10

Entrepreneurship 2
Quarter 4 – Module 7
Preparing and Maintaining Financial Records
and Reports

Department of Education • Republic of the Philippines

 ENTREPRENEURSHIP 2

Copyright: Department of Education

Publisher: Department of Education, Mandaue City Division

This learning module was developed by the following personnel:

MA.FE B. CALIGDONG
Mandaue City Comprehensive National High School

JOCELY O. BACARON
Mandaue City Comprehensive National High School

VANESA B. BEJO
Mandaue City Comprehensive National High School
 Entrepreneurship 2

Quarter 4 – Module 7

Preparing Financial Records and Reports

Department of Education – Republic of the Philippines

 HOW TO USE THE MODULE

This module is a self-learning tool that contains instructional materials and

activities for the students to complete each of the learning outcomes of the module. It
has an instruction that can be clearly understand by the learner. It is a self –pace
learning kit, it means that the module should be done according to the pace of the
student but will not exceed on the weeks given by the facilitator.
The module includes theories, principles, and practices in simple bookkeeping.
The learning material on preparing and maintaining financial records and reports
contains the knowledge, skills and attitudes required for the subject.
The instruction is given on how to go through about the module, the students
have to work on the module based on the given activity, the facilitator has to require
students to submit the outputs stated in the module and on the duration of the period as
per instruction of the facilitator.
 Introduction

Entrepreneurship is a subject of Technical Vocational Education Curriculum

(TVE) for Grade 10 students under the K to 12 curriculums. It is designed for preparing
the individual learner to earn a living or increase his earning, by utilizing the knowledge
and skills acquired at school. It is aimed at preparing individual necessary for self-
reliance.
The subject provides varied and relevant activities and opportunities to
determine understanding of the key concepts and to demonstrate learning
competencies as required by the subject. Thus, it aims to provide knowledge and skills
that can be applied in a specific skill acquired by the students in his/her chosen field of
interest in the TLE subject to be use in lifelong learning.
The learning material is specifically designed to focus on the different learning
competencies to develop the knowledge and acquire skills in all entrepreneurial
activities of the learner.

Content Standards
The learner demonstrates understanding of the different tools used in monitoring
and evaluating business operations.
Performance Standards
The learner prepares, analyzes, interprets, presents and applies methods in
monitoring and evaluating business operations.
Objective:
Learners are expected to become proficient in performing skill on the
competency;
1. prepares written and oral report based on the results of the monitoring
and evaluation conducted.

Subject Requirements
Grade 10 student must take the Entrepreneurship subject to complete the
Technical Vocational Education curriculum. The subject is added to the curriculum as a
special subject to train the students on how to venture into business using the skill
acquired in TLE subject. The subject requires a total number of 2 hours per week.
The subject is added to the curriculum to equip the learners with the appropriate
knowledge, attitude, values, and skills on entrepreneurial activities necessary to
become self reliance and productive citizens of our society.
Pre- assessment test

Read the questions carefully, write the letter of your answer on your answer
sheet.

1. It is used to diagnose a current situation of the business operation and to evaluate

the variations of business activity.
a. Program Matrix
b. Indicator Matrix
c. Bar Graph
d. Checklist

2. Which is not needed in computing financial ratio?

a. Income Statement
b. Two-column balance sheet
c. Projected Balance Sheet
d. Statement of Account

3. The enterprise’s ability to meet its financial obligation and commitment is determined
in a ____________.
a. Liquidity Ratio
b. Profitability Ratio
c. Financial Structure Ratio
d. Efficiency Ratio

4. It refers to supervising activities in progress to ensure they are on-course and on-
schedule in meeting the objectives performance targets.
a. Monitoring
b. Evaluation
c. Procurement
d. Business Operations

5. It is a technique which compares the processes of one enterprise with those of

similar enterprises to study ways to improve those processes.
a. Bar Graph
b. Benchmarking
c. Checklist
d. Program Matrix

Activity 1

Create a bar graph using the data from a market survey on bread preferences of
students. If you are familiar with using Microsoft Excel, you may do so.
Types of Bread Percentage
Pandesal 28%
Cheese Monay 24%
Empanada 15%
Hopia 26%
Tasty Bread 7%
Topic: Monitor and Evaluate Business Operations

Words to study:
 Accountability is the obligation of an individual, firm, or institution account for its
activities, accept responsibility for them and to disclose the results in a
transparent manner.
 Budget is the estimate of costs, revenues, and resources over a specified
period, reflecting a management's reading of future financial conditions. One of
the most important administrative tools, a budget serves also as a plan of action
for achieving quantified objectives, standard for measuring performance, and
device for coping with anticipated adverse situations.
 Business operations consists of handling money and recording day to – day
transactions, computations, buying of materials and supplies, and checking of
facilities.
 Evaluation deals with measuring business operations variable based on
identified criteria.
 Monitoring is supervising activities in progress to ensure they are on-course
and on-schedule in meeting the objectives performance targets.

