Fundamentals of

SENIOR
Accountancy, Business HIGH
and Management 1 (FABM 1) SCHOOL

Self-Learning

Preparing of Financial Module

3
Statements
666
Quarter 4
Fundamentals of Accountancy, Business and Management 1
Quarter 4 – Self-Learning Module 3: Preparing of Financial Statements
First Edition, 2020

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 Fundamentals of
SENIOR
Accountancy, Business HIGH
and Management 1 SCHOOL

(FABM 1)

Self-Learning

Preparing of
Module

3
Financial Statements
12
Quarter 4
Introductory Message
For the facilitator:

Welcome to the Senior High School – Fundamentals of Accountancy, Business

and Management 1 Quarter 4 Self Learning Module on Preparing of Statements!

This Self-Learning Module was collaboratively designed, developed and

reviewed by educators from the Schools Division Office of Pasig City headed by its
Officer-in-Charge Schools Division Superintendent, Ma. Evalou Concepcion A.
Agustin, in partnership with the City Government of Pasig through its mayor,
Honorable Victor Ma. Regis N. Sotto. The writers utilized the standards set by the K
to 12 Curriculum using the Most Essential Learning Competencies (MELC) in
developing this instructional resource.

This learning material hopes to engage the learners in guided and independent
learning activities at their own pace and time. Further, this also aims to help learners
acquire the needed 21st-century skills especially the 5 Cs, namely: Communication,
Collaboration, Creativity, Critical Thinking, and Character while taking into
consideration their needs and circumstances.

In addition to the material in the main text, you will also see this box in the
body of the module:

Notes to the Teacher

This contains helpful tips or strategies that
will help you in guiding the learners.

As a facilitator, you are expected to orient the learners on how to use this
module. You also need to keep track of the learners' progress while allowing them to
manage their learning. Moreover, you are expected to encourage and assist the
learners as they do the tasks included in the module.
For the learner:

Welcome to Senior High School – Fundamentals of Accountancy, Business

and Management 1 Quarter 4 Self Learning Module on Preparing of Financial
Statements!

This module was designed to provide you with fun and meaningful
opportunities for guided and independent learning at your own pace and time. You
will be enabled to process the contents of the learning material while being an active
learner.

This module has the following parts and corresponding icons:

Expectations - This points to the set of knowledge and skills

that you will learn after completing the module.

Pretest - This measures your prior knowledge about the lesson

at hand.

Recap - This part of the module provides a review of concepts

and skills that you already know about a previous lesson.

Lesson - This section discusses the topic in the module.

Activities - This is a set of activities that you need to perform.

Wrap-Up - This section summarizes the concepts and

application of the lesson.

Valuing - This part integrates a desirable moral value in the

lesson.

Posttest - This measure how much you have learned from the
entire module.
 EXPECTATIONS

After going through this module, you are expected to:

1. define financial statements;

2. prepare financial statements;
3. enumerate the financial statements and describe each; and
4. understand and appreciate the usefulness of financial statements.

PRETEST

Directions: Write the correct letter of your answer in the space provided.

_____1. If the total revenue of the company is Php34,200 while its expenses totaled
Php15,700, how much is the net income or loss of the company?
A. P18,400
B. P18,500
C. P18,300
D. P18,200
_____2. Based on number 2, what kind of financial statements to be prepared?
A. Statement of Financial Position
B. Statement of Changes in Owner’s Equity
C. Income Statement
D. Cash Flows Statement
Boy Car Repair Shop started the business with total assets of P200,000 and total
liabilities of P50,000 on January 1, 2019. During the year, the business recorded
revenues of P190,400 and P95,600 expenses and Samson withdrew P21,500.
_____3. What is the correct balance of the Boy, Capital account at the end of the
year?
A. P266,300
B. P223,300
C. P244,800
D. P233,300
_____4. Based on number 3, what kind of financial statements to be prepared?
A. Statement of Financial Position
B. Statement of Changes in Owner’s Equity
C. Income Statement
D. Cash Flows Statement
_____ 5. Statement 1: The proper sequence on preparing the financial statements are
as follows: statement of the balance sheet, income statement, and statement of
changes in equity
Statement 2: Financial statements are very important in making business
decisions.
A. Only statement 1 is correct.
B. Only statement 2 is correct.
C. Both statements are correct.
 D. Both statements are incorrect

