a maximum of two withdrawals a month but
the account should not fall below the minimum allowable balance as specified by the bank.

Savings deposits. The most common among us which is evidenced by a passbook and/or an
ATM and may be withdrawn on demand.

o Deposits according to the way it was created includes –

 Direct or primary deposits - which is made over the counter when the depositor
him/herself brings his/her money and/or checks and other near cash items to the bank
and hands them to the teller.

 Derivative deposits - which is created from the proceeds of loan or when the borrower
enters into an arrangement that the bank places the loan proceeds under a current
account from which he can draw checks eventually.
Loan Function

• Largest single source of bank income

-vehicle

-property

-personal

-Business

Bank Credit Instruments

• Common negotiable documents used by banks

– Bills of exchange - Foreign transaction/Bank to bank transactions

– Promissory Note

– Checks – Most common transaction

Bank statement reconciliation: a process of adjusting in both the bank balance and checkbook
Adjust bank balance:
Add: Deposit in transact
Less: Outstanding check

UNDERSTANDING AND USING OF CHECKING ACCOUNT

 Check stubs or check registers can be used to keep track of the checks written, and the
deposits added.

o A sample check stub is shown below.

 Key Terms

o Payee is the one to whom the money on a check is paid. The person or business named
on the check to receive the money can either be –

 Pay to the order of; or

 Pay to bearer.

o Payor is the bank or institution that pays the amount of the check to the payee. It is
also the person or business issuing the check.

o Maker is the one who is authorizing the payment of the check.

o Automatic Drafts are regular withdrawals that the owner of an account authorizes to
be made electronically.

o Signature cards are signatures of those authorized to sign the checks for a given
account.

o Personal identification number (PIN) is a private code that is used to authorize a

transaction on a debit card or ATM card.
Check this out…. (continued)

• Clearing time - refers to the movement of a check from the deposit bank to the drawing bank
through a process known as the “clearing cycle”. This is the manner in which payments from checking
accounts are made and processed.

• Crossed check - A crossed check is any check that is crossed with two parallel lines through the left-
hand corner of the check. This symbol means that the check is “for deposit only” and cannot be
immediately encashed by a bank or any other credit institution.

• Postdated checks - is a check on which the issuer has stated a date later than the current date. A
postdated check is used in the following situations:

• Deliberate payment delay in which the issuer/maker does this in order to delay payment to the
recipient. The recipient may accept it simply because the check represents a firm date on which it will
be able to deposit the check.

• Collection method in which the recipient may require the issuer/maker to hand over a set of
postdated checks to cover a series of future payments, which the recipient agrees to cash or deposit
on the specified dates.

• Bouncing/bounced check - is a check that cannot be processed because the account holder has
nonsufficient funds (NSF). Banks return or bounce, these checks rather than honoring them, and
banks charge the maker NSF fees. Bounced checks can also incur legal cases such as estafa cases.

• Stale check - is a check presented at the paying bank after a certain period (typically six months) of its
payment. A stale check is not an invalid check, but it may be deemed an “irregular” bill of exchange.
The bank may refuse to honor it unless its maker reconfirms the payment to the recipient by issuing a
new check.

• Manager’s check (good as cash) - is a check issued by the bank, payable to a payee as indicated by
the person who buys the MC. This is often used in situations when the payee does not accept cash or
personal check.

• In the Philippines, banks will not accept checks with erasures even if you have countersigned the
erasure. This rule is primarily for your own protection as the maker or payor.

• On writing a check: Do not forget – when writing the amount of a check in word form, the
word and or the symbol & represents the decimal point.

SAMPLE CHECK: Let us write a check for Jose delos Santos to the Flat Tire Center for a front-end
alignment in the amount of PhP830.73 on June 7, 20xx.
It is important to keep accurate checkbook records and reconcile the account balance each month.
Banks can and do make mistakes. Inaccurate record keeping on the part of the account holder can
cause embarrassment due to incorrect balances, as well as service charges for bounced checks.

Understanding Bank Statements

• Bank Statement

-Monthly summary of the activities in a checking account including debits, credits, beginning and ending
balances

• Credits

-Additions to a checking or savings account (e.g., deposits and interest earned)

• Debits

- Subtractions from a checking or savings account (e.g., service charges, withdrawals)