Supervising and Monitoring Business Operations

Supervision ensures the successful operation of the business you need to

monitor. Proper supervision will enable you to assess and support the production
performance, follow schedule and utilize material and work force wisely. To effectively
and efficiently monitor the business operations, the student-enterprise owner needs to
be familiar with specific skills and techniques. You may seek advice from your
entrepreneurship teacher if you think you lack the skills in doing the task of monitoring
and evaluating the business you established.

Supervision is a very important technique you need to use in assuring the proper
implementation of your business plan. Here are some common techniques:
a. direct observation
b. dialogue with worker
c. dialogue with customers
d. reviewing the market plan
e. reviewing the production plan
f. controlling supply and logistics hands-on

Implementing Supervision:
1. Prepare a simple supervision plan and supervision guide.
2. Devise a Monitoring Curve and Control graph.
3. Create a checklist of the different qualitative information.

How to make a monitoring system:

1. Define the most important indicators with the help of an indicator matrix which may
include the following:
- process indicators selected for supervision
- indicator for achieving goals defined in your Mission, Vision and Values Statement
- Indicators for the evaluation of results and quality of the process
2. Define the components of the monitoring system based on the list of indicators
selected previously and using a prioritization matrix with criteria such as: type of data
collection, frequency of analysis, type of data processing, and responsibilities.
3. Define the standards for the indicators that you will use to interpret results of
monitoring.

Common Qualitative Tools for Monitoring and Supervising Business Operations

1. Bar Graph- One way of presenting data you gathered in the business operation is
through a bar graph. It will help you to visualize the relationships among different
categories of factors affecting your business such as financial data, sales, projections
and trends. It is used when the information corresponds to a nominal scale, and when
you want to compare two or more groups.

Example of a bar graph showing the sales of ice cream every day.

2. Benchmarking- It is both a supervisory and evaluation tool for business operation. It

is a technique which compares the processes of one enterprise with those of similar
enterprises to study ways to improve those processes. It is used for analyzing
strategies to improve the production processes, selling strategies, promotional and
other operational strategies.

Example:
Average Price
Your Company ₱10,500
Company A ₱12,100
Company B ₱9,000
Company C ₱11,000
Company D ₱10,800
Average ₱10,680
3. Checklist/Check Sheet- Process indicator, or lists of closed-ended questions are
prepared based on the standards set for the purpose. It is used to ensure that different
types of service or product providers in your organization are coping or complying with
the identified standard of treatment stated in the checklist form.
4. Program Matrix- It presents the flow of specific business activity of the business at a
glance. It spells out the plan on how you will achieve established objectives as stated in
your business plan.
5. Indicator Matrix- An enterprise owner can use an indicator to describe the business
operations in terms of defined standards. It is developed by collecting data and then
expressing it through quantitative formulas or by means of graphs and tables. You can
use an indicator to diagnose a current situation, to compare characteristics of target
markets or a process with other factors or to evaluate the variations of a business
activity.

Assessment of business operations involves not only the qualitative description

of how it operates. Equally important is your mastery of the quantitative approaches in
monitoring and evaluating business operation for more objective treatment of some
variables so that you can easily grasp the viability of your business activities. Financial
statement analysis involves careful selection of data from financial statements for the
primary purpose of forecasting the financial health of your enterprise. This is
accomplished by examining trends in key financial data, comparing financial data
across companies, and analyzing key financial ratios. Conclusions based on this ratio
analysis must be regarded as tentative. Ratios should not be viewed as an end, but
rather they should be viewed as a starting point, as indicators of what to pursue deeper
in your business operation. In addition to ratios, other sources of data should be
analyzed in order to make judgments about the future of an organization. You should
also look, for example, at industry trends, technological changes, changes in consumer
tastes, changes in broad economic factors, and changes within the firm itself.

Financial Ratios

Ratios are mathematical comparisons that can be used to provide a very

effective indicator of the financial progress of a company at any given time. It is one of
the most common methods in interpreting analyzing financial statements.