RECAP

Directions: Write the correct letter of your answer in the space provided.
_____ 1. Statement 1: Only real accounts are extended to the Statement of Financial
position columns of the worksheet.
Statement 2: The nominal accounts are extended to the Income Statement
columns of the worksheet.
A. Only statement 1 is correct.
B. Only statement 2 is correct.
C. Both statements are correct.
D. Both statements are incorrect.
_____ 2. Which of the following statements is incorrect concerning the worksheet?
A. The worksheet is essentially a working tool for the accountant.
B. The worksheet is distributed to management and other interested parties.
C. The worksheet cannot be used as a basis for posting to ledger accounts.
D. Financial statements can be prepared directly from the worksheet before
journalizing and posting the adjusting entries.
_____ 3. In a worksheet, net income is entered in the following columns:
A. income statement (dr) and statement of financial position (dr)
B. income statement (cr) and statement of financial position (dr)
C. income statement (dr) and statement of financial position (cr)
D. income statement (cr) and statement of financial position (cr)
_____ 4. In a worksheet, the net loss is entered in the following columns:
A. income statement (dr) and statement of financial position (dr)
B. income statement (cr) and statement of financial position (dr)
C. income statement (dr) and statement of financial position (cr)
D. income statement (cr) and statement of financial position (cr)
_____ 5. On the completed worksheet, which set of columns usually should be out of
balance after the initial footing?
A. Adjusted Trial balance columns only
B. Balance Sheet columns only
C. Both Income Statement and Balance Sheet columns
D. Income Statement columns only

LESSON

As the owner of the business, there are questions you regularly ask – Is my
business perform well? What are the snapshot of my company’s assets, liabilities,
and net assets? Where did my cash go?
 The financial statements are means to answer all of my questions Accounting
is the language of business because it communicates vital information through the
financial statements prepared by accountants or bookkeepers to the intended users.

After adjustments and adjusted trial, balance is prepared the next is

step is the preparation of financial statements.

DEFINITION OF FINANCIAL STATEMENTS

❖ Formal reports prepared by accountants. These statements show the
financial effects of transactions and other events that are grouped into
broad classes according to their economic characteristics.

THE COMPLETE SETS OF FINANCIAL STATEMENTS AND THEIR MEANING

Per revised PAS No. 1, a complete set of financial statements comprises:

1. Statement of Financial Position

2. Statement of Comprehensive Income
3. Statement of Changes in Owner’s Equity
4. Statement of Cash Flow
5. Notes, comprising a summary of significant accounting policies and other
explanatory information; and
6. Statement of Financial Position as at the beginning of the earliest comparative
period.

1. Income Statement – summary of the revenue and expenses for a

specific period, such as a month or a year.

2. Statement of owner’s equity – a summary of the changes in the

owner’s equity that have occurred during a specific period, such as a
month or a year.

3. Balance Statement – a list of the assets, liabilities, and owner’s equity

as of a specific date, usually at the close of the last day of a month or a
year.

4. Statement of cash flows– a summary of the cash receipts and cash

payments for a specific period, such as a month or a year.

5. Notes to Financial Statements –

For this competency, only three financial statements are prepared. The income
statement is prepared first followed by the statement of changes in owner’s equity
and lastly the balance sheet. The result of operations in the income statement is
added to the statement of changes in equity and the ending capital later is the
amount to be used in preparing the balance sheet.
 For the illustration, let have your answers to the problem given to you in your
previous module 3. Figure 1.1 is shown below and from this figure, we will prepare
our financial statements.
BEAUTY DELIVERY SERVICES
WORKSHEET
December 31, 2019
UNADJUSTED TRIAL BALANCE ADJUSTMENTS ADJUSTED TRIAL BALANCE INCOME STATEMENT BALANCE SHEET
ACCOUNTS DR CR DR CR DR CR DR CR DR CR
Cash 126,800 126,800 126,800
Accounts Receivable 28,200 10,000 38,200 38,200
Supplies 17,800 5,400 12,400 12,400
Prepaid Insurance 38,000 12,000 26,000 26,000
Land 960,000 960,000 960,000
Buildings 1,640,000 1,640,000 1,640,000
Accum. Depreciation- buildings 379,200 10,000 389,200 389,200
Equipment 1,060,000 1,060,000 1,060,000
Accum. Depreciation - equipment 336,000 18,000 354,000 354,000
Accounts Payable 43,200 43,200 43,200
Unearned Delivery Fees 42,000 16,000 26,000 26,000
Mortgage Payable 1,160,000 1,160,000 1,160,000
Beauty, Capital 1,432,600 1,432,600 1,432,600
Delivery Fees Earned 669,200 16,000 695,200 695,200
10,000
Salary Expense 173,400 3,600 177,000 177,000
Telephone Expense 2,400 2,400 2,400
Utilities Expense 7,000 7,000 7,000
Repairs Expense 8,600 8,600 8,600
Total 4,062,200 4,062,200

