SHS

Entrepreneurship
Quarter 2: Module10

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Entrepreneurship
Grade 11/12: Quarter 2: Module 10
First Edition, 2020

Copyright © 2020
La Union Schools Division
Region I

All rights reserved. No part of this module may be reproduced in any form without
written permission from the copyright owners.

Development Team of the Module

Author: Hayde B. Casison, T-I

Editor: SDO La Union, Learning Resource Quality Assurance Team

Illustrator: Ernesto F. Ramos Jr., P II

Management Team:

Atty. Donato D. Balderas, Jr.

Schools Division Superintendent

Vivian Luz S. Pagatpatan, Ph.D

Assistant Schools Division Superintendent
German E. Flora, Ph.D, CID Chief

Virgilio C. Boado, Ph.D, EPS in Charge of LRMS

Lorna O. Gaspar, EPS in Charge of ABM
Michael Jason D. Morales, PDO II
Claire P. Toluyen, Librarian II
Entrepreneurship
Quarter 2: Module 10

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 Target

Financial statement are the means by which a business communicates their story
and they are used by investors, market analysts, and creditors to evaluate a
company’s financial health and earning potential. Together these statements
represent the profitability and financial strength of a business. The four basic
financial statement are the income statement, the statement of retained earnings, the
balance sheet and the statement of cash flow.

After going through this module, you are expected to:

1. Generate an overall report on the activities of a business

(CS_EP11/12ENTREP-IV-j-4)

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 Jumpstart

Activity 1

Directions: Read and understand the questions. Write your answers in a separate
sheet of paper.

Q1. What measure the performance of the business?

Q2. What is a balance sheet?
Q3. What are the components of balance sheet and its purpose?
Q4. What is financial statement?
Q5. What is the difference between income statement and balance sheet?

Discover

There are four financial statements. They are: 1.) balance sheet; 2.) income
statements; 3.) cash flow statements; and 4.) statements of shareholder’s equity.

1. Balance sheet – provides detailed information about a company’s assets,

liabilities and shareholder’s equity. An assets are anything a company owns that
have value. Throughout the balance sheet, each asset will be listed based on how
quickly it is expected to be turned into cash, sold or consumed. Typically, you
will show short-term assets separately.
Short-term assets also known as currents assets, these are assets that you expected
to sell, or convert into cash, within one year.
Long-term assets that will not converted into cash within one fiscal year. Typically,
these assets provide a long-term value to your small business. They include: fixed
assets that includes machinery, equipment, furniture, buildings, and land that you
do not intend on selling within a year. Investment is similar to fixed assets; only
investments that are not expected to sell within a year are included in long-term
assets. Intangible assets that are not physically present but still have value. They can
include franchise rights, patents, copyrights, trademarks and goodwill. Liabilities
refer to money a company owes to other. These could be in the form of loans,
accounts payable, wages, taxes, or other debts. Typically, liabilities are categorized by
their due date and whether they are considered short-term or long-term.
Short-term liabilities also referred to as current liabilities, these are liabilities that
you will pay for within one year.
Long-term liabilities do not need to be paid off with in one year. Shareholder’s
Equity is the final section of the balance sheet. It refers to the net value of a
company. It is an amount of money left if a company sold all its assets and paid off

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all its liabilities. This left over money belongs to the shareholders, or owners of the
company.

This outline follows the balance sheet formula:

ASSETS = LIABILITIES + SHAREHOLDER’S EQUITY.

Table 1.1. Balance Sheet

TAGUDTUD BAKESHOP
Balance Sheet
Dec. 31, 2019
ASSETS 2019
Current Assets
Cash ₱70,000.00
Accounts receivable ₱50,000.00
Inventories ₱10,000.00
Total current assets ₱130,000.00
Fixed Assets
Land ₱60,000.00
Buildings ₱30,000.00
Tools, equipment, and fixtures ₱50,000.00
Total Fixed Assets ₱140,000.00
LIABILITIES
Accounts Payable ₱20,000.00
Bank loan ₱10,000.00
Total Liabilities ₱ 30,000.00
SHAREHOLDER’S EQUITY
Owner’s Capital ₱150,000.00
Retained Earnings ₱90,000.00
Total equity 240,000.00

2. Income Statement is a financial statement that measures an enterprise’s

performance in terms of revenue and expenses over a certain period. It is also
called profit and loss statement or statement of operation is a financial report that
provides summary of a company’s revenues, expenses, and profit/losses over a
given period of time. Simply put, the formula is:

REVENUES – EXPENSES = INCOME OR PROFIT (LOSS)

Income Statement may have minor variations between different companies, as

expenses and income will be dependent on the type of operations or business
conducted. However, there are several generic line items that are commonly seen in
any income statement.
The most common income statement items include:

Revenue/sale is a company’s revenue from sales or services, displayed at the very

top of the statement. This value will be the gross cost associated with creating the
goods sold or in providing services. Some companies have multiple revenue streams
that add to a total revenue line.

