Module 6: 4M'S of Production and Business Model

2nd Quarter Module 6-10
Pls.submit on or before January 20, 2021

r.monte-entrep teacher
Name of Student: ________________________________
Section: ________________________________________
Date : ________________________________________
MODULE 6: 4M’s OF PRODUCTION AND BUSINESS MODEL
PRE-TEST: Directions: Write True if the statement is correct, otherwise write False if the
statement is incorrect on the space provided below.
______1. Output represents the final products from the production process and distributed to the
customers.
______2. The 4M’s in the production operation are the materials, manpower, machine and
money.
______3. Manpower in production operation refers to the workers involved in the production of
goods.
______4. Product description is the marketing copy that explains what a product is and its
benefits.
______5. Prototype is a replica of a product.
______6. Product to produce is one of the factors to be considered in the production method.
______7. Educational qualifications and experience is one of the criteria in considering
manpower.
______8. Skills and expertise is not important in considering manpower.
______9. Benefits are the reasons why customers will decide to buy the products.
______10. Machine refers to the manufacturing equipment.
______11. Supplier is an entity that supplies goods and services to another organization.
______12. Supply chain is a system of organizations, people, activities, data and properties
involved in moving a product or service from supplier or customer.
______13. Business model describes the rationale of how an organization makes, transports, and
captures value in economic, social, cultural or other contexts.
______14. In selecting the type of equipment to purchase, the entrepreneur may consider cost
and capacity of the equipment.
______15. Value chain is the process or activities by which a company adds cost to an article,
that includes production, promotion, and providing of after-sales service.
LESSON 1: 4 M’s of Operations in Relation to the Business Opportunity and Developing Business Model
In your previous lesson, you learned about the 7P’s of Marketing Mix; Product, Place, Price,
Promotion, People, Packaging and Positioning in relation to business opportunity, wherein
marketing is about creating and accumulating customers. Marketing plans are intended to capture
a market portion and to setback competitors.
Brand name was also introduced, where it is a name, symbol, or other feature that
distinguishes a seller’s goods or services in the marketplace. Your brand is one of the greatest
assets because your brand is your customers’ over-all experience of your business.
Experts believed that a good brand can result in better loyalty for its customers, a better
corporate image and a more relevant identity.
ACTIVITY 1. GUESS THE PICTURE

Direction: Given with the following pictures, fill in the following blanks below to form a
meaningful word. Two (2) points for each correct word.
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M __ __ P __ W __ R M __ __ H __ N __ S
M __ T __ __ I __ __ S M __ __ H __ __ S
The most serious issues in the whole production system are the inputs and the transformation process. Their
quality determines the quality of the output.
The factors involved in the input and the production process are usually referred to as the
Four M’s of production, namely Manpower, Method, Machine, and Materials.
Four M’s
• Manpower
• Method OUTPUT
• Machine
• Materials
Manpower
- Talks about human labor force involved in the manufacture of products.