Supplies Expense 5,400 5,400 5,400

Insurance Expense 12,000 12,000 12,000
Depreciation Expense - Building 10,000 10,000 10,000
Depreciation Expense - Equipment 18,000 18,000 18,000
Salary Payable 3,600 3,600 3,600
Interest Expense 4,200 4,200 4,200
Interest Payable 4,200 4,200 4,200
Total 79,200 79,200 4,108,000 4,108,000 244,600 695,200 3,863,400 3,412,800
Net Income - 450,600 450,600
Total 695,200 695,200 3,863,400 3,863,400

Figure 1.1 Worksheet in the previous module

INCOME STATEMENT

❖ Reports the revenue and expenses for some time, based on the
matching principle. This concept is applied by matching the expenses
with the revenue generated during a period by that expense.

❖ Also reports the excess of the revenue over the expenses incurred. This
excess of the revenue over the expenses is called net income or net
profit. If the expenses exceed the revenue, the excess is a net loss.
BEAUTY DELIVERY SERVICES
INCOME STATEMENT
For the period ended December 31, 2019

Delivery Fees Earned

Less: Operating Expenses ₱ 695,200
Salary Expense ₱ 177,000
Telephone Expense 2,400
Utilities Expense 7,000
Repairs Expense 8,600
Supplies Expense 5,400
Insurance Expense 12,000
Depreciation Expense - Building 10,000
Depreciation Expense - Equipment 18,000
Interest Expense 4,200 244,600
Net Income ₱ 450,600
Figure 1.2 Income Statement
STATEMENT OF CHANGES IN OWNER’S EQUITY

❖ It is another report that the accountants prepared which explains the

activities for a period that caused the owner’s equity to change. Four
activities affect the owner’s equity: investment or contribution,
withdrawal, profit, and loss.

❖ Similarly, it is prepared before the balance sheet, since the amount of

owner’s equity at the end of the period must be reported on the balance
sheet. Because of this, the statement of owner’s equity is often viewed
as the connecting link between the income statement and balance
sheet.
Beginning, Capital xxx
Add: Additional Investment xxx
Net Income xxx xxx
Less: Drawing xxx
Net Loss (if loss) xxx
Ending Capital xxx
Figure 1.3. The formula on how to compute for the ending capital

BEAUTY DELIVERY SERVICES

STATEMENT OF CHANGES IN OW NER'S EQUITY
For the period ended December 31, 2019

Beauty, Capital, beginning ₱ 1,432,600

Add: Additional Investment 0
Total ₱ 1,432,600
Add: Net Income 450,600
Beauty, Capital, December 31, 2019 (end) ₱ 1,883,200
Figure 1.4. Statement of Changes in Owner’s Equity

STATEMENT OF FINANCIAL POSITION

❖ Also known as the balance sheet, shows the financial condition of the
business entity at any given time.

❖ Conveys information about the business entity’s liquidity, solvency,

stability, capital structure, and financial flexibility.

❖ Also starts with the heading comprised of the following:

Name of the business (who?

Name of the statement (what?)

Date of the statement (when?)

❖ Observe that the date of the business starts with the words “as of”. This
means that the SFP can be prepared anytime even if the operation of
the business has not started yet. As long as the business has assets
contributed by owners or creditors, the SFP can be prepared.

PRESENTATION OF STATEMENT OF FINANCIAL POSITION

1. ACCOUNT FORM – presents its elements in horizontal order following

the accounting equation, assets = liabilities + capital.