Cost of goods sold (COGS) is a line-item that aggregates the direct cost associated
with selling products to generate revenue. This line item can also be called cost of
sales if the company is a service business. Direct cost can include labor, parts,
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materials and an allocation of other expenses such as depreciation (see an
explanation of depreciation below).

Gross Profit is calculated by subtracting cost of goods sold (or cost of sales) from
sales revenue.
Marketing, advertising, and promotion expenses most have some expenses related
to selling goods and /or services. Marketing, advertising, and promotion expenses are
often grouped together as they similar expenses, all related to selling.
General and administrative (G&A) Expenses include the selling, general and
administrative section that contains all other indirect costs associated with running
the business. This includes salaries and wages, rent and office expenses, insurance,
travel expenses, and sometimes depreciation and amortization in its own section.
EBITDA, while not present in all income statements, stands for Earnings Before
Interest, Tax, Depreciation and Amortization. It is calculated by subtracting SG&A
expenses (excluding amortization and depreciation) from gross profit.

Depreciation & Amortization Expense are non-cash expenses that are created by
accountants to spread out the cost of capital assets such as Property, Plant, and
Equipment (PP&E)

Operating Income (or EBIT) represents what’s earned from regular business
operations. In other words, it’s the profit before any non-operating income, non-
operating expenses, interest, or taxes are subtracted from revenues. EBIT is a term
commonly used in finance and strands for Earnings Before Interest and Taxes.

Income Taxes refer to the charged on pre-tax income. The total tax expense can
consist of both current taxes and future taxes.

Net Income is calculated by deduction income taxes from pre-tax income. This is the
amount that flows into retained earnings on the balance sheet, after deductions for
any dividends.
From revenues forecasted (quantities sold times the prices they are sold for), the
entrepreneur must subtract the estimated cost of goods sold corresponding to the
forecasted sales. This should give the gross profit. From the gross profit, the
operating expenses must be deducted to arrive at the operating profit. Then, the taxes
due are subtracted to derived the net profit after taxes. If the enterprise has non-
operating revenues and expenses, these should be added or subtracted from the
operating profit before the taxes are computed. Refer to table 1.2. Income Statement.

Table 1.2. Income Statement

Income Statement
For the year ending December 31, 2019
Revenues
Net Sales ₱150,000.00
Cost of goods sold ₱ 99,300.00
Gross Profit ₱ 51,000.00

Expenses
Salaries and Wages ₱18,000.00
Rental ₱ 10,000.00
Insurance ₱ 5,000.00

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Total Operating Expenses ₱ 33,000.00
Taxes and Licenses ₱ 3,000.00
Income before tax ₱30,000.00
Net Income ₱ 30,000.00

3. Cash flow statement (also called as the statement of cash flow) is one of the
three key financial statements that report the cash generated and spent during
a specific period of time (e.g., a month, quarter, or year). The statement of cash
flows acts as a bridge between the income statement and balance sheet by
showing how money moved in and out of the business. There are three
sections of the statement of cash flows, these are: 1.) Operating activities: Cash
generated or used to run the day to day operations of the business. It refers to
the main activities of a business of purchase or sale of goods, providing of
service, etc. 2.) Investing Activities: cash used for investing in assets like
securities, bonds, equipment, or other fixed assets and cash generated from
the sale of these type of assets 3.) Financing Activities: cash generated from
loan or capital contributions by owners and payments made to reduce loan
balances or pay distributions or dividends to the shareholders or owners.

Cash flow Formula are as follows:

CASH FROM OPERATING ACTIVITIES + (-) CASH FROM INVESTING ACTIVITIES +

(-) CASH FROM FINANCING ACTIVITIES + BEGINNING CASH BALANCE = ENDING
CASH BALANCE.