Pillars of the Banking System

BANGKO SENTRAL NG PILIPINAS – Is a autonomous status even without approval, self governing. And
was established on July 3, 1993. through the New Central Bank Act of 1993. It took over the Central
Bank of the Philippines established on January 3, 1949.
 BSP is the central money authority in the Philippines and enjoys fiscal and administrative
autonomy from the National Government in doing its mandated responsibilities.
 The powers and functions of BSP are exercised by the Monetary Board which is composed of
seven members appointed by the President for a term of six years. The members of the
Monetary Board are –
o Governor to act as the Chairman. This position is subject to the confirmation of the
Commission of Appointments.
o A member of the cabinet to be designated by the President of the Philippines
o Five other members who shall come from the private sector and who shall serve full-
time.
 A member of the Monetary Board is disqualified from being a director, officer, employee,
consultant, lawyer, agent, or stockholder of any bank, quasi-bank, or any other institution which
is subject to supervision or examination by the BSP.
o The members of the Monetary Board coming from the private sector shall hot hold any
other public office or public employment during their tenure.
Amando M. Tetangco, Jr. was the third Governor of the Bangko Sentral ng Pilipinas and was the first
BSP governor to serve two terms. He was appointed to the office by then-President Gloria Macapagal-
Arroyo in 2005 and was reappointed in 2011 by then-President Benigno Aquino III to serve another six-
year term.

Objectives- •Maintain price stability conducive to a balanced and sustainable economic growth.
•Aims to promote and preserve monetary stability and the convertibility of the national currency

Responsibilities
•General functions
–Provides policy directions in the areas of money, banking, and credit

– Supervises operations of banks and exercises regulatory powers over non-bank financial
institutions with quasi banking functions

•Specific functions
Liquidity management - Formulates and implements monetary policy geared towards influencing
money supply consistent with its primary objective of maintaining price stability. In so doing, BSP
tries to keep the inflation rate low (but not necessarily zero) and this is done through monetary
policies.
Inflation rate

Currency issue - BSP has the exclusive power to issue national currency. All notes and coins issued
by the BSP are fully guaranteed by the government and are considered legal tenders for all private
and public debts.

Lender of last resort - BSP extends discounts, loans and advances to banking institutions for
liquidity purposes.

Financial supervision - BSP supervises banks and exercises regulatory powers over non-bank
institutions performing quasi-banking functions. To maintain the trust and confidence of the
people, BSP is given regulatory functions over banks and some financial institutions.

Prudential standards - According to BSP banks cannot be run on the sole basis of profit
maximization.
Risk management - BSP has prevented the exposure of banks to excessive risks.
Corporate governance (DOSRI) - BSP has issued DOSRI (directors, officers, stockholders, and
related interests) to protect the depositors’ money.
Banking system integrity (Bank Secrecy Law, AMLA) - BSP has issued AMLA (Anti Money
Laundering Act) stating that banks should not be used as conduits for dirty money. AMLA was
added to the existing law because the Bank Secrecy Law makes it difficult to look into bank
accounts to track down the financial transactions of criminals.
 Management of foreign currency reserves - BSP seeks to maintain sufficient international
reserves to meet any foreseeable net demands for foreign currencies in order to preserve the
international stability and convertibility of the Philippine peso.

Determination of exchange rate policy - BSP does not dictate the exchange rate, but it does
determine the exchange rate policy of the Philippines. The Philippines adheres to the market-oriented
foreign exchange rate policy to ensure orderly conditions in the market.

•Ensure orderly conditions in the market

•Other activities

Banker of banks

Financial advisor

Official depository of the government

Philippine Deposit Insurance Corporation (PDIC)

➢Insure the deposits of all banks which are entitled to the benefits of insurance

➢PDIC’s primary objective

➢Protect the people’s deposits from bank runs or bank failures

➢Act as second pillar of support to the Philippine banking industry.

PDIC: Functions

➢Deposit insurer

➢Co-regulator of banks

➢Receiver and liquidator of closed banks

As long as the bank is soluble it is must in the jurisdiction of the Banko Sentral
PDIC: Deposit Insurance Coverage

➢Maximum deposit insurance coverage is PhP500,000 per depositor effective June 1, 2009
➢Determination of insurance coverage

➢The outstanding balance of each account is adjusted

➢Interest are updated, withholding taxes are deducted, accounts maintained by a depositor in the
same right and capacity are added together
PDIC: Deposit Insurance Coverage

➢Whenever applicable, unpaid loans and other obligations of the depositor are deducted

➢In no case shall insured deposit exceed PhP500,000

➢Deposit insurance coverage is not determined on a per-account basis

➢A joint account shall be insured separately from any individually owned deposit account

➢Deposits in different banking institutions are insured separately

➢If a bank has one or more branches, the main office and all branch offices are considered as one bank

➢Foreign currency deposits are also insured by PDIC

➢Depositors may receive payment in the same currency in which the insured deposit is denominated

➢Deposits in excess of PhP500,000 can still be claimed

➢May be filed with the Liquidator of the closed bank

➢Depositors need to file his/her claim for insured deposit with PDIC

➢Membership of banks to PDIC is mandatory

➢PDIC covers only the risk of a bank closure ordered by the Monetary Board

➢PDIC is an attached agency of the Department of Finance

Related Agencies: Financial Institutions

➢Securities and Exchange Commission

➢Insurance commission
Related Agencies: Financial Markets

➢Philippine Stock Exchange