Earning Outcomes: LSPU Self-Paced Learning Module (SLM)

Republic of the Philippines
Laguna State Polytechnic University

Province of Laguna
LSPU Self-Paced Learning Module (SLM)
ISO 9001:2015 Certified
Learning Outcomes Level I Institutionally Accredited
LSPU SELF-PACED LEARNING MODULE: BASIC CONCEPTS IN STRATEGIC MANAGEMENT

Province of Laguna
Online Activities
(Synchronous/ A. Online Discussion via Google Meet
Asynchronous)
Student will be advised to promptly attend twice, the one-hour class
discussion on business organization and trends. To have access to the
onlineAccredited
Level I Institutionally discussions, students will be provided a link before the actual
meeting via their e mail or messenger account in the facebook.
The online discussions will happen either on the sixth or seventh week of
November, depending on your class schedules and via the Google
Calendar.
(For further instructions, refer to the created “Class Group Chat” or see
the schedule of activities for this module)
B. Learning Guide Questions
1. What five financial statements are contained in most annual reports?

2. What are the general objectives of financial statements?
3. Who are the basic users of financial statements and identify their purpose
in using said financial statements?
4. What are the constraints on relevant and reliable information?
5. How is income and cash flow statements related to the statement

of financial position?
6. What are the two methods of preparing a cash flow statement?
7. What are the three primary sections of a cash flow statement and what
information they provide to users of financial statements?
Note: The quality of insight that you will post during online discussion forum will receive additional
scores in class participation.

Province of Laguna
Level I Institutionally Accredited

Province of Laguna

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Lecture Guide
How Business Activities Are Reported


Business activities are periodically reported by companies using five financial
statements: The Statement of Financial Position, Statement of Comprehensive
Income, Statement of Stockholders’ Equity, Statement of Cash Flows and the Notes
to Financial Statements.
Financial statements serve the needs of different users. The operation of the
accounting information system involves application of accounting standards to
produce financial statements that provide the insight on the business activities of
the company under analysis. It is important that one must understand the
company’s business activities. This can be accomplished through the financial
statements.
Financial statements report on company’s performance and financial condition

and provides information needed by executive management in their decision
making. Financial statements also provide crucial input for strategic planning via
the accounting information.
Accounting information should be used in the business context in which the

information is created. All companies without exception, plan business activities,
finance those activities, invest in those activities and then engage in operating
activities. Business firms conduct all these activities while performing business
forces, including market constraints and competitive pressures.
General Objectives of Financial Statements
The important objectives of financial statements are:
1. Providing information for economic decision
The economic decisions that are taken by the users of financial statements
require an evaluation of the ability of an enterprise to generate cash and
cash equivalents, and the timing and certainty of their generation. This
refers also the ability of the enterprise to pay its employees and suppliers,
meet interest payments, repay loans and make distribution of dividends/
profits to its owners.

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2. Providing information about financial position
The financial position of an enterprise is affected by the economic

resources such as:
a. Information about economic resources controlled by the enterprise
and its capacity in the past to modify these resources is useful in
predicting the ability of the enterprise to generate cash and cash
equivalents in the future.
b. Information about financial structure is useful in predicting future
borrowing needs and how future profits and cash flows will be
distributed among those with an interest in the enterprise.
c. Information is useful in predicting how successful the enterprise is
likely to be in raising further finance.
d. Information about liquidity and solvency is useful in predicting the
ability of the enterprise to meet the financial commitments as they fall
due. Liquidity refers to the availability of cash in the future taking
account of financial commitments and solvency refers to the
availability of cash over the longer term to meet financial commitments
as they fall due.
3. Providing information about performance of an enterprise.
Financial statements provide information about the performance and

In particular the profitability of an enterprise. Information about
variability of performance is important and useful in predicting the
capacity of the enterprise to generate cash flows from its existing
resource base, and in forming judgement about the effectiveness with
which the enterprise might employ additional resources.
4. Providing information about the changes in financial position
Financial statements provide information concerning changes in the

financial position of an enterprise, which is useful in order to assess its
investing, financing and operating activities during the reporting period.
This information is use to assess the ability of the enterprise to generate
cash and cash equivalents and the needs of the enterprise to utilize
these cash flows.