Refer to table 1.3 below:

Table 1.3. Cash Flow Statement

For the year ending December 31, 2019
Cash at beginning of the year 25,700.00
Operations
Cash receipt from ₱ 703,200.00
customers
Cash paid for
Inventory purchases ₱ 274,000.00
General operating and administrative expenses ₱ 122,000.00
Wage expenses ₱ 133,000.00
Interest ₱ 23,500.00
Income Taxes ₱ 42,800.00

Net Cash Flow from Operations ₱ 107,900.00

Investing Activities
Cash receipt from
Sale of property ₱ 43,600.00
Collection of principal loans
Sale of investment securities
Cash paid for
Purchase of property and equipment ₱ 85,000.00
Making loans to other entities
Purchase of investment securities
Net cash flow from Investing activities ₱ 41,400.00

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Financing Activities
Cash received from
Issuance of Stock
Borrowing
Cash paid for
Purchase of stock (treasury stock)
Repayment of loans ₱ 30,000.00
Dividends ₱ 23,000.00
Net cash flow from Financing activities ₱ 53,000.00
Net Increase in cash ₱ 13,500.00
Cash at end of year ₱ 39,200.00

Shareholder’s Equity represents the net worth of a company, which is the amount
that would be returned to shareholders if a company’s total assets were liquidated
and of its debts repaid. Shareholder’s equity may be calculated by subtracting its
total liabilities from its total assets, both of which are itemized on a company’s
balance sheet.

Components of Shareholder’s Equity

1. Share Capital represents contributions from stockholders gathered through
the issuance of shares. It is divided into two separate accounts common stock
and preferred stock.
2. Treasury shares are issued by the company and later reacquired. The cost of
these shares is deducted from stockholders’ equity.
3. Retained earnings is also known as accumulated profits, represents the
cumulative business earnings minus dividends distributed to shareholders.

Shareholders formula is: Shareholder’s equity = Total assets – Total liabilities

Example:
If a company has ₱ 80,000.00 in total assets and ₱ 40,000.00 in liabilities. How much
is the shareholder’s equity?
Total assets = ₱ 80,000.00
Liabilities =₱ 40,000.00
Shareholder’s Equity = ₱ 40,000.00

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 Explore

Here are some enrichment activities for you to work on to master and strengthen the
basic concepts you have learned from this lesson.

Activity 1. Fill me In

Instruction: Use the following scenario box to fill out the balance sheet worksheet.

You have 1250 in You have 1750 in You have You have received
your checking your resolving purchased a a graduation gift
account savings account computer last of a watch and it
summer and it is is valued at 300
valued at 500
You purchased Your car is valued You owe 300 on a You purchased a
new furniture for at 5000, but you credit card flat screen TV that
your apartment. It still owe 1,500 is valued at 500
is valued at 1,000,
but you still owe
400
You pay 500 for You need a root You just cashed You have
electricity bills canal procedure at your income tax deposited 1,000 in
your dentist office. refund of 1,000 your Bank
You owe 400 accounts for
future use
You have 75 in You have a You purchased a You and your best
cash student loan house in lot for friend move into
balance of 20,000 60,000 and you your new house.
owe 45,000 They pay you 450
a month in rent

TAGUDTUD BAKESHOP
Balance Sheet
Dec. 31, 2019
ASSETS
Current Assets
Savings Account
Bank account
Checking Account
Cash Refund
Cash in
Rent
Total current assets
Fixed Assets
Computer
House
Jewelry
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Furniture
Automobile
Television
Total Fixed Assets
LIABILITIES
Short Term Liabilities
Credit card
Medical Debt
Electric Bill
Long-Term Liabilities
Student Loan
Home Mortgage
Furniture Loan
Automobile loan
Total Long-Term Liabilities
Total Assets
Total Liabilities
SHAREHOLDER’S EQUITY

Activity 2.

Instruction: Use the following scenario cards to fill out the Cash Flow Statement
worksheet.

You pay a 15,000 You sold goods cost You pay a rent of You have a cash
car payment 400,000 15,000 dividend of 5,000

You purchase an You pay your car You pay 150,500 to Your buy additional
equipment worth insurance of 500 suppliers equipment cost
50,000 20,000

Your bill for Your family living Taxes come out of You put 1,000 into
gasoline comes in expenses of 50,000 your paycheck. State savings for a
and you must pay tax 500 and Social vacation
7,500 security tax 250

Cash Flow Statement

Cash at beginning of Year ₱ 20,000.00
Operating Expenses
Cost of goods sold
Cash Paid for:
Car Payment
Rent
Car Insurance
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Paid to suppliers
Gasoline Expenses
Family living Expenses
State Tax
Social Security Tax
Net cash flow from operation
Investing Expenses
Cash paid for:
Equipment
Additional Equipment
Savings
Net cash flow from Investing Activities
Financing Expenses
Cash Paid for:
Cash Dividends
Net Cash flow from Financing Activities
Net Increase in Cash
Cash at the end of the Year

Activity 3.

