ENTREPRENEURSHIP

ENTREPRENEURSHIP
nd
2nd Quarter
2 Quarter
GENERATING AN OVERALL REPORT ON THE
ACTIVITY – INCOME STATEMENT AND
BALANCE SHEET
Module 8 – Week 8

Prepared by: Hazel S. Ycong

Senior High School

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 GENERATING AN OVERALL REPORT ON THE
ACTIVITY –INCOME STATEMENT AND
BALANCE SHEET
nd
2 Grading Module8 : Week 8

Learning Objectives:
1. Identify the items and procedures in preparing income statement and
balance sheet
2. Prepare income statement and balance sheet
3. Give importance in preparing the income statement and balance sheet

What I Know: Read the questions carefully. Choose the letter of the
correct answer:

1. Which of the financial statement shows the revenue, cost of sales, expenses and
the result of the operation?
A. income statement C. balance sheet
B. statement of cash flow D. statement of accounts
2. It describes the financial position of the business.
A. statement of cash flow C. statement of accounts
B. balance sheet D. income statement
3. It shows the movement of cash from cash collections, cash payments and cash
balances in the beginning and at the end of the business operation.
A statement of accounts C.statement of cash flow
B. income statement D. balance sheet
4. Which of the following accounts will be included in the income statement?
A delivery expense C. machines
B. cash D. accounts receivable
5. How are expenses treated in the income statement?
A added C. subtracted
B. not included D. none of the above
6. If the income or revenue is higher than the expenses, what is the result of the
business operation?
Athere is loss C. there is break even
B. there is gain D. can not be determined
7. Which of the following will NOT be included in the balance sheet?
A cash C.capital
B. accounts payable D. none of the above
8. The following are classified under the asset account EXCEPT:
A accounts receivable C. loans payable
B. cash D. inventories
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9. Which equation tells about the balance sheet?
A Assets = Liabilities + Capital C. Capital = Assets + Liabilities
B. Liabilities = Assets - Capital D. Assets = Capital - Liabilities
10. If there would be a net income, how is it treated in the balance sheet?
Adeducted from liabilities C. deducted from the owner’s capital
B. added in the asset D. added in the owner’s capital

WHAT YOU SHOULD KNOW

Income Statement

As discussed in the previous module, net income or net profit can only be
presented in the income statement in which all expenses have already deducted
from the gross revenue. Income statement is a financial statement that details the
computation of net revenue by deducting cost of sales, expenses, and taxes from
the gross revenues generated.

The result of a business would depend on the sales or revenue and the cost of
expenses incurred during the operation. If the revenue is higher than the cost of
expenses, then the result of the business is profit. On the other hand, if the cost of
expenses is higher than the revenue or sales, then the business would have a loss
at the end of the period.

The net income for the period will be added to the owner’s capital in the balance
sheet. If there would net loss, then it would be deducted from the owner’s capital.

In preparing the income statement, the information needed will be taken from
the trial balance for the period. Take out items from the trial balance like the income
(sales or revenue), expenses incurred by the business which would also include
depreciation expense for the machineries and bad debts for non- payment of
payables.

Provision of income tax payment is also deducted from the gross income as
specified by the Bureau of Internal Revenue.

The pro forma of income statement is:

Gross Revenue / Sales XXX

Less: Cost of Sales XX
Gross Profit XXX
Less: Operating Expenses XX
Net Profit / Loss) XXX

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 Net profit = Gross Income / Profit – Operating Expenses

Activity # 1: Preparation of Income Statement

Using the same Trial Balance of Salon De Canduman as of September 30, 2019,
let us prepare the Income Statement by supplying the correct accounts and figure.

Salon De Canduman
Trial Balance
September 30, 2019

Debit Credit
Cash
17,760.00
Furniture & Fixtures 16,500.00
Equipment 3,000.00
Salon Supplies
4,250.00
Accounts Receivable 22,000.00

10,000.00
Note Receivable

30,000.00
Joanna Cruz, Capital

Salon Service Income 68,900.00

Rent Expense 2,000.00
Salaries & Wages
Expense 16,000.00

Utilities Expense 3,690.00

Taxes & Licenses
Expense 3,700.00

98,900.00 98,900.00

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 Salon De Canduman
Income Statement
For the month ended September 30, 2019

Salon Service Income ₱ 68,900.00

Less: Cost of Sales
Gross Profit ? 68,900.00
Less: Operating Expenses:
Rent Expense ₱ 2,000.00
Salaries & Wages Expense 16,000.00
Utilities Expense 3,690.00
Taxes & Licenses Expense 3,700.00
Total Operating Expenses ? 25,390.00
Net Profit ₱ 43,510.00

Balance Sheet

A balance sheet is a core financial statement that describes the financial

position of the business. It is composed of three elements namely assets, liabilities
and owner’s equity or capital.

Elements of
Balance Sheet Description
Assets • Can be divided into current assets and noncurrent assets
• Current assets are mostly liquid that can be exchanged into
cash within a year
• Long term assets can be converted into cash more than one
year
• Accumulated depreciation will be deducted from the asset to
get the net book value of machines and equipment
Liabilities • Can be divided into short-term or long-term liabilities
• Short-term or current liabilities or are payable within a year
• Long- term or noncurrent liabilities are payable more than
one year
Capital • Owner’s capital or Owner’s Equity for sole proprietorship
and partnership
• Shareholder’s Equity for corporation

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Accounting equation should be balanced as presented in the balance sheet:

Assets = Liabilities + Owner’s Equity

Items needed in the balance sheet are taken from the trial balance such as cash,
machines, equipment, receivables, inventories, payables, owner’s capital for single
proprietorship and stockholder’s equity for corporations.