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Demand For Financial Accounting Information
Decision makers and other stakeholders demand information on the company’s

past and prospective returns and risks to facilitate efficient contracting and risk
sharing.
Level The Accredited
I Institutionally broad classes of users that demand financial accounting information
include the following:
1. Managers and Employees
For their own well-being and prospective earnings, potential managers

and employees need accounting information on the financial condition,
profitability and prospects of their companies as well as comparative
information on competing companies and business opportunities.
Management uses financial statements to raise financing for the
company, to meet disclosure requirements and to serve as a basis for
executive remuneration and bonuses for wage negotiations and to meet
disclosure requirements.
2. Investors and Analysts
Financial statements are used by these parties to decide whether to buy

or sell equity shares. Expectations about future profitability and the
ability to generate cash influence the price of securities and a company’s
ability to borrow money at favorable terms. Other information
intermediaries such as, financial press writers and investment analyst
are interested in predicting companies’ future performance.
3. Creditors and Suppliers
Banks and other lenders need financial accounting information to help

determine loan terms, loan amounts, interest rates and required
collateral. Suppliers demand financial data to establish credit terms and
to determine their long-term commitment to supply-chain relations.
Both creditors and suppliers use information to monitor and adjust their
contractual requirements and environment with a business firm.
4. Shareholders and Directors
Financial accounting information are needed by owners and directors of

the company to assess its profitability and risks, to evaluate managerial
performance and to help make leadership decisions.

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5. Regulatory and Tax Agencies
The SEC, BIR, BSP and other legal institutions demand financial
accounting information to monitor the business firms’ compliance with
laws,
Level I Institutionally for public protection, price setting and for setting tax and other
Accredited
regulatory policies.
6. Customers and Potential Strategic Partners
Customers both current and potential, need accounting information to

evaluate a company’s ability to provide product and services as agreed
and to assess the company’s reliability and staying power. Potential
strategic partners would wish to estimate the firm’s profitability to
assess the fairness of returns on mutual transactions and strategic
alliances.
7. Other decision makers
Financial accounting information are required for varied purposes by

other parties from assessing damage for environmental abuses to
making policy decision involving economic , social, taxation and other
initiatives.
Benefits of Disclosure
The advantage of supplying accounting information extend to a company’s

capital, labor, input and output markets. Companies compete in these markets.
Debt and equity financing are sourced from capital markets and the better a
company’s prospects, the lower will be its cost of capital as reflected in higher
stock prices or lower interest rate. The same is true for a company’s recruitment
efforts in labor markets and its ability to establish and maintain superior supplier-
customer relations in the input and output markets.
The company’s ability to disclose reliable (audited) accounting information about

its products, processes and other business activities enable them to better
compete in capital, labor, input and output markets.

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Costs Of Disclosure
The preparation and dissemination costs of supplying accounting information can

be substantial, and the possibility for information to produce competitive
disadvantage
Level is high.
I Institutionally Accredited
Companies are apprehensive that disclosures of their activities such as product or

segment success or failures, strategic initiatives, technological or systems
innovations could harm their competitive advantages. Companies also face
possible lawsuits when disclosures create expectations that eventually are not met.
Disclosure costs including political costs are high for highly visible companies such
as large telecommunication conglomerates, oil companies and software companies
because they are favorite targets of public scrutiny.
Constraints Relevant and Reliable Information
1. Timeliness
If there is undue delay in the reporting of information, it may lose its

relevance. Management may need to balance the relative merits of
timely reporting and the provision of reliable information. To provide
information on a timely basis, it may often be necessary to report before
all aspects of a transaction or other event are known, thus impairing
reliability. Conversely, if reporting is delayed until all aspects are known,
the information may be highly reliable but of little use to users who have
had to make decisions in the interim. In achieving a balance between
relevance and reliability, the overriding consideration is how best to
satisfy the economic decision making needs of users.
2. Balance Between Benefit and Cost
The balance between benefit and cost is a pervasive constraints rather

than a qualitative characteristic. The benefits derived from information
should exceed the cost of providing it. The evaluation of benefits and
costs is, however, substantially a judgmental process.

