Wright Technological College of Antique, Inc.

SENIOR HIGH SCHOOL

Sibalom Branch
Sibalom, Antique

LEARNER’S MODULE
BUSINESS FINANCE

Ms. RODALYN CLAIRE R. HUERVANA, LPT

Name of Instructor
Email Address: rodahuervana@gmail.com
Cellphone Number: 09355951153

First
Semester

2020 - 2021
School Year

1
 Wright Technological College of Antique, Inc.
SENIOR HIGH SCHOOL
Sibalom Branch
Sibalom, Antique

CONTENT: Financial Statement Preparation

Most Essential Learning: The process of preparing financial statements

Learning Competencies
After reading this module, you will be able to prepare financial statements accurately

Introduction
Financial statements are considered the final product of the whole accounting process. They
reflect the efficiency of the management of the company in handling the resources entrusted by the
owners. Most financial decisions are made based on the information provided by the financial
statements.
A complete set of financial statements is composed of the following:
1. statement of financial position
2. statement of performance
3. statement of changes in equity
4. statement of cashflows

Basic Guidelines in the Preparation of Financial Statements

The preparation of financial statements, including the presentation of items or information
contained therein, whether in the Philippine context or in global business environment, follows the
general requirements of the Framework and Standard.
The Framework sets out the general concepts that underlie the preparation and presentation of
financial statements in the absence of a specific Standard. The Standards, particularly the
Philippine Accounting Standards (PAS) 1 outlines the specific provisions and requirements in
preparing and presenting the financial statements.
The basic requirements in the preparation and presentation of the financial statements
mentioned in the Framework and Standards include the following:
1. fair presentation – when they include all the necessary information that will influence the
decision of economic users
2. going concern assumption – means that the business has the ability to continue as its going
concern, unless the management intends to liquidate business or to cease trading, or has no realistic
alternative but to do so.
3. accrual basis of accounting –the effects of transactions and other events are recognized
when they occur and not when cash is received or paid and the transactions are recorded in the
accounting records and reported in the financial statements within the periods to which they relate
4. consistency of presentation – requires that the presentation and classification of items in the
financial statements are retained from one period to the next
5. materiality and aggregation – the degree of omission or misstatement of items , the line of
item is aggregated with other items and included in the financial statements or in the notes
6. offsetting principle – requires that assets and liabilities and income and expenses, are
reported separately and shall not be offset unless required or permitted by a Standard

2
 Wright Technological College of Antique, Inc.
SENIOR HIGH SCHOOL
Sibalom Branch
Sibalom, Antique

7. comparability of information – its basic objective is to assists users of financial statements

in making an economic decision based on the assessment of trends of financial information for
predictive purposes
8. disclosure of accounting policies – intended to enhance the relevance and the reliability of
the financial statements and the comparability of those financial statements over time with the
financial statements of other businesses

1. Statement of Financial Position (previously called balance sheet)

A structured financial statement that shows the assets, liabilities, and equity of a business
entity as of a given date. The term “as of given date” indicates that the statement of financial
position can be prepared anytime of the year and the information is considered true and correct as of
the date indicated in the statement.
Usually expressed in terms of its liquidity, solvency, financial structure and capacity for
adaptation.

Alpha Merchandising
Statement of Financial Position
As of December 31, 2010

Assets
Current Assets
Cash and cash equivalents* P 2,500,000
Trading securities 1,000,000
Receivables* 3,000,000
Inventories 2,600,000
Prepayments* 50,000
Total current assets P 9,150,000
Non-current Assets
Property, plant and equipment* P 12,000,000
Long-term investments* 6,000,000
Intangible assets* 3,000,000
Other non-current assets* 500,000
Total non-current assets P 21,500,000
Total Assets P 30,650,000

3
 Wright Technological College of Antique, Inc.
SENIOR HIGH SCHOOL
Sibalom Branch
Sibalom, Antique

Liabilities and Owner’s Equity

Current Liabilities
Trade and other Payables* P 2,300,000
Short-term bank loan 1,000,000
Warranty payable 100,00
Total current liabilities P 3,400,000
Non-current liabilities
Bonds payable 5,000,000
Deferred tax liability 150,000
Total non-current liabilities 5,150,000
Total Liabilities P 8,550,000

Owner’s Equity
R. Santos, Capital 22,100,000
Total Liabilities and Owner’s Equity P 30,650,000

* Example of notes from the sample financial position.