Activity # 2: Preparation of Balance Sheet

Using the same data from the Trial Balance of Salon De Canduman, let us prepare
the Balance Sheet for the month.

Salon De Canduman
Balance Sheet
As of September 30, 2019

Assets:
Current Assets
Cash ₱ 17,760.00
Furniture and Fixture 16,500.00
Equipment 3,000.00
Salon Supplies 4,250.00
Accounts Receivable 22,000.00
Notes Receivable 10,000.00
Total Current Assets ₱ 73,510.00
Total Assets ₱ 73,510.00

Liabilities:

Owner's Equity:
JoannaCruz, Capital ₱ 30,000.00
Add: Net Income 43,510.00
Total Owner's Equity ₱ 73,510.00

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 ASSESS WHAT YOU HAVE LEARNED:

Directions: Read and analyze the questions carefully. Identify the letter that
corresponds to the correct answer. Write your answer on your answer sheet.

1. Which of the financial statement shows the result of the business operation?
A. statement of accounts C. income statement
B. statement of cash flow D. balance sheet

2. The following accounts are included in the income statement EXCEPT:

A. sales / revenue C. depreciation expense
B. accounts receivable D. light and water

3. What do you call the difference when you deduct cost of sales from your
revenue?
A. net profit C. gross loss
B. net loss D. gross profit

4. What would happen if the cost of expenses is higher than your gross profit?
A. there is profit C. there is breakeven
B. there is loss D. can not be determined

5. If there would be a net loss at the end of the period, then the net loss will be __
from the owner’s capital.
A. added C. deducted
B. multiplied D. divided

6-7. Consider the following data gathered for the month:

Sales ₱ 25,000.00
Cost of sales19,500.00
Expenses 3,700.00

6. What would be the gross profit for the month?

A. ₱ 1,800.00 C. ₱ 5,500.00
B. ₱ 21,300.00 D. ₱ 25,000.00

7. Using the same data above, what is the net income or profit for the month?
A. ₱ 1,800.00 C. ₱ 5,500.00
B. ₱ 21,300.00 D. ₱ 25,000.00

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8. Which of the following shows what the company owns, owes and invests?
A. statement of account C. income statement
B. statement of cash flow D. balance sheet

9. Which account will NOT be included in the balance sheet?

A. loans payable C. interest expense
B. owner’s capital D. accounts receivable

10. In what way can we increase our asset account?

A. purchase of machineries C. Increase receivables of customers
B. cash collections D. all of the above

11. Which of the following CAN decrease liabilities?

Apayment of loans C.net income for the period
B. purchase machines on account D. additional cash for investment

12. If there would be a net loss, how is it treated in the balance sheet?
A deducted from liabilities C. deducted from the owner’s capital
B. added in the asset D. added in the owner’s capital

13 – 15. The following data are taken from the Trial balance of KhaYhaMoh
Trading.

Cash ₱ 12,000.00
Accounts Receivable 7,500.00
Inventories 9,700.00
Machines 40,000.00
Accounts Payable ₱ 11,000.00
Notes Payable 2,000.00
KhaMoh, Capital 50,000.00

13.What is the total assets of KhaYhaMoh Trading?

A. ₱ 69,200.00 C. ₱ 52,000.00
B. ₱ 61,700.00 D. ₱ 44,500.00

14. What is the total liabilities of KhaYhaMoh Trading?

A. ₱2,000.00 C. ₱ 13,000.00
B. ₱11,000.00 D. ₱ 63,000.00

15. The business had a net income of 6,200.00 at the end of the month. What is the
total capital of Mr. KhaMoh?
A. ₱ 56,200.00 C. ₱ 48,300.00
B. ₱ 50,000.00 D. ₱ 43,800.00

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References:

Nick L. Aduana ENTREPRENEURSHIP in Philippine Setting for Senior High

School, C & E Publishing, Inc. , 2017

Albert N. Gamatero 2019 Entrepreneurship, Second Edition by DIWA LEARNING

SYSTEMS INC.

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Answer Key:

Pretest:

1. A 6. B
2. B 7. D
3. C 8. C
4. A 9. A
5. C 10. D

Activity # 1
Salon De Canduman
Income Statement
For the month ended September 30, 2019

Salon Service Income ₱ 68,900.00

Less: Cost of Sales
Gross Profit ₱ 68,900.00
Less: Operating Expenses:
Rent Expense ₱ 2,000.00
Salaries & Wages Expense 16,000.00
Utilities Expense 3,690.00
Taxes & Licenses Expense 3,700.00
Total Operating Expenses ₱ 25,390.00
Net Profit ₱ 43,510.00

Activity # 2
Salon De Canduman
Balance Sheet
As of September 30, 2019

Assets:
Current Assets
Cash ₱ 17,760.00
Furniture and Fixture 16,500.00
Equipment 3,000.00
Salon Supplies 4,250.00
Accounts Receivable 22,000.00
Notes Receivable 10,000.00
Total Current Assets ₱ 73,510.00
Total Assets ₱ 73,510.00

Liabilities:

Owner's Equity:
Joanna Cruz, Capital ₱ 30,000.00
Add: Net Income 43,510.00
Total Owner's Equity ₱ 73,510.00

Post Test:

1. C 6. C 11. A
2. B 7. A 12. C
3. D 8. D 13. A
4. B 9. C 14. C
5. C 10.D 15. A

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