- It is measured as the most serious and main factor of production. The entrepreneur must
determine, attain and match the most competent and skilled employees with the jobs at
the most appropriate time period.
- Educational qualifications and experience, status of employment, numbers of workers
required, skills and expertise required for the job are some of the manpower criteria that
must be highly considered by the entrepreneur. Material
- Talks about raw materials necessary in the production of a product. Materials mainly form
part of the finished product. Just in case the resources are below standard, the finished
product will be of unsatisfactory as well.
- The entrepreneur may consider cost, quality, availability, credibility of suppliers and waste
that the raw material may produce. Machine
- Discusses about manufacturing equipment used in the production of goods or delivery of
services.
- In the process of selecting the type of equipment to purchase, the entrepreneur may
consider types of products to be produced, production system to be adopted, cost of the
equipment, capacity of the equipment, availability of spare parts in the local market,
efficiency of the equipment and the skills required in running the equipment. Method
- Production method discusses the process or way of transforming raw materials to
finished products. The resources undergo some stages before it is finalized and becomes
set for delivery to the target buyers.
- The selection of the method of production is dependent on product to produce, mode of
production, manufacturing equipment to use and required skills to do the work.
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Product Description
- Is the promotion that explains what a product is and why it’s worth buying? The purpose
of a product description is to provide customers with details around the features and
benefits of the product so they’re obliged to buy.
- Know who your target market is, focus on the product benefits, tell the full story, use
natural language and tone, use power words that sell, and use good images. These are
guidelines for you to have a good product description; since some customers are very
particular with it since they consider the welfare of their family, if it is safe to use.
Prototyping
A duplication of a product as it will be produced, which may contain such details as color,
graphics, packaging and directions. One of the important early steps in the inventing
process is making a prototype. Benefits are the reasons why customers will decide to buy
the products such as affordability, efficiency or ease of use. The features of the product
or service merely provide a descriptive fact about the product or service.
It is better to test your product prototype to meet customers’ needs and expectations;
and for your product to be known and saleable. Pretesting of the product or service is
similar to a sample of the product or service given to the consumer free of cost in order
that he/she may try the product before committing to a purchase.
Supplier
An entity that offers goods and services to another business. This entity is among of
supply chain of a business, which may offer the main part of the value contained within its
products. Certain suppliers may even involve in drop shipping, where they ship goods directly to
the customers of the buyer.
Suppliers are your business partners, without them your business will not live. You need
them as much as you need your customers to be satisfied. But as an entrepreneur you have to
choose a potential supplier that has loyalty and value your partnership; a supplier that would lead
you to the fulfillment of your business objectives, mission and vision.
Value chain is a method or activities by which a company adds value to an item, with
production, marketing, and the provision of after-sales service. The main goal and benefit of a
value chain, and therefore value chain analysis, is to make or support a competitive benefit.
A supply chain is a structure of organizations, people, activities, data, and resources
involved in moving a product or service from supplier to customer.
The main objective of supply chain management includes management of a varied range
of components and procedures, for instance, storing of raw materials, handling the inventory,
warehousing, and movement of finished product from the point of processing to the point of
consumption.
Business model describes the reasons of how an organization creates, delivers, and
captures value in economic, social, cultural or other contexts. The development of business
model construction and variation is also called business model innovation and forms a part of
business plan.
It is a company's plan for how it will make revenues and make a profit. It describes what
products or services the business plans to manufacture and market, and how it plans to do so, as
well as what expenses it will incur.
There are important phases in developing your business model, namely; Identifying the
specific audience; establishing business process; recording a business resources; developing
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strong value proposition; determining key business partners; and creating a demand for today’s
generation strategy and be open for innovations.
After developing a business model, we will proceed in developing a business plan. To be
able to successfully complete this module, you need to prepare a business plan and operate your
plan and finally keep records of your business transactions.
Business plan is an important tool for you to have an idea about the future of your
business. Your business plan will be your guide in the moment you will be implementing and
operating your business proposal.
You can also make use of the business plan in securing investment capital from financial
institutions or lenders. It can also be used to influence people to work for your enterprise, to
secure credit from suppliers, and to fascinate potential customers.
Read the stories of Jessie, Mercy and Monna below to fully understand the importance of
having a business plan:
“Jessie is the eldest of five children of Mr. & Mrs. Natividad. The family is having difficulty to support
for their everyday needs. Because of this, Jessie tried to enter selling banana cue and with his dream to
make his business grow, he put up many stalls in the community without considering the advises of his
friends to make a business plan before implementing his decision. After a few months his stalls shutdown.”
“Mercy is the youngest in the family. She found out that she loves to cut hair and apply make up to her
friends. Until such time that her friends introduced her to their friends too for haircut and make up when there
are occasions. Few months after, Mercy was told by her friends to put up a beauty parlor in their place. So
she asks her mother who is also a businesswoman to teach her how to make a business plan and eventually
ended with a successful business.”
“Monna is a diligent student. Because of her knowledge gained from school about business plan
she was able to enhance her skills in business and finally found herself into his laundry shop business.”
Each scenario taught us that business is not just about how much income or profit you
can get but it’s about the life of your business. And in having a business, you also have to
consider technological forces, Social forces, Political forces, Cultural forces, Economic forces and
Legal forces.
The following are the components found in a Business Plan.
• Introduction- this part discusses what is the business plan all about.
• Executive Summary- is part of the business plan which is the first to be presented but
the last to be made.
• Management Section- shows how you will manage your business and the people you
need to help you in your operations.
• Marketing Section- shows the design of your product/service; pricing, where you will sell
and how you will introduce your product/service to your market.
• Financial Section- shows the money needed for the business, how much you will take in
and how much you will pay out.
• Production Section- shows the area, equipment and materials needed for the business.
• Competitive Analysis- is the strategy where you identify major competitors and research
their products, sales and marketing strategies.
• Market- The persons who will buy the product or services
• Organizational chart- is the diagram showing graphically the relation of one official to
another, or others of a company.
ACTIVITY 2. General Directions: Answer the following questions based on your learnings about
4M’s of production and Value Chain or Supply Chain. Write your answer on the space provided.
Five (5) points in each correct answer for Problem No.1 and 2 points for each correct answer in
Problem No.2.
Problem No. 1. “In your home, when you want to eat egg sandwich before going to school, your
mother would surely prepare it for you. Your egg sandwich would not be produced without a process.”
1. Who would be your manpower? _______________________________

2. What would be your materials? ________________________________
3. What machines or tools would you use? _________________________
4. What methods are needed to produce the egg sandwich? (Cooking procedures-
enumerate them).
___________________________________________________________
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___________________________________________________________
___________________________________________________________
Problem No. 2: With the pictures shown below, identify each picture whether it is Value Chain or
Supply Chain.
1. _____________
2. _______________
3. _______________
Assessment
Direction: Encircle the letter of your choice.

