General Vicente Alvarez Street, Zone 4, Zamboanga City

SENIOR HIGH SCHOOL DEPARTMENT

Local Nos. (062) 991 – 4277, (062) 991 – 1676, Telefax: 992 - 3045

Session 1
Topic: Buying and Selling
Lesson 2: Profit or Loss Week 4 Lesson 2, 3 and 4
Lesson 3: Trade Discounts
Lesson 4: Cash Discounts
LEARNING TARGETS
At the end of the week, the learner is able to
a. Differentiate Profit and Loss;
b. Illustrate how to compute for profit and loss;
c. Prepare a simple income statement for a trading firm;
d. Define break – even;
e. Compute for break – even point.
f. Compute for the net invoice price (NIP) using single trade discount;
g. Compute for the NIP using the discount series;
h. Compute for the single equivalent discount rate for a discount series;
i. Compute for the NIP rate and obtain the NIP using said rate.
j. Explain the meaning of different terms of sales;
k. Compute for deadline for discount period;
l. Compute for deadline for credit term; and
m. Compute for cash discounts and net amount payable.
 LEARNING ACTIVITIES

I. PRIMING ACTIVITIES
A. Brain Breaks
B. Activating Prior Knowledge

Now that you know about markup, markdown, and markup cancellation, let us study profit
or loss. Profit is what remains of the selling price (sales) after all costs and expenses had been
deducted. Cost means the cost of the product sold or service rendered. Expenses refer to
operating expenses (administrative and selling expenses) and financial expenses (interest and
other finance charges). Loss occurs when the cost and expenses exceed the selling price and
sales.

II. GUIDED INSTRUCTIONS

A. Concept Digest

Income Statement for a Trading Firm

A trading or merchandising firm buys goods that it sells. Whatever it buys, it sells; if it buys
shoes, it sells shoes; and if it buys dresses, it sells dresses. The account used to report the selling
price of the merchandise is sales. Gross sales refer to the total sales. Sales discounts and sales
returns and allowances are deducted from the gross sales to arrive the net sales. How much the
seller buys the item is the cost of the item. It is termed cost of goods sold or cost of sales.

An income statements is the financial statements that allows the results of operation, that is, if it
earns profit or incurs a loss for a given period of time. Generally, a firm prepares financial statement
on a monthly basis. For tax purposes, it is prepared quarterly and annually. It details the sales, the
cost of sales, the operating expenses, and other expense and/or other income, if any. Below is a
sample income statement of a trading firm.

Matatag Merchandising
Income Statement
For the Year Ended June 30, 2020
Sales Php 117,000.00
Less: Cost of Sales 59,000.00
Gross Profit Php 58,000.00
Less: Operating Expenses
Community Expense Php 1,000.00
Delivery Expense 5,000.00
Rent Expense 5,500.00
Salary Expense 8,300.00
Bad Debts Expense 600.00
Office Supplies Expense 700.00
Store Supplies expense 1,500.00
Depreciation Expense
Furniture and equipment 1,000.00 23,600.00
Operating Profit 34,400.00
Add: Other income
Interest Income 800.00
Commission Income 1,500.00 2,300.00

Less: Other Expense

Interest Expense 1,200.00

NET PROFIT Php35,500.00

The cost of sales is the purchase price and other expenses incurred in buying the products that
the business has to sell including the freight-in or transportation of the goods it buys for sale.
Operating expenses are expenses incurred to run the business. Other income includes interest
income and other incidental income the firm earns like rent income if it has a property that it rents
out. Other expense includes interest expense or finance charges financial institutions charge firms
for their service. The gross profit is at times referred to as gross margin that we have previously
studied. Operating profit/loss is gross profit less operating expenses. Net profit/loss is operating profit
plus other income less other expense.

Break – even Point

Break – even point is the point where a business neither makes a profit nor a loss. At the break
– even point, a business’ revenue is equal to its total costs. In as much as there is no profit or loss at
the break – even point, the revenue will equal total costs. To determine the number of units to be
sold to break – even, we can assume that:

Sales = Variable costs + Fixed costs (1)

If we let x represent the number of units to break – even, we can use the following formula adopted
from the above formula (1)

Php12, 000 Php 20, 000

   1, 000 Px  vx  FC
Php 20  Php8 Php12

where P is the unit price

x is the number of units
v is the variable cost per unit; and
FC is total fixed cost.

To solve for x:

Px  vx  FC
x  P  v   FC
FC
x
Pv
Therefore, the break-even point in number of units would be:
FC
x
Pv

The break – even point in pesos would be:

BEP in Pesos = Unit Price x BEP in Units

Example: Calculate the break – even point in sales units and sales dollars from the following
information:
Unit price Php 20.00
Variable cost Php 8.00
Fixed Costs Php 12,000.00

Solution:

Substituting the given values into the formula for break – even point in sales units, we get:

Php12, 000 Php 20, 000

BEP in Units (x)    1, 000 units.
Php 20  Php8 Php12

BEP in Pesos = 1,000 units x 20 unit price = Php20,000

Trade Discounts

A trade discount is a reduction from list price granted to buyers. It could take the form of
volume discounts for large purchases, dealer’s or distributor’s discounts, or special discounts granted
to the discretion of the seller. Trade discounts could either be a single discount or a series of
discounts.
Cash Discounts

Term of Sale or Purchase

B. Checking for Understanding
III. PRODUCTIVE COLLABORATION.

IV. ANALYSIS QUESTIONS

VI. INDEPENDENT PRACTICE