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3. Balance Between Qualitative Characteristics

In practice, a balancing or trade-off between qualitative characteristics
is often
Level I Institutionally necessary. Generally, the aim is to achieve an appropriate
Accredited
balance among the characteristics in order to meet the objective of
financial statements. The relative importance of the characteristics in
different cases is a matter of professional judgment.
4. True Fair View or Fair Presentation
Financial statements are frequently described as showing a true and fair

view of the financial position, performance and changes in financial
position of an enterprise. Although, this framework does not deal
directly with such concepts, the application of the principal qualitative
characteristics and of appropriate accounting standards, normally
results in financial statements that convey what is generally understood
as a true and fair view of such information.
Financial Statements
Business activities are periodically reported by companies using financial

statements. The complete set of general purpose financial statements consists of:
1. Statement of Financial Position (Balance Sheet Statement)

2. Statement of Comprehensive Income ( Income Statement)
3. Statement of Cash Flows
4. Statement of Stockholders’ Equity
5. Notes to Financial Statements
Statement of Financial Position
A Statement of Financial Position reports a company’s financial position at a point

in time, the company’s resources (assets) namely, what the company owns and
also the sources of asset financing. There are two ways a company can finance its
assets:

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1. Owner financing. It can raise money from shareholders.

2. Nonowner financing. It can also raise money from banks or other creditors and
suppliers.
This means that both owners and nonowner hold claims on company assets.
Owner claims on assets are referred to as Equity, and nonowner claims are
referred to as Liabilities (or debt). Since all financing must be invested in
something, we obtain the following basic relation: (investing = financing). This
equality is called the accounting equation which follows: (assets = liabilities +
owners’ equity).
Investing Activities
Statement of financial position is organized like the accounting equation. Investing

activities are represented by the company’s assets These assets are financed by a
combination of nonowner financing (liabilities) and owner financing (equality).
Financing Activities
Assets must be paid for, and funding is provided by a combination of owner and
nonowner financing. Owner (or equity) financing includes resources contributed to
the company by its owners along with any profit retained by the company.
Nonowner (creditor or debt) financing is borrowed money. We distinguish
between these two financing sources for a reason: borrowed money entails a legal
obligation to repay amounts owed, and failure to do so can result in severe
consequences for the borrower. Equity financing entails no such obligation for
repayment.
Working Capital
Current assets are often called working capital because these assets “turn over”,
that is they are used and then replaced throughout the year.
Net working capital is the difference between current assets minus current
liabilities while net operating working capital is the difference between current
assets and non-interest bearing current liabilities.

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Statement of Comprehensive Income
The statement of comprehensive income reports on a company’s performance

over a period of time and lists amounts for revenues (also called sales), expenses
andI Institutionally
Level other comprehensive
Accredited income. Revenues less expenses yield the bottom-line
net income amount. Net income reflects the profit (also called earnings) to owners
for that specific period.
Manufacturing and merchandising companies typically include an additional

expense account, called cost of goods sols (or cost of sales), in the statement of
comprehensive income following revenues. It is also common to report a subtotal
called gross profit (or gross margin), which is revenues less costs of goods sold.
The company’s remaining expenses are then reported below gross profit. This
income statement layout follows:
Revenues
- Cost of goods sold (Cost of materials, labor and overhead)
= Gross profit (Revenues less cost of goods sold)
- Expenses (Expenses other than product cost of sales)
= Net income (loss)
Operating Activities
Operating activities use company resources to produce, promote and sell its
products and services. These activities extend from input markets involving
suppliers of materials and labor to a company’s output markets involving
customers of products and services. Input markets generate most expenses (or
costs) such as inventory, salaries, materials and logistics. Output markets generate
revenues (or sales) to customers. Output markets also generate some expenses
such as marketing and distributing products and services to customers. Net income
arises when revenues exceed expenses. A loss occurs when expenses exceed
revenues.
Differences exist in the relative profitability of companies across industries.