1. Which of the following refers to the human workforce involved in the manufacture of products?
A. Materials B. Method C. Machine D. Manpower
2. The 4M’s of production are as follows except ONE.
A. Management B. Manpower C. Method D. Machine
3. Which of the following refers to the marketing copy that explains what a product is and why it is worth
purchasing?
A. Prototype B. product description C. Business Model D. Suppliers
4. It represents the final products from the production process and distributed to the customers.
A. Input B. Supplies C. Output D. Materials
5. It is a replica of a product.
A. Prototype C. Business Model
B. Product description D. Suppliers
6. Which of the following refers to the system of organizations, people, activities, information, and
resources involved in moving a product or service from supplier to customer?
A. Supply chain B. Value chain C. Business model D. Prototype
7. Which of the following is the process or activities by which a company adds value to an article, including
production, marketing, and the provision of aftersales service?
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A. Supply chain B. Value chain C. Business model D. Prototype
8. It describes the rationale of how an organization creates, delivers, and captures value in economic,
social, cultural or other contexts.
A. Prototype B. Product description C. Business Model D. Suppliers
9. It is an entity that supplies goods and services to another organization.
A. Prototype B. Product description C. Business model D. Suppliers
10. Which of the following refers to the manufacturing equipment used in the production of goods or delivery
of services?
A. Machine B. Manpower C. Method D. Materials
11. It refers to the process or technique of converting raw materials to finished products.
12. It simply refers to the raw materials needed in the production of a product.
13. Statement I- Skills and expertise is not important in considering manpower. Statement II- Benefits are
the reasons why customers will decide to buy the products.
A. Only Statement I is true. C. Both Statements are true.
B. Only Statement II is true. D. Both Statements are false.
14. Statement I- Educational qualifications and experience is one of the criteria in considering
manpower.
Statement II- Product to produce is one of the factors to be considered in method or production
method.
15. Statement I- In selecting the type of equipment to purchase, the entrepreneur may consider cost and
capacity of the equipment.
Statement II- The purpose of a product description is to supply customers through details around the
features and benefits of the product.
MODULE 7: FORECASTING REVENUES AND COSTS
Now that you have identified what business to undertake and are familiar with the tools and materials needed in the
operation of your business, let us apply what you have learned in the previous module by forecasting the revenues and
costs incurred in your business. You might probably be wondering how profits are computed. This module will help guide
you realize the revenues and profits of your chosen business.
Revenue is a result when sales exceed the cost to produce goods or render the services. Cost on the other
hand simply refers to the amount of money used to produce or manufacture goods/merchandise as well as costs incurred
in selling the goods/merchandise. How much revenues and costs incurred in the operation of the business? How are
these projected? And how are these used to compute profit/loss of the business shall be learned in this module.
This module is divided into two lessons:
Lesson 1 – Forecasting the revenues of the business
Lesson 2 – Forecasting the costs to be incurred
To be able to successfully complete this module, previous knowledge in multiplying numbers will best help.
Why forecast? We often watch news as Kuya Kim reports the direction of the typhoon in the next 2 days, what
Kuya Kim is doing is giving us information taken by satellites and gives us the direction of the typhoon. In weather
forecasting, the reporter is giving us advance information that could help us prepare and be ready for upcoming typhoon.
This way, risks such as accidents, devastation of properties and loss of life may be prevented.
Forecasting is a tool used in planning that aims to support management or a business owner in its desire to adjust and cope
up with uncertainties of the future. Forecasting depend on data from the past and present and make meaningful estimates on
revenues and costs. . Forecasting revenues and costs is the same as weather forecasting, though forecasting revenues and
costs is in the context of business. Entrepreneurs use forecasting techniques to determine events that might affect the
operation of the business such as sales expectations, costs incurred in the business as well as the profit that the business is
earning. Making informed estimates reduces risks that might be experienced by the entrepreneur in the future.
In this module, you will be making informed estimates about revenues and calculated estimates involving costs
incurred by the business. Factors affecting forecasting will be discussed to better help you in making projections.
After carefully studying the contents of this module, you should be able to:
• Identify essential factors in forecasting revenues and costs;
• Calculate mark-up and selling price of a product or merchandise;
• Compute projected revenues;
• Compute projected costs.
• Create a table showing projected revenue and costs.
ASSESSMENT
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Encircle the letter that bests correspond to your answer.
1. Refers to the amount added to the cost of a product to determine the selling price –
a. Revenue b. Cost c. Mark Up d. Mark Down
2. Aling Marta sells bibingka in her neighbourhood, every day she can sell 45 pieces of bibingka at 20 pesos
each. How much is her daily revenue?
a. 900.00 b. 450.00 c. 800.00 d. 1000.00
3. It is a planning tool that helps entrepreneur copes up with uncertainties in the future operation of the
business.
a. Revenue b. Selling c. Benchmarking d. Forecasting
4. The selling price of an item or merchandise is computed by adding cost per unit and __________?
a. Revenue b. Mark Up c. Discount d. Number of Items
5. Mang Berting is a fruit vendor selling at the local public market. He gets his mangoes from a supplier at 25
pesos per kilo and sells it at 45 per kilo to his customers. How much mark-up was Mang Berting adding to
his selling price?
a. 25.00 b. 30.00 c. 15.00 d. 20.00
6. Aling Elvie sells t-shirt at 175.00 pesos each. If each t-shirt costs 135.00 pesos, How much is the mark-up?
a. 30.00 b. 45.00 c. 40.00 d. 50.00
7. It is the result when sales exceed the cost to produce goods or render services -
a. Forecasting b. Selling c. Revenue d. Benchmarking
8. It is a tool that allows managers to make educated estimates on revenue and costs of the business in order
to cope up with uncertainties of the future –
a. Estimating b. Guessing c. Forecasting d. Benchmarking
9. Refers to goods and merchandise at the beginning of operation of business or accounting period.
a. Merchandise Inventory, end c. Expenses
b. Merchandise Inventory, beginning d. Freight-in
10. Mang Lito sold 5 pairs of slippers. Suppose Mang Lito purchased the 5 pairs of slippers at P 30.00 each
and pays P120.00 freight. Calculate how much is the cost of goods sold?
a. 220.00 b. 420.00 c. 270.00 d. 200.00
11. Refers to amount paid to transport goods or merchandise purchased from the supplier to the buyer.
a. Merchandise Inventory, end c. Expenses
b. Merchandise Inventory, beginning d. Freight-in
12. Costs incurred through payment of utilities such as electricity and water -
a. Revenue c. Mark-up
b. Operating expenses d. Free
13. Merchandise or goods purchased are referred to as –
a. Purchases c. Costs
b. Operating Expenses d. Loss
14. It is the result when cost to produce goods or render services is greater than the sales –
a. Selling b. Revenue c. Benchmarking d. Loss
15. Jean purchased 5 baskets for P 30.00 each. According to her calculation, P 10.00 shall be added to the
cost as mark-up. How much is the selling price of each basket?
a. 35.00 b. 40.00 c. 50.00 d. 60.00
FORECASTING THE REVENUES
Making informed estimates requires careful considerations on several factors that might affect the outcome
of your travel such as, distance from home to school, the means of transportation you will be taking, the number of
passengers and etc. Traveling from home to school on regular basis had helped you arrive with an estimate that was
very close to the actual time of arrival.
Considering these factors are essential in making informed estimates by the entrepreneur. Since the
business he/she is venturing hasn’t started yet, it is important that these factors affecting forecasting will be determined to
better help him/her in making the best decisions for the business.
The entrepreneur after realizing the potential for profit of his/her business concept, the next step is to
estimate how much the revenue is on daily, monthly and annual basis. Before going to forecasting and projecting the
revenues of the business, let us determine first what revenue is.
Revenue is a result when sales exceed the cost to produce goods or render the services. Revenue is
recognized when earned, whether paid in cash or charged to the account of the customer. Other terms related to revenue
includes Sales and Service Income. Sales is used especially when the nature of business is merchandising or retail,
while Service Income is used to record revenues earned by rendering services.
You have just learned about what revenue is. This time, let us study the various factors to consider in
forecasting revenues.
The entrepreneur would want his/her forecasting for his/her small business as credible and as accurate as
possible to avoid complications in the future. In estimating potential revenue for the business, factors such as external
and internal factors that can affect the business must be considered. These factors should serve as basis in forecasting
revenues of the business. These factors are:
1. The economic condition of the country. When the economy grows, its growth is experienced by the
consumers. Consumers are more likely to buy products and services. The entrepreneur must be able to
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identify the overall health of the economy in order to make informed estimates. A healthy economy makes
good business.
2. The competing businesses or competitors. Observe how your competitors are doing business. Since you
share the same market with them, information about the number of products sold daily or the number of
items they are carrying will give you idea as to how much your competitors are selling. This will give you a
benchmark on how much products you need to stock your business in order to cope up with the customer
demand. This will also give you a better estimate as to how much market share is available for you to
exploit.
3. Changes happening in the community. Changes’ happening in the environment such as customer
demographic, lifestyle and buying behaviour gives the entrepreneur a better perspective about the market.
The entrepreneur should always be keen in adapting to these changes in order to sustain the business. For
example, teens usually follow popular celebrities especially in their fashion trend. Being able to anticipate
these changes allows the entrepreneur to maximize sales potential.
4. The internal aspect of the business. Another factor that affects forecasting revenues in the business itself.
Plant capacity often plays a very important role in forecasting. For example, a “Puto” maker can only make
250 pieces
of puto every day; therefore he/she can only sell as much as 250 pieces of puto every day. The number of
products manufactured and made depends on the capacity of the plant, availability of raw materials and
labour and also the number of salespersons determines the amount of revenues earned by an
entrepreneur.
Now that all factors affecting forecasting revenues are identified, you can now calculate and project potential
revenues of your chosen business. The table below shows an example of revenues forecasted in a Ready to Wear
Online Selling Business.
Example: Ms. Fashion Nista recently opened her dream business and
named Fit Mo’to Ready to Wear Online Selling Business, an online selling business which specializes in ready to wear
clothes for teens and young adults. Based on her initial interview among several online selling businesses, the average
number of tshirts sold every day is 10 and the average pair of fashion jeans sold every day is 6.
From the information gathered, Ms. Nista projected the revenue of her it Fit Mo’to Ready to Wear Online Selling
Business.
She gets her supplies at a local RTW dealer in the city. The cost per piece of t-shirt is 90 pesos, while a pair
of fashion jeans costs 230 pesos per piece. She then adds a 50 percent mark up to every piece of RTW sold.
Mark up refers to the amount added to the cost to come up with the selling
price. The formula for getting the mark up price is as follows:
Mark Up Price = ( Cost x desired mark up percentage)