Financial Ratio Analysis methods are:

a. Profitability Ratio- This type of ratio is composed of two types. One is the
profitability compared with sales which help to determine how well each peso of sales
generates profit. The second is the profitability compared with assets which help to
determine how hard the assets are working to generate a profit.
Gross Profit Margin (GPM). This ratio represents the average gross profit generated
by each peso of sales.
Gross profit Margin = (Gross profit / Net sales) × 100
The formula reflects the relationship between the firm’s pricing policies (gross sales)
and its buying policies (cost of goods sold). Applying this “The Gross Profit margin of
Breadwinner Bakeshop in 2009 actual and 2010 projected financial statement,” the
computation following the formula, you can see that the firm is planning to increase
gross profit margin from 37.5% in 2009 to 40.0% in 2010. This is due to Php2.00
increase in price at a time when the cost of goods sold is expected to increase by only
Php1.00 per unit.
Computations:
Breadwinner 2009 = (Php225,000/Php600,000) x 100 = 37.5%
Breadwinner 2010 =(Php500,000/1,250,000) x 100 = 40.0%
Note: A decline in gross profit margin should be viewed with concern because it usually
represents a reduction in price or an increase in the cost of goods sold which is not
being passed on to customers.
Net Profit Margin (NPM)

The ratio represents the average “net” profit earned by each peso of sales. It
reflects profitability after the operating costs of doing business have been deducted
from gross profit.
Net Profit Margin = (Net Profit before tax/Sales) x 100
Computations: Breadwinner 2009 and 2010
Net Profit Margin (2009) = (30,000/600,000) x 100 = 5%
Net Profit Margin (2010) = (62,500/1,250,000) x 100 = 5%

Return on Assets (ROA)

This analysis focuses on the earning performance of your enterprise’s assets.

You will need to look into Income Statement in the Balance Sheet to compute the ROA.
Return On Assets = (Net Profit before tax/Total Assets) x 100
Computations:
Return On Assets (2009) = (30,000/200,000) x 100 = 15% of 200,000
Return On Assets (2010) = (62,500/312,500) x 100 = 20% of 312,500

Return on Owner’s Equity (ROE/ROI)

The earning power of the owner’s investment in the business is measured in

terms of ratio between the net profit before tax and the owners’ equity. The Owner’s
Equity is equal the Net Assets (total assets minus total liabilities). If there are no
liabilities, then it is equal to return on assets. This only happens if your business will not
resort to borrowing from loan companies. In most cases though, the owner’s equity is
always less than 100% of the assets employed and the return on owner’s equity may
be different from the return on assets.
Return On Owner’s Equity = (Net Profit before tax/Owner’s Equity) x 100
Computations:
Return On Owner’s Equity (2009) = (30,000/100,000) x 100 = 30%
Return On Owner’s Equity (2010) = (62,500/125,000) x 100 = 50%

b. Liquidity Ratio- The enterprise ability to meet its financial obligation and
commitment is determined in a Liquidity Ratio. If your enterprise cannot meet the
obligations, then there is a need to take a closer look on how you can shape-up your
financial and cash flow budgeting. Liquidity Ratio is expressed in terms of Current Ratio
(CR) and Liquid Ratio (LR). To compute for CR and LR you need information from the
end of the period and projected Balance Sheets.

Current Ratio. This is the relationship between the current assets and the current
liabilities.
Current Ratio = (Current Asset/Current Liabilities)

Liquid Ratio. One of the tools to assess the enterprise’s capacity to pay its obligations
is liquidity. Many loan providers prefer to evaluate the business ability to pay in terms of
liquid ratio. This is the difference between the current asset and the inventory divided
by the current liabilities.
Liquid Ratio= Current Asset – Inventory/Total Assets

c. Efficiency Ratio- The efficient use of assets is measured by the frequency of their
turnover. When all the assets are efficiently used, the return on assets is maximized.