Instruction: Read and analyze the problem then identify the given following the
given format of an income statement.

Dianne recorded a sales revenue of ₱ 350,000.00 and a cost of goods being sold of
₱185,000.00. She paid a total of ₱ 50,000.00 for labor cost and give ₱ 20,000.00 to
the building owner. For her to settle her obligations from the licensing office she pays
an amount of ₱ 15,000.00. Dianne also pay ₱ 5,000.00 for her insurance.
Using the information above you are going to find out whether the business is
earning.

Income Statement
For the year ending December 31, 2018
Revenues
Net Sales
Cost of goods sold
Gross Profit

Expenses
Salaries and Wages
Rental
Insurance
Total Operating Expenses
Taxes and Licenses
Income before tax
Net Income

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 Deepen

Assessment 1.

Instruction: Solve and answer what is being asked. Write your answer in a separate
sheet of paper.

1. If a business owns a piece of real state worth ₱250,000.00, and they owe
₱180,000.00 on loan for that real estate. What is owner’s equity in the
property?
2. Given the following information, calculate TAGUDTUD BAKESHOP’S net
income?
a. Sales: ₱ 260,000.00 c. Cost of goods sold: ₱ 100,000.00
b. Rent expense: ₱ 15,000 .00 d. Advertising expense: ₱ 35,000.00
e. Cost of repairs resulting from fire: ₱ 50,000.00
3. Using the above information calculate the Tagudtud Bakeshop’s gross profit:
4. Using the above information calculate the Tagudtud Bakeshop’s operating
income:
5. Calculate the net income given the following information:
a. Consulting revenue: ₱ 50,000.00 c. Net expense: ₱ 5,000.00
b. Software licensing fees: ₱ 3,000.00 d. Dividends paid: ₱ 6,000.00
e. Advertising expense: ₱ 20,000.00
6. Calculate cash flow from operating activities using the following information:
a. Cash sales: ₱10,000.00 c. Credit sales: ₱15,000.00
b. Rent paid: ₱3,000.00 d. Inventory purchased: ₱ 6,000.00
e. Wage paid: ₱5,000.00 f. Cash received from prior credit sales: ₱ 8,000.00
7. It is one of the three key financial statements that report the cash generated
and spent during a specific period of time (e.g., a month, quarter, or year).
Categorize the following cash flows as to whether they are operating, investing, or
financing activities:
8. Taxes paid
9. dividends paid
10. Interest paid on loans
11. Cash sales
12. Purchase of new office furniture
13. Net sales minus the cost of goods sold equals:
14. What is defined as sales minus all variable expenses
A. Contribution Margin C. Net Income
B. Gross profit D. Operating Income
15. Dividends paid by the company will fall under which of these categories?
A. Operating activity C. Investing activity
B. Financing activity D. None of the above

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 Gauge

Directions: Read carefully each item. Use a separate sheet for your answers, write
only the letter of the best answer for each item.

1. Which financial statement will allow you to determine the gross for a retailer or
manufacturer?
A. Balance sheet C. Income statement
B. Statement of cash flow D. Statement of shareholder’s equity
2. A corporation’s working capital is calculated using which amounts?
A. Total assets and total liabilities C. total assets and current liabilities
B. Current assets and current liabilities D. none of the choices
3. The amount spent for capital expenditures will be reported in which section of
the statement of cash flow?
A. Cash provided/ used in financing activities
B. Cash provided/ used in investing activities
C. Cash provided/ used in operating activities
D. Supplemental information