Mark Up for T-shirt = ( 90.00 x .50)
Mark Up for T-shirt = 45.00
In calculating for the selling price, the formula is as follows:
Selling Price = Cost + Mark Up
Selling Price = 90.00 + 45.00
Selling Price for T-shirt = 135.00
Table 1 shows the projected daily revenue of Ms. Nista’s online selling business. Computations regarding
the projected revenue is presented in letters in upper case A, B, C, D, and E.
Table 1
Projected Daily Revenue
Fit Mo'to Ready to Wear Online Selling Business
Type of Cost per Mark-up Selling Projected Projected
RTW's Unit 50% Price Volume Revenue
(A) (B) (C) (D) (E)
Average
No. of (Daily)
Items Sold
(Daily)
(A) (B)= (A x .50) (C)= (A+B) (D) (E) =(C x D)
T-Shirts 90.00 45.00 135.00 10 1,350.00
Jeans 230.00 115.00 345.00 6 2,070.00
Total 320.00 160.00 480.00 16 3,420.00
Table 2 shows the projected monthly and yearly revenue of Ms. Nista’s online selling business.
Computations about the monthly revenue is calculated by multipying daily revenues by 30 days ( 1 month).
Example, in table 1 the daily revenue is 3,420.00. To get the monthly projected revenue it is multiplied by 30
days. Therefore,
Projected Monthly Revenue = Projected daily revenue x 30 days
Projected Monthly Revenue = 3,420.00 x 30
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Projected Monthly Revenue = 102,600.00
On the other hand, the projected yearly revenue is computed by multiplying the monthly revenue by 12
months. The calculation for projected yearly revenue is as follows.
Projected Yearly Revenue = Projected daily revenue x 365 days
Projected Yearly Revenue = 3,420.00 x 365
Projected Yearly Revenue = 1,248,300.00
Table 2
Projected Monthly and Yearly Revenue
Type of Selling Projected Projected Projected Projected
RTW's Price Volume Revenue Volume Revenue
Average Average No. of
No. of Items Items Sold
Sold (Yearly)
(Monthly) (Yearly)
(Monthly)
(C)= (A+B) F= (D x 30 days) G= (C x F) H= (D x 365 I= (C x H)
days)
T-Shirts 135.00 300 40,500.00 3,650 492,750.00
Jeans 345.00 180 62,100.00 2,190 755,550.00