2. REPORT FORM – presents its elements in vertical order.

BEAUTY DELIVERY SERVICES
STATEMENT OF FINANCIAL POSITION
AS OF DECEMBER 31, 2019
ASSETS LIABILITIES AND OW NER'S EQUITY
Current Assets LIABILITIES
Cash ₱ 126,800 Current Liabilities
Accounts Receivable 38,200 Accounts Payable ₱ 43,200
Supplies 12,400 Unearned Delivery26,000
Fees
Prepaid Insurance 26,000 Interest Payable 4,200
Total Current Assets ₱ 203,400 Salary Payable 3,600
Non-Current Assets Total Current Liabilities ₱ 77,000
Land 960,000 Non-current Liabilities
Buildings 1,640,000 Mortgage Payable 1,160,000
Less: Accum. Depreciation-'(389,200)
buildings 1,250,800 Total Liabilities ₱ 1,237,000
Equipment 1,060,000 OW NER'S EQUITY
Less: Accum. Depreciation '(354,000)
- equipment 706,000 Beauty, Capital December 31, 2019 1,883,200
Total Non-Current Assets 2,916,800 TOTAL LIABILIIES AND OW NER'S EQUITY ₱ 3,120,200
TOTAL ASSETS ₱ 3,120,200

Figure 1.5. Statement of Financial Position or Balance Sheet (Account Form)

BEAUTY DELIVERY SERVICES
STATEMENT OF FINANCIAL POSITION
AS OF DECEMBER 31, 2019
ASSETS
Current Assets
Cash ₱ 126,800
Accounts Receivable 38,200
Supplies 12,400
Prepaid Insurance 26,000
Total Current Assets ₱ 203,400
Non-Current Assets
Land 960,000
Buildings 1,640,000
Less: Accum. Depreciation-'(389,200)
buildings 1,250,800
Equipment 1,060,000
Less: Accum. Depreciation '(354,000)
- equipment 706,000
Total Non-Current Assets 2,916,800
TOTAL ASSETS ₱ 3,120,200
LIABILITIES AND OW NER'S EQUITY
LIABILITIES
Current Liabilities
Accounts Payable ₱ 43,200
Unearned Delivery Fees 26,000
Interest Payable 4,200
Salary Payable 3,600
Total Current Liabilities ₱ 77,000
Non-current Liabilities
Mortgage Payable 1,160,000
Total Liabilities ₱ 1,237,000
OW NER'S EQUITY
Beauty, Capital December 31, 2019 1,883,200
TOTAL LIABILIIES AND OWNER'S EQUITY ₱ 3,120,200
Figure 1.6. Statement of Financial Position or Balance Sheet (Report Form)
 As you can notice, the amount of Net Income is added to the Statement of Changes
in Owner’s Equity and the ending capital in the said statement is the amount to be used
in the Owner’s Equity section of the Statement of Financial Position.

BEAUTY DELIVERY SERVICES

INCOME STATEMENT
For the period ended December 31, 2019

Delivery Fees Earned

Less: Operating Expenses ₱ 695,200
Salary Expense ₱ 177,000
Telephone Expense 2,400
Utilities Expense 7,000
Repairs Expense 8,600
Supplies Expense 5,400
Insurance Expense 12,000
Depreciation Expense - Building 10,000
Depreciation Expense - Equipment 18,000
Interest Expense 4,200 244,600
Net Income ₱ 450,600

Thus, the
BEAUTY DELIVERY SERVICES
statement of
STATEMENT OF CHANGES IN OW NER'S EQUITY
owner’s equity is For the period ended December 31, 2019
often viewed as
Beauty, Capital, beginning ₱ 1,432,600
the connecting
Add: Additional Investment 0
link between the Total ₱ 1,432,600
income Add: Net Income 450,600
Beauty, Capital, December 31, 2019 (end) ₱ 1,883,200
statement and
balance sheet.
 ACTIVITIES

Activity 1 Prepare for the following financial statements:

a. Income Statement (10 points)
b. Statement of Changes in Owner’s Equity (10 points)
c. Balance Sheet (20 points)