4. What does an income statement show about a company over a period of time?
A. Equity B. Liability C. profitability D. reliability
5. Which of the following is NOT a standard financial statement?
A. Balance sheet C. Cash flow statement
B. Income Statement D. Shareholder sheet
6. Which of the following basic calculation used to analyze an income statement?
A. Assets minus liabilities C. Income minus expenses
B. Revenue plus sales D. Sales plus operating costs
7. Which of the following is a category or element of the balance sheet?
A. Expenses B. gain C. liabilities D. losses
8. Which of the following is NOT a current asset?
A. Accounts receivable C. land
B. Prepaid insurance D. supplies
9. Notes payable could NOT appear as a line on the balance sheet in which
classification?
A. Current assets C. current liabilities
B. Long-term liabilities D. long-term assets
10. If a company has a total asset of ₱ 200,000.00 and with some total liabilities
of ₱ 150,000.00. How much is the owner’s equity?
A. ₱ 49,000.00 C. ₱ 55,000.00
B. ₱ 50,000.00 D. ₱ 150,000.00
11. The Tagudtud Bakeshop started the year with a total asset of ₱ 60,000.00 and
some total liabilities of ₱ 40,000.00. During the year the business recorded
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 ₱ 100,000.00 in baking revenues, ₱ 55,000.00 in expenses and dividends of
₱ 10,000.00. The net income reported by the business was_________.
A. ₱ 20,000.00 C. ₱ 35,000.00
B. ₱ 45,000.00 D. ₱ 90,000.00
12. If a business has a total equity of ₱ 50,000 and a total liability of ₱
100,000.00. How much is the total assets of the business?
A. ₱ 50,000.00 C. ₱ 150,000.00
B. ₱ 100,000 .00 D. ₱ 10,000.00
13. Which of the following measures the profitability of a business?
A. Balance sheet C. Cash flow statement
B. Income statement D. shareholder’s equity
14. Which of the following is NOT a standard financial statement?
A. Income statement C. Balance sheet
B. Cash flow statement D. Shareholder’s sheet
15. If an income statement measures the performance of the business, What about
balance sheet?
A. represents the net worth of a company
B. represents contributions from stockholders gathered through the issuance
of shares
C. provides detailed information about a company’s assets, liabilities and
shareholder’s equity
D. are summative reports in that they report information obtained from the
day-to-day bookkeeping activities of financial accounts or bookkeepers

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Key Answers
Activity 1: Read me Understand me!
No fixed answers on the following questions, answers may vary depending on how
the learners understand the lesson
Q1. What measure the performance of the business?
Q2. What is a balance sheet?
Q3. What are the components of balance sheet and its purpose?
Q4. What is financial statement?
Q5. What is the difference between income statement and balance sheet?

Explore

Activity 1. Fill me In

TAGUDTUD BAKESHOP
Balance Sheet
Dec. 31, 2019
ASSETS
Current Assets
Savings Account 1,750
Bank account 1,000
Checking Account 1,250
Cash Refund 1,000
Cash in 75
Rent 450
Total current assets 5,525
Fixed Assets
Computer 500
House 60,000
Jewelry 300
Furniture 1,000
Automobile 5,000
Television 500
Total Fixed Assets 67,300
LIABILITIES
Short Term Liabilities
Credit card 300
Medical Debt 400
Electric Bill 500
Long-Term Liabilities
Student Loan 20,000
Home Mortgage 45,000
Furniture Loan 400
Automobile loan 1,500
Total Long-Term Liabilities 66,900
Total Assets 72,825
Total Liabilities 68,900
SHAREHOLDER’S EQUITY 4,725

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Activity 2.
Cash Flow Statement
Cash at beginning of Year ₱ 20,000.00
Operating Expenses
Cost of goods sold 400,000
Cash Paid for:
Car Payment 15,000
Rent 15,000
Car Insurance 5,000
Paid to suppliers 150,00
Gasoline Expenses 7,500
Family living Expenses 50,000
State Tax 500
Social Security Tax 250
Net cash flow from operation 156,250
Investing Expenses
Cash paid for:
Equipment 50,000
Additional Equipment 20,000
Savings 1,000
Net cash flow from Investing Activities 71,000
Financing Expenses
Cash Paid for:
Cash Dividends 5,000
Net Cash flow from Financing Activities 5,000
Net Increase in Cash 80,250
Cash at the end of the Year 100,000

Activity 3.

Income Statement
For the year ending December 31, 2018
Revenues
Net Sales 350,000
Cost of goods sold 185,000
Gross Profit 165,000

Expenses
Salaries and Wages 50,000
Rental 20,000
Insurance 5,000
Total Operating Expenses 75,000
Taxes and Licenses 15,000
Income before tax 90,000
Net Income 75,000

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Deepen
Assessment 1.
1. 70,000 6.4,000 11. Operating Activity
2. 40,000 7. Cash Flow statement 12. Investment Activity
3. 160,00 8. Operating Activity 13. Gross Profit
4. 90,00 9. Financing Activity 14. Gross Profit
5. 22,000 10. Operating Activity 15. Financing Activity

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

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References
Printed Materials:

Morato, Eduardo A, (2016). Entrepreneurship. Manila, Philippines: Rex Publishing, Inc.

Dagoon, Jesse D., Vencer, Rene D., Genciana, Franklin. Business Technology. Manila,
Philippines: Rex Publishing, Inc.

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