Total 480.00 480 102,600.00 5,840 1,248,300.00
Table 3 shows the projected monthly revenues covering one year of operation. The table shows an average
increase of revenue every month by 5 percent except June, July to October and December. While the month of June has
twice the increase from previous month, 10 percent. Let us consider that months covering July to October are considered
to be Off-Peak months, therefore sales from July to October are expected to decrease. It is assumed that there is no
increase in revenue from July to August while from August to October the decrease in revenues is 5 percent from
previous month. Since revenues from sales of RTW’s are considered to be seasonal, it assumed that there is 10 percent
increase in revenue from November to December.
Computation for assumed increase of revenue on specific months is as follows:
Projected Monthly Revenue (Increase) = Revenue (January) x 5 % increase
Projected Monthly Revenue (Increase) = 102,600.00 x .05 Projected Monthly Revenue (Increase)
= 5,130.00
Projected Revenue for February = Revenue (January) + Amount of increase

Projected Revenue for February = 102,600.00 + 5,130.00
Projected Revenue for February = 107,730.00
On the other hand, decrease in revenue is computed as follows:

Projected Monthly Revenue (Decrease) = Revenue (August) x 5 % increase
Projected Monthly Revenue (Increase) = 144,041.14 x .05 Projected Monthly Revenue (Increase)
= 7,202.06
Projected Revenue for September = Revenue (August) - Amount of decrease

Projected Revenue for September = 144,041.14 – 7,202.06 Projected Revenue for September =
136,839.08
Table 3
Projected Monthly Revenue
Month January February March April May June
Revenue 102,600.00 107,730.00 113,116.50 118,772.33 124,710.94 137,182.04
Month July August September October November December
Revenue 144,041.14 144,041.14 136,839.08 129,997.13 136,496.98 150,146.68
Important Assumptions:
February to May Increase of 5% from previous revenue
June Increase of 10% from previous revenue
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July to August The same Revenue
September to October Loss 5% from previous revenue
November Increase 5% from previous revenue
December Increase 10% from previous revenue