Although effective management can increase the profitability of a company,
business models play a large part in determining company profitability.

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Statement of Stockholders’ Equity
The statement of stockholders’ equity reports on changes in key types of equity

over a period of time. For each type of equity, the statement reports the beginning
balance,
Level a summary
I Institutionally Accredited of activity in the account during the year and the ending
balance. Shareholder’s equity is the residual interest of owners in the net asset of a
corporation measured by the excess of assets over liabilities.
Name of Company
Statement of Stockholders’ Equity
For year ended December 31, 20X9
(pesos in millions)
Contributed Retained Other Total

Capital Earnings Equity
Dec. 31, 20X8 P50,000 P100,000 P30,000 P180,000

Stock issuance
(repurchase) 500 500
Net income (loss) 10,000 10,000
Dividends 0 0
Other 50 ( 2,000 ) ( 1,950)
Dec. 31 20X9 P50,500 P110,050 P28,000 P188,550
Contributed capital represents the cash that the company received from the sale of
stock to stockholders (also called shareholders), less any funds expended or the
repurchase of stock.
Retained earnings (also called earned capital or reinvested capital) represent the
cumulative total amount of income that the company has in the form of dividends.
The change in retained earnings links consecutive statement of financial position
via the net income statement: Ending retained earnings = Beginning retained
earnings + Net income – Dividends.

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Statement of Cash Flows
The statement of cash flows is a part of the complete set of financial statements
and is required in all entities who prepare financial statements- in conformity with
PFRSs.
The statement of cash flows reports the change (either an increase or decrease) in
a company’s cash balance over a period of time. The statement reports on cash
inflows and outflows from operating, investing and financing activities over a
period of time. There are two methods in presenting cash flows from operating
activities: Direct Method and the Indirect Method . Under the Direct Method,
major classes of gross cash receipts and gross cash payments are disclosed while
under the Indirect Method, profit or loss is adjusted for the effects of transactions
of a non-cash nature, any deferrals or accruals of past or future operating cash
receipts or payments, and items of income or expenses expected with investing or
financing cash flows.( See Exhibit 1 -Overview of the Statement of Cash Flows).
Below is a sample of the Statement of Cash Flow.
Name of Company
Statement of Cash Flow
For Year Ended December 31, 20X9
(pesos in millions)
Operating cash flows P12,550

Investing cash flows (13,428)
Financing cash flows 1,464
Net increase in cash 586
Cash, December 31, 20X8 43,743
Cash, December 31, 20X9 P44,329
Notes to Financial Statements
Notes to financial statements disclose the detailed assumptions made by

accountants when preparing a company’s: income statement, balance sheet,
statement of changes of financial position or statement of retained earnings.
This refers also to additional information that helps explain how a company arrived
at its financial statement figures.

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Engaging Activities
1. From the discussion above, enumerate the five financial statements that are
contained in most annual reports.
2. Give a brief description/ basic features and importance of each type of financial
statements.
Answers:

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Use separate sheets if necessary.
Performance Tasks
Performance Task 1 Level I Institutionally Accredited
A. Directions: Referring to the basic features of financial statements, explain why the statement of
cash flows provides useful information that goes beyond income statement and statement of
financial position.
Performance Task 2
B. Directions: Give your insights on the constraints between relevance and reliability of accounting
information, particularly in considering timeliness in the reporting of information.
Rubric for Performance Task 1 and 2
Performance Indicator
Criteria 1 2 3 4
(Unacceptable) (Slightly Acceptable) (Acceptable) (Perfectly Acceptable)
The insight /reaction The insight/reaction The insight/reaction The insight/reaction