Cash and cash equivalent Prepayments

Cash on hand P 80,000 Unused office supplies P 30,000
Cash on bank 2,400,000 Prepaid rent 20,000
Petty cash fund 20,000 Total prepaid expenses 50,000
Total cash and cash equivalent P 2,500,000

Receivables Long-term Investments

Accounts receivable P 2,260,000 Sinking fund P 2,000,000
Allowance for doubtful accounts (100,000) Building expansion fund 2,500,000
Notes receivable 800,000 Investment in bonds 1,500,000
4
 Wright Technological College of Antique, Inc.
SENIOR HIGH SCHOOL
Sibalom Branch
Sibalom, Antique

Accrued interest on notes receivable 40,000 Total long-term 6,000,000

investment
Total receivables 3,000,000

Property, plant and equipment

Acquisition cost Accumulated depreciation Book value
Land 9,500,000 9,500,000
Building 8,000,000 3,200,000 4,800,000
Office equipment 1,000,000 500,000 500,000
Total 18,500,000 6,500,000 12,000,000

Intangibles Other non-current assets

Computer software 1,300,000 Long-term advances to officers 400,000
Goodwill 1,700,000 Long-term refundable deposit 100,000
Total intangibles 3,000,000 Total other non-current assets 500,000

Trade and other payables

Accounts payable 1,200,000
Notes payable 1,000,000
Income tax payable 60,000
Accrued expenses 40,000
Total trade & other payables 2,300,000

2. Statement of Performance (previously called income statement)

As minimum, the statement of comprehensive income include line items that present the
following amounts for the period:
1. revenue/income
2. expenses
5
 Wright Technological College of Antique, Inc.
SENIOR HIGH SCHOOL
Sibalom Branch
Sibalom, Antique

3. profit or loss for the period

Since it shows the financial performance of a business entity for a given period, the term
“period” indicates that the statement may cover a month, a quarter, six months or a year.
Given below is the pro-forma statement of performance using the function of expense
method:

Alpha Merchandising
Statement of Performance
For the Month Ended March 31, 2018

Sales P xxxxx
Less: Sales returns and allowances xxxx
Sales discount xxxx
(xxxx)
Net sales xxxxx
Less: Cost of goods sold (xxxxx)
Gross profit xxxxx
Less: Operating expenses
Salaries expense xxxx
Rent Expense xxxx
Freight out xxxx
(xxxxx)
Net profit P xxxxx

3. Statement of Changes in Owner’s Equity (also called capital statement)

The statement of changes in equity is a financial statement showing the following:
a. net income or loss for the period
b. each item of income and expense for the period that is recognized directly in equity and
the total of these items as required by the Standards
c. total income and expense for the period showing separately the total amounts attributable
to equity holders of the parent company and to minority interest in a corporation

6
 Wright Technological College of Antique, Inc.
SENIOR HIGH SCHOOL
Sibalom Branch
Sibalom, Antique

d. for each component of equity, the effect of changes in accounting policies and
corrections of errors

Sample equity statement: sole proprietorship

Alpha Merchandising
Statement of Changes in Owner’s Equity
For the Month Ended March 31, 2018

R. Santos, capital, beginning P xxx

Add: Investment xxx
Net income xxx
Total xxx
Less: R. Santos, Drawing (xxx)
R. Santos, capital, ending P xxx

Sample equity statement: partnership

Bravo Partnership
Statement of Changes in Equity
For the Year Ended December 31, 2018

60 % 40 %
Jenny Angel Total
January 1, 2018, capital, beginning 560,000 490,000 1,050,000
Add: Additional investment 120,000 180,000 300,000
Distribution profit 252,000 168,000 420,000
Total 932,000 838,000 1,770,000

7
 Wright Technological College of Antique, Inc.
SENIOR HIGH SCHOOL
Sibalom Branch
Sibalom, Antique

Less: Partner’s withdrawal 150,000 130,000 280,000

December 31,2018, capital, ending 782,000 708,000 1,490,000

* the distribution of profit or loss to partners shall be based on the profit and loss agreement of the
partners

4. Statement of Cashflow
A financial statement that provides information about the historical change – inflows and
outflows – in cash and cash equivalents of an entity during the period from operating, investing, and
financing activities.