The numbers in the last table are very attractive, having revenues that are increasing in numbers is a good
sign that a business is growing. However, an entrepreneur should not be overwhelmed on these revenues as these are
just gross revenue, this is not the final amount of profit or income an entrepreneur will get at the end of every period.
Take note that the amount of net revenue is still subjected to the expenses incurred in the operation of business.
ACTIVITY 1
After learning the calculations presented, you can now compute the projected revenue by day, month and
year based on your business concept.
Aling Minda is operating a buy and sell business, she sells broomsticks (walis tingting) in her stall at a local
market. She gets her broomsticks from a local supplier for 25 pesos each. She then adds 50 percent mark-up on each
broomstick.
Every day, aling Minda can sell 30 broomsticks a day.
Use the template below and fill in the necessary figures based on the scenario. Remember to use the
factors to consider in projecting revenues and refer to tables 1, 2 and 3 as your guide.
Table 1
Projected Daily Revenue
Name of Business ___________________________
Merchandise/ Cost per Mark-up Selling Projected Projected
Products Unit ____% Price Volume Revenue
(A) (B) (C) (D) (E)
Average No. of
Items (Daily)
Sold (Daily)
(A) (B)= (A x (C)= (A+B) (D) (E) =(C x D)
.50)
Total
Use the calculations you have made in Table 1 to successfully complete the information in Tables 2 and 3
and calculate the projected monthly and yearly revenue of Aling Minda’s business.
Table 2
Projected Monthly and Yearly Revenue
Name of Business ___________________________
Merchandise/ Selling Projected Projecte d Projected Projected
Products Price Volume Revenue Volume Revenue
Average No. of Average No. of
Items Sold Items Sold
(Monthly) (Yearly)
(Monthly) (Yearly)
(C)= F= (D x 30 days) G= (C x F) H= (D x 365 days) I= (C x H)

(A+B)
Total
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For Table 3, use the following assumed increases in sales every month. From January to May, 5 percent increase from
previous sales. For the month of June, 10 percent increase from previous sales. For the months July to December,
record the same sales every month.
Table 3
Projected Monthly Revenue
Name of Business ___________________________
Revenue

Revenue
LESSON 2: FORECASTING THE COST INCURRED
You have learned in Lesson 1 that the revenue generated by selling RTW’s has a corresponding amount of costs
incurred. This cost was the amount of RTW before adding its mark-up price. Each piece of t-shirt has a corresponding cost of
90.00 pesos, while each pair of jeans has a corresponding cost of 230.00 pesos. These costs are incurred each time
revenues are generated. On the other hand, the business also incurs costs in its operation, these costs are called Operating
Expenses. Operating expenses such as payment on Internet connection, Utilities expense (i.e.Electricity), Salaries and
Wages and Miscellaneous are essential in the operation of the business; this allows the business to continue operate in a
given period of time.
Now that you have learned what cost is, let us identify the costs and
expenses incurred by the business in generating revenues.
ACTIVITY 2
Have you tried recording the amount of money you spend from your daily allowance? You might be experiencing
difficulties in making your allowance meet your daily needs as student. Try to fill in the information below to come up with a
breakdown of your daily allowance.
Breakdown on Daily Allowance

Name: ______________________
Daily Allowance: Ᵽ __________

Less: Daily Expenses
Food Ᵽ_________
Fare _________
School Supplies _________
Recreation _________
Others _________ ___________
Total Ᵽ ___________
Were you able to get a positive total? You may have spent your daily allowance wisely and saved some of your
daily allowance. Did you spend all your allowance and ended up with a zero total? You may have spent your allowance
on expenses essential to your need as a student.
Considering your expenses as a student, a business also has expenses necessary for its upkeep. It would be
best for any business to arrive with a positive total; this would mean profit for the business. Careful consideration and
projection of these factors could mean success for the business.
You have just learned about what cost is. This time let us identify costs and expenses incurred by the business.
Cost of Goods Sold / Cost of Sales refer to the amount of merchandise or goods sold by the business for a
given period of time. This is computed by adding the beginning inventory to the Net Amount of Purchases to arrive with
Cost of goods available for sale from which the Merchandise Inventory end is subtracted.
Merchandise Inventory, beginning refers to goods and merchandise at the beginning of operation of
business or accounting period.
Purchases refer to the merchandise or goods purchased. Example: Cost to
buy each pair of Jeans or t-shirt from a supplier.
Merchandise Inventory, end refers to goods and merchandise left at the end of operation or accounting
period.
Freight-in refers to amount paid to transport goods or merchandise purchased from the supplier to the
buyer. In this case, it is the buyer who shoulders this costs.
11
In a merchandising business such as Fit Mo’to Ready to Wear Online Selling Business, the formula to
compute for costs of goods sold is as follows:
Merchandise Inventory, beginning P XX.XX