presented and the presented and the presented and the presented and the
the corresponding corresponding corresponding corresponding
Uniqueness explanation showed explanation showed explanation showed explanation showed
no originality and some originality and originality and obvious originality
distinction distinction distinction and distinction
Insight/reaction cited Insight/reaction cited Insight/reaction cited Insight/reaction cited
and the and the and the and the
rationalization rationalization used rationalization rationalization
Correspondence presented does not moderately presented dovetailed presented exactly
dovetailed and dovetailed and and agreed with the dovetailed and
agreed with the agreed with the requirement of the agreed with the
requirement of the requirement of the problem requirement of the
problem problem problem
The presentation is The presentation is The presentation is The presentation is
not all-inclusive of slightly broad enough all-inclusive of the comprehensive and
the expected of the expected expected cover all of the
Comprehensiveness event/strategy as event/strategy as event/strategy as expected
required by the required by the required by the event/strategy as
Insight problem problem problem required by the
problem

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Understanding Directed Assessment

Name: ___________________________________________________ Date: ______________ Score: ___________

Course/Year: ____________________________________________ Instructor: ____________________________
TEST 1. FILL IN THE BLANK SPACES WITH CATEGORIES 1 THROUGH 7 BELOW,
1. Statement of Financial Position (SFP) 4. Current Liabilities (CL)

2. Income Statement (IS) 5. Long-Term Liabilities (LTL)
3. Current Assets (CA) 6. Stockholders’ Equity (SE)
Indicate If on 7. Fixed Assets (FA)
whether item is Statement of
on Statement of Financial
Financial Position,
Position (SFP) or Designate
Income which
Statement (Is) Category Item
1.__________ __________ Marketable Securities
2.__________ __________ Income tax payable
3.__________ __________ Accounts receivable
4.__________ __________ Common stock
5.__________ __________ Capital in excess of par value
6.__________ __________ Bonds payable
7__________ __________ Notes payable(trade)
8.__________ __________ Preferred stock
9.__________ __________ Net income
10.__________ __________ Selling & adm. expense
11.__________ __________ Inventories
12.__________ __________ Accrued Expenses
13.__________ __________ Cash
14.__________ __________ Plant & equipment
15.__________ __________ Sales
16.__________ __________ Operating expenses
17.__________ __________ Retained Earnings
18.__________ __________ Accounts payable
19.__________ __________ Interest expense
20.__________ __________ Income tax expense

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TEST II. CLASSIFY THE FOLLOWING STATEMENT OF FINANCIAL POSITION ITEMS AS CURRENT(C) 0R NON-
CURRENT(NC). PUT C IF CURRENT AND NC FOR NON-CURRENT.
_____1. Preferred Stock

_____2. Accounts Payable
_____3. Prepaid Expenses
_____4. Marketable Securities
_____5. Bonds Payable
_____6. Accrued Wages Payable
_____7. Accounts Receivable
_____8. Inventory
_____9. Cash and Cash Equivalents
____10. Notes Payable(non-trade)
TEST III. IDENTIFY WHETHER EACH OF THE FOLLOWING ITEMS INCREASES OR DECREASES CASH FLOW.
PUT INC IF YOUR ANSWER IS INCREASES AND DEC IF YOUR ANSWER IS DECREASES.
______1. Decrease in accounts receivable
______2. Increase in notes payable
______3. Depreciation expense
______4. Increase in accounts payable
______5. Decrease in prepaid expense
` ______6. Increase in inventory
______7. Dividend payment
______8. Increase in accrued expense
______9. Decrease in income tax payable
_____10. Increase in Prepayments

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Learning Resources
Cabrera, Ma. E.B & Cabrera, G. B. (2019-2020). Financial Management. GIC Enterprises & Co., Inc.
Asuncion,D.O., Ngina, M.B. & Escala, R.A. (2017) Applied AUDITING
Prasanna, Chandra, 6th edition. Fundamentals of Financial Management.
Brigham, E.F. & Houston(2012) Fundamentals of Financial Management. Cengage Learning
www.csun.edu>Web-Stuff>Lecture-Notes-Mid1,pdf(An Introduction to Financial Management-CSUN.edu)
www.researchgate.net>publication>252931751 Financi…PDF (Financial Management
www.bdc.ca>templates-business-guides>glossary.note...(What are notes to financial statements)
www.accountingcoach.com>terms>notes-to-financial...(Notes to financial statements definition and meaning…)
corporatefinanceinstitute.com>…>Accounting(Financial Statement Notes-Overview, Components)