DRA. ABRYL RECTO

Adjusted Trial Balance
December 31, 2019
Cash 1,350,403
Accounts Receivable 205,000
Allowance for Bad Debts 7,550
Prepaid Supplies 11,500
Medical Equipment 1,964,000
Accum. Depreciation-Medical Equipt. 450,131
Vehicle 1,060,000
Accum. Depreciation - Vehicle 336,000
Accounts Payable 43,200
Unearned Professional Fees 47,000
Mortgage Payable 1,230,000
A. Recto, Capital 1,885,555
A. Recto, Drawing 5,000
Professional Fees 800,870
Salary Expense 123,400
Rebt Expense 50,000
Telephone Expense 14,000
Utilities Expense 7,000
Repairs Expense 10,003
Total 4,800,306 4,800,306
Activity 2 Complete the table below:

Income Statement Company A Company B

Revenues 1. Php _____ 85,046
Expenses 378,000 24,801
Net Income (Loss) Php 984,070 8. Php _____

Statement of Changes in Owner's Equity

Beginning Capital 0 9. Php _____
Additional Investment 10,000 10,000
Drawing 6,700 6,700
Net Income (Loss) 2. Php _____ 10. Php _____
Ending Capital 3. Php _____ 129,847

Balance Sheet
Current Assets 544,419 11. Php 33% of TA
Non-current Assets 4. Php _____ 12. Php 67% of TA
Total Assets 1,684,923 186,543
Current Liabilities 185,300 13. Php _____
Non-current Liabilities 5. Php _____ 19,883
Total Liabilities 6. Php _____ 14. Php _____
Owner's Equity 7. Php _____ 15. Php _____

WRAP-UP
To summarize what you have learned in the lesson, answer the following questions:
1. give the three main financial statements;
2. describe each financial statement; and
3. why it is important to prepare the financial statements?

VALUING

Reflect on this!

"Life as we know it, with all its ups and downs, will soon be over.
We all will give an accounting to God of how we have lived.

1. What do you mean by the above quotation?

2. How will you able to apply this in your life as a student?
 POSTTEST

Directions: Identify each item below. Write your answer before the item number.

_____1. In the accounting cycle, which of the following is considered the output
document?
A. Financial Statements
B. Journal
C. Ledger
D. Worksheet
ABM Car Repair Shop started the business with total assets of P250,000 and total
liabilities of P85,000 on January 1, 2018. During the year, the business recorded
revenues of P110,400 and P55,760 expenses and Samson withdrew P18,550.
_____2. What is the correct balance of the Boy, Capital account at the end of the
year?
A. P201,009
B. P201,900
C. P210,090
D. P201,090
_____ 3. Based on number 2, what kind of financial statement to be prepared?
A. Balance Sheet or Statement of Financial Position
B. Income Statement
C. Statement of Cash Flow
D. Statement of Changes in Owner’s Equity
For numbers 4 and 5.
Write true if the statement is correct and if the statement is false, write the
correct word or phrase to make the statement correct.
_____4. The statement of owner’s equity is often viewed as the connecting link
between the income statement and the balance sheet.
_____ 5. Financial statements are vital in business because contribute to the
decision-making of a business.
 KEY TO CORRECTION

5. D
5. B
4. B
4. C 5. True
3. C 4. True
3. B
2. B 3. D
2. C
1. C 2. D
1. B 1. A
RECAP
PRETEST POSTTEST

References

Ballada, W. 2017. Fundamentals of Accountancy, Business, and Management 1.

VDomDane Publishers.

Banggawan, RB. Asuncion, DJ. 2017. Fundamentals of Accountancy, Business, and

Management 1. Real Excellence Publishing.

Ferrer, RC. Millan, CV. 2017. Fundamentals of Accountancy, Business, and

Management 1. Bandolin Enterprise. San Juan, DA. 2018. Fundamentals
of Accounting. Elmoer Publishing

Rabo, JS. Tugas,FC.Salendrez, HE. 2016. Fundamentals of Accountancy, Business,

and Management 1. Vibal Group Inc.

Manuel, Zenaida Vera-Cruz 18th Edition Accounting Process_Basic Concepts and

Procedures

Epstein, Lita, MBA Bookkeeping Workbook for Dummies. Wiley Publishing, Inc.