Add: Net Cost of Purchases XX.XX
Freight-in XX.XX
Cost of Goods Available for Sale P XX.XX
Less: Merchandise Inventory, end XX.XX
Cost of Goods Sold P XX.XX
Let us calculate the cost of goods sold of Ms. Fashion Nista’s online selling business for the month of
January.
Table 4 shows the costs incurred during the first month of operation of Fit
Mo’to Ready to Wear Online Selling Business. Since Ms. Nista get her stocks from an online supplier, there is no need to
order ahead and stock more items. Therefore, there is no Merchandise Inventory, beginning as well as Merchandise
Inventory, end. Ready to wear items purchased online from the supplier are then sold as soon as they arrived.
Cost of goods is calculated by simply multiplying the number of items sold every month (300 t-shirts and 180
pairs of jeans) to its corresponding cost per unit (90.00 pesos for every t-shirt and 230.00 pesos for every pair of jeans).
A cost in transporting the goods from the supplier to the seller (Ms. Nista) or Freight-in is then added to Net Cost of
Purchases.
Table 4
Projected Cost of Goods Sold (Monthly)
Type of Cost per Unit Projected Volume
RTW's
Average No. of
Items Sold Projected Costs of Purchases
(Monthly) (Monthly)
(A) F = (D x 30 days) J = (A x F)
T-Shirts 90.00 300 27,000.00
Jeans 230.00 180 41,400.00
Total 320.00 480 68,400.00
Table 5 shows how freight-in is calculated.

It is assumed that at an average, Ms. Nista pays at least 250.00 pesos for every 12 items delivered successfully by her
supplier through a courier service.
Since her average order is 480 pieces every month, she pays:
480 pcs. / 12 pcs. = 40
40 x 250.00 = 10,000.00
Table 5
Freight-in paid by Ms. Nista every month
Type of No. of Items Projected Volume Freight In (January
RTW's Sold (Daily) Average No. of Items Only)
Purchased (Monthly)
(A) F = (D x 30 days) K = (F/12) x 250
T-Shirts 10 300 6,250.00
Jeans 6 180 3,750.00
Total 16 480 10,000.00
Let us now substitute the values from table 4 and table 5. Since there is no Merchandise Inventory,
beginning and end, let us add Cost of Purchases and Freight-in to get the Cost of Goods Sold.
Merchandise Inventory, beginning P 00.00
Add: Net Cost of Purchases 68,400.00
Freight-in 10,000.00
Cost of Goods Available for Sale P 78,400.00
12
Less: Merchandise Inventory, end 00.00
Cost of Goods Sold P 78,400.00
Now that the cost of goods sold is now calculated, let us now identify expenses that the business incurs in its
operation. Operating expenses such as Internet connection, Utilities like electricity and miscellaneous expense are
important to keep the business running. These expenses are part of the total costs incurred by the business in its day-to-
day operation and are paid every end of the month. The operating expenses and assumed amount are presented below:
Operating Expenses
Add: Internet Connection P 1,299.00
Utilities (Electricity) 800.00
Miscellaneous expense P 300.00
Total Operating Expense P 2,399.00
To calculate the total costs incurred by the business, cost of goods sold and total operating expenses are
then added. The calculation for the costs incurred for the month of January is presented below:
Cost of Goods Sold P 78,400.00

Total Operating Expense P 2,399.00
Cost P 80,799.00
The projected monthly costs covering the first of operation of Ms. Nista’s
Fit Mo’to RTW Online Selling Business is presented in Table 6.
Table 6
Projected Monthly Costs (Year 1)
Cost of Goods
Sold 78,400.00 82,320.00 86,436.00 90,757.80 95,295.69 104,825.26
Expenses 2,399.00 2,446.98 2,495.92 2,545.84 2,596.75 2,648.69

Total Cost &
Expenses 80,799.00 84,766.98 88,931.92 93,303.64 97,892.44 107,473.95

Cost of Goods
Sold 110,066.52 110,066.52 104,563.20 99,335.04 104,301.79 114,731.97
Expenses 2,701.66 2,755.70 2,810.81 2,867.03 2,924.37 2,982.85