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Exhibit 1 Overview of the Statement of Cash Flows (SCF)
Overview of the Statement of Cash Flows (SCF)

Cash and cash Cash and cash

Equivalents, beginning Equivalents, ending
Cash flows
(Inflows or outflows)
Components Operating cash flows Investing cash flows Financing cash flows
of SCF
- current assets Non-current assets - non-current liabilities

Generally caused
by changes of: - current liabilities - Shareholder’s equity
Method of Direct method OR Direct method Direct method

Presentation indirect method

Earning Outcomes: LSPU Self-Paced Learning Module (SLM)

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Republic of the Philippines

Laguna State Polytechnic University

LSPU Self-Paced Learning Module (SLM)

ISO 9001:2015 Certified

Learning Outcomes Level I Institutionally Accredited

LSPU SELF-PACED LEARNING MODULE: BASIC CONCEPTS IN STRATEGIC MANAGEMENT

B. Learning Guide Questions

1. What five financial statements are contained in most annual reports?

5. How is income and cash flow statements related to the statement

LSPU SELF-PACED LEARNING MODULE: BASIC CONCEPTS IN STRATEGIC MANAGEMENT

ISO 9001:2015 Certified

Level I Institutionally Accredited

LSPU SELF-PACED LEARNING MODULE: BASIC CONCEPTS IN STRATEGIC MANAGEMENT

ISO 9001:2015 Certified

Level I Institutionally Accredited

LSPU SELF-PACED LEARNING MODULE: BASIC CONCEPTS IN STRATEGIC MANAGEMENT

How Business Activities Are Reported

Level I Institutionally Accredited

Financial statements report on company’s performance and financial condition

Accounting information should be used in the business context in which the

General Objectives of Financial Statements

The important objectives of financial statements are:

1. Providing information for economic decision

LSPU SELF-PACED LEARNING MODULE: BASIC CONCEPTS IN STRATEGIC MANAGEMENT

2. Providing information about financial position

The financial position of an enterprise is affected by the economic

3. Providing information about performance of an enterprise.

Financial statements provide information about the performance and

4. Providing information about the changes in financial position

Financial statements provide information concerning changes in the

LSPU SELF-PACED LEARNING MODULE: BASIC CONCEPTS IN STRATEGIC MANAGEMENT

Demand For Financial Accounting Information

Decision makers and other stakeholders demand information on the company’s

1. Managers and Employees

For their own well-being and prospective earnings, potential managers

2. Investors and Analysts

Financial statements are used by these parties to decide whether to buy

3. Creditors and Suppliers

Banks and other lenders need financial accounting information to help

4. Shareholders and Directors

Financial accounting information are needed by owners and directors of

LSPU SELF-PACED LEARNING MODULE: BASIC CONCEPTS IN STRATEGIC MANAGEMENT

5. Regulatory and Tax Agencies

6. Customers and Potential Strategic Partners

Customers both current and potential, need accounting information to

7. Other decision makers

Financial accounting information are required for varied purposes by

The advantage of supplying accounting information extend to a company’s

The company’s ability to disclose reliable (audited) accounting information about

LSPU SELF-PACED LEARNING MODULE: BASIC CONCEPTS IN STRATEGIC MANAGEMENT

The preparation and dissemination costs of supplying accounting information can

Companies are apprehensive that disclosures of their activities such as product or

Constraints Relevant and Reliable Information

If there is undue delay in the reporting of information, it may lose its

2. Balance Between Benefit and Cost

The balance between benefit and cost is a pervasive constraints rather

LSPU SELF-PACED LEARNING MODULE: BASIC CONCEPTS IN STRATEGIC MANAGEMENT

3. Balance Between Qualitative Characteristics

4. True Fair View or Fair Presentation

Financial statements are frequently described as showing a true and fair

Business activities are periodically reported by companies using financial

1. Statement of Financial Position (Balance Sheet Statement)

Name: _______________________________________ Date: Score: _