Cash comprises cash on hand and demand deposits.

Cash equivalents are short-term, highly liquid investments that are readily convertible into
known amounts of cash near their maturity that they present insignificant risk of changes in value or
interest rates.

Operating activities are principal revenue-producing activities of the entity and other
activities that are neither investing nor financing.

Investing activities are the acquisition and disposal of long-term assets and other
investments not included in cash equivalents.

Financing activities are activities that result in changes in the size and composition of the
contributed equity and liabilities of the entity.

Alpha Merchandising
Statement of Cashflow
For the Month Ended March 31, 2018

8
 Wright Technological College of Antique, Inc.
SENIOR HIGH SCHOOL
Sibalom Branch
Sibalom, Antique

Cash flows from Operating Activities

Cash received from
Sales P xxxx
Receivables xxxx
Refund from purchases xxxx
Cash payment for
Office supplies (xxxx)
Accounts payable (xxxx)
Sales refund (xxxx)
Purchases (xxxx)
Salaries expenses (xxxx)
Freight in (xxxx)
Freight out (xxxx)
Net cash flow from Operating activities P xxxx

Cash flows from Investing Activities

Payment of equipment (xxxx)
Net cash flow from investing activities P (xxxx)

Cash flows from Financing Activities

Investment xxxx
Borrowings Xxxx
Drawings (xxxx)
Net cash flow from Financing Activities P xxxx

Net increase in cash xxx

Add: Cash, beginning xxxx
Cash, ending, Mar 31 P xxxx

9
 Wright Technological College of Antique, Inc.
SENIOR HIGH SCHOOL
Sibalom Branch
Sibalom, Antique

Self-Check:
A. Identification. Write your answer on the space provided.
_______________1. Which basic requirements in the preparation and presentation of the financial
statements mentioned in the Framework and Standards that include all the necessary information
that will influence the decision of economic users.
_______________2. Which basic requirements in the preparation and presentation of the financial
statements mentioned in the Framework and Standards which shows the effects of transactions and
other events are recognized when they occur and not when cash is received or paid.
_______________3. It is a short-term, highly liquid investments that are readily convertible into
known amounts of cash near their maturity that they present insignificant risk of changes in value or
interest rates.
_______________4. A structured financial statement that shows the assets, liabilities, and equity of
a business entity as of a given date.
_______________5. These are activities are principal revenue-producing activities of the entity and
other activities that are neither investing nor financing.

B. Prepare the required financial statement of BLUE Enterprise for the month ended April
2016. (sole proprietorship) based from given items below. Use separate sheet of paper.
1. Statement of financial position
2. Statement of performance
Note: ending inventory = 25,000
3. Statement of changes in owner’s equity, capital beg = 0
4. statement of cashflow :
Notes: equipment was bought on cash basis
Cash, beg = 0
Borrowed cash = 12,000
Initial investment = 39,000
Supplies bought on cash basis
Cash refund from supplier = 500
Cash sales refund to customer = 900
Divide balance equally for purchases and sales

GIVEN:
Alpha Merchandising
April 30, 2016

Debit Credit
Cash and cash equivalent 9,400
Receivables 13,700

10
 Wright Technological College of Antique, Inc.
SENIOR HIGH SCHOOL
Sibalom Branch
Sibalom, Antique

Inventory
Supplies 700
Equipment 10,000
Accounts payable 5,200
Notes payable 12,000
R. Santos, capital 39,000
R. Santos, drawing 2000
Sales 45,300
Sales returns and allowances 900
Sales discount 304
Purchases 56,800
Purchase returns and allowances 800
Purchase discount 312
Freight in 708
Freight out 200
Rent expense 3,000
Wages expense 3,500
Utilities expense 1,400
102,612 102,612

Source: Aduana, Nick L.. “Business Finance in the Philippine Setting for Senior Highschool” 2017

11