Asset Turnover is the measure of how effectively the enterprise’s assets are working
to generate sales.
Asset Turnover= Sales/Total Assets) x 100

Accounts Receivable Turnover (ART) reflects promptness of the business in

collecting accounts receivables from customers. Ideally, the faster accounts receivables
are collected, the better.
Accounts Receivable Turnover = Sales/ART) x 100
Average Collection Period = 360 days/ART)

Inventory Turnover
This is the ratio which reflects how fast the inventory turns over or sells during
the year. The ideal is for you to aim at the highest rate of inventory turnover without too
many stocks outs and lost sales.
Inventory Turnover = Cost of Goods Sold/Inventory Ending

d. Financial Structure Ratio- It refers to the relationship between the debt and equity
of the business. This relationship determines who really owns the business, the owner
or the creditor. Familiarity with Financial Structure ratio will help you decide if your
enterprise can go on to borrowing money. One way of looking at financial structure is to
focus on the proportion of the business represented by the owner’s investment. This is
the ownership ratio.
The ownership ratio reflects the proportion of the total assets, which are
represented by the owner’s funds. The difference represents the part of the firm’s
assets funded by its creditors.
Ownership Ratio = (Owner’s Equity/Total Asset) x 100
In computing the financial ratio analysis, you need the following accounting records:

1. Income Statement
2. Two-Column Balance Sheet
3. Projected Income Statement
4. Projected Balance Sheet

Enrichment Activity

Based on the Income Statement of ArteCulante Enterprises below, compute for:

1. Cost of Goods Sold
2. Total Operating Expenses
3. Net Profit After Tax
4. Gross Profit Margin
Generalization

Fill in the blanks. Answer directly on your answer sheet.

The different tools used in monitoring business operations are bar graph,
benchmarking, checklist, ____________ and indicator matrix. In order to monitor and
evaluate the business operations we have to employ some techniques like direct
observation, dialogue with personnel, review market plan, review production plan,
control supply and logistics, and hands-on. The different quantitative tools used in
evaluating financial operations of the business are profitability which include
__________, Net Profit Margin, Return on Assets and Return on Equity, liquidity which
covers ________ and ________ ratios, Efficiency Turnover of accounts receivables
and inventories, and Financial Structure which identifies __________. Reporting results
of qualitative and quantitative monitoring and evaluation must be brief and objective. It
should be regularly done to keep abreast with the changes in the business
environment. Moreover, it should gear towards the improvement of the business
operations.

Application

Based on the Two-Column Balance Sheet of ArteCulante Enterprises below, compute

the following:
1. Total Current Assets
2. Total Fixed Assets
3. Total Assets
4. Total Owner’s Equity
5. Total Liabilities and Owner’s Equity

30,250

20,000

-------------
Post assessment

Read the questions carefully, write the letter of your answer on your answer
sheet.

1. It is used to diagnose a current situation of the business operation and to evaluate

the variations of business activity.
a. Program Matrix
b. Indicator Matrix
c. Bar Graph
d. Checklist

2. Which is not needed in computing financial ratio?

a. Income Statement
b. Two-column balance sheet
c. Projected Balance Sheet
d. Statement of Account

3. The enterprise’s ability to meet its financial obligation and commitment is determined
in a ____________.
a. Liquidity Ratio
b. Profitability Ratio
c. Financial Structure Ratio
d. Efficiency Ratio

4. It refers to supervising activities in progress to ensure they are on-course and on-
schedule in meeting the objectives performance targets.
a. Monitoring
b. Evaluation
c. Procurement
d. Business Operations

5. It is a technique which compares the processes of one enterprise with those of

similar enterprises to study ways to improve those processes.
a. Bar Graph
b. Benchmarking
c. Checklist
d. Program Matrix

Additional Activity

Study for the summative test.

Answer Key
Pre- Assessment Test
1. B
2. D
3. A
4. A
5. B
Activity 1

Bread Prefenrences

Tasty Bread

Hopia

Empanada

Cheese Monay

Pandesal

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

or
Bread Preferences
100%

90%

80%

70%

60%

50%

40%

30%

20%

10%

0%
Pandesal Cheese Monay Empanada Hopia Tasty Bread
Enrichment Activity

1. ₱187,500.00
2. ₱97,500.00
3. ₱18,000.00
4. ₱37.5%

Generalization

1. Program Matrix
2. Gross Profit Margin
3. current
4. liquid
5. Ownership ratio

Application
1. ₱60,000.00
2. ₱40,000.00
3. ₱100,000.00
4. ₱49,750.00
5. ₱100,000.00

Post Assessment
1. B
2. D
3. A
4. A
5. B
References:
Reynaldo M. Valdez.,et al Competency Based Curriculum and Competency Based
Learning
Material for Fourth Year, July 2009
Norma Olmos Oplado Introduction to Accounting
https://study.com/academy/lesson/graphs-charts-in-business-importance-use-
examples.html
https://study.com/academy/practice/quiz-worksheet-benchmarking-in-
organizations.html
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