Total Cost &
Expenses 112,768.19 112,822.22 107,374.01 102,202.06 107,226.16 117,714.82
ASSESSMENT
Now, that you have finished the module, let us check what you have learned. Answer the questions given
below by encircling the letter of the correct answer.
1. Profit or Loss in computed by subtracting cost / expenses from –
a. Income/Revenue c. Sales
b. Sales Discount d. Operating expenses
2. Sales is an account title used to describe goods or merchandise sold by a business. What nature of business
uses Sales?
a. Servicing c. Merchandising
b. Barber Shop d. Both Servicing and Merchandising
3. Irene sells fashion bags online. She gets each bag for P 150.00 from a local supplier. She then adds P 100.00
as mark-up for each bag. How much is the selling price of each bag?
a. P 200.00 b. P 250.00 c. P 300.00 d. P 350.00
4. A merchandising business earns through –
a. Rendering services c. Donating products
b. Lending money d. Buys and sells goods
5. It is a tool that allows managers to make educated estimates on revenue and costs of the business in order to
cope up with uncertainties of the future –
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a. Estimating b. Guessing c. Forecasting d. Benchmarking
6. Which of the following businesses use Service Income in recording revenues?
a. Beauty Salon b. Sari-sari store c. Movie House d. Hardware
7. Refers to the amount of merchandise or goods sold by the business for a given period of time –
a. Operating Expense c. Deductions
b. Cost of Goods Sold d. Sales
8. Aling Coring sold 5 pieces of rugs. She bought the rugs for 20 pesos and sold it for 35 pesos. How much is the
total cost of goods sold?
a. P 80.00 b. P 90.00 c. P 100.00 d. P 110.00
9. Freight-in refers to the amount paid to transfer goods or merchandise purchased from the _________.
a. Buyer to the supplier c. Buyer to buyer
b. Supplier to the buyer d. Supplier to supplier
10. The costs incurred through payment of utilities such as water, electricity, internet connection is considered as –
a. Costs c. Operating expenses
b. Purchases d. Personal Expense of the owner
11. Nathaniel sells bottled water in a nearby city bus terminal. Every day he can sell 30 pieces of bottled water at 20
pesos each. How much is Nathaniel’ daily sales?
a. P 900.00 b. P 800.00 c. P 700.00 d. P 600.00
12. The amount added to the cost of a product to determine the selling price is called –
a. Mark-up b. Discount c. Mark-down d. Sale
13. Lina sold all ten t-shirts for 1,500.00 pesos. Suppose she added 50.00 pesos as mark-up price for every t-shirt.
How much was the cost for every t-shirt sold?
a. P 80.00 b. P 90.00 c. P 100.00 d. P 110.00
14. Refers to goods and merchandise left at the end of operation or accounting period.
a. Merchandise inventory, beginning c. Freight-in
b. Merchandise inventory, end d. Freight-out
15. The Total Cost and Expenses is calculated by –
a. Adding cost and expenses c. Adding revenue and expense
b. Subtracting expenses from costs d. Subtracting expense from revenue
MODULE 8: COMPUTATION OF GROSS PROFIT
As we all know that profit is a financial gain from a transaction or from a period of investment or business activity,
usually calculated as income in excess of costs or as the final value of an asset in excess of its initial value.
It is a total revenue minus total expenses, profit is the amount of money a business "makes" during a given
accounting period. The more profit you make, the better, as profit can be re-invested into the business or retained by the
business owners. Being able to accurately determine your business's profit is an essential part of being able to judge its
financial health. It can also help you decide how to price your goods and services, how to pay your employees, and more.
To make your business gain more profit, begin by adding up all of the money your business has made in a set
period of time (either, quarterly, yearly, monthly, etc. Other sources, like products sold, services rendered, membership
payments, or, in the case of government agencies, taxes, fees, the sales of resource rights, and so on.
Note that you will need to subtract any amount of cash refunded to customers for returns or disputes in order to find
an accurate figure for your total income.
It's easier to understand the process of calculating a business's profit by following along with an example.
Let's say that we own a small publishing business. In the last month, we sold P20,000 worth of books to retailers in
the area. However, we also sold the rights to one of our intellectual properties for P7,000 and received P3,000 from book
retailers for official promotional materials. If these represent all of our revenue sources, we can say that our total income is
P20,000 + P7,000 + P3,000 = P30,000.
This module is divided into two lessons:
Lesson 1 – Compute for profits CS_EP11/12ENTREP-0h-j-16

Create the company’s five (5) year projected financial statements
-CS_EP11/12ENTREP-0h-j-17
To be able to successfully complete this module, previous knowledge in adding & multiplying numbers will best help.
After carefully studying the contents of this module, you should be able to:
• compute for profits
• define profitability, liquidity & solvency
• identify commonly used profitability ratios.
PRE-TEST
Let us see what you already know about forecasting revenues and costs.
Answer the questions below.
Write True if the statement is correct & write False if you think the answer is not correct.
14
_________1. The gross profit rate of the entrepreneurial venture is computed by dividing the cost of goods sold by net sales.
_________ 2. The gross profit rate provides information on the cost ratio of the business.
_________3. In evaluating the profitability of the entrepreneurial venture the evaluation must focus on the information
reflected on the face of the balance sheet.
_________4. The operating profit margin rate indicates information on the percentage of operating expenses on the net sales.
_________5. Mr. Q is a practicing Doctor of Medicine. During the month of March 2019 he received Professional Fees
amounting to P 1,000,000 and total expenses of P250,000. The net income of Mr. Q is P 750,000.
__________6. Profit is the money received from customer in exchange of products given to customer.
_________ 7. The gross profit rate of the entrepreneurial venture is computed by dividing the cost of goods sold by net sales.
_________ 8. The gross profit rate provides information on the cost ratio of business.
_________ 9. One of the objectives in evaluating the gross profit rate of the business is to determine whether the amount
of the gross profit is sufficient to cover the operating expenses.
__________10. The operating profit margin rate indicates information on the percentage of operating expenses to net sales.
__________11 The government is not interested in financial statements since it is not a party to any of the transactions of the
business.
__________12. The net profit margin rate presents the general perspective of the operating performance of the business.
__________13. The amount of income per peso investment can be determined by computing the net profit margin rate.
__________14. In normal situation, it is favorable for the business to have high inventory
__________15. Preparation & presentation of the financial statements of the entity is the primary responsibility of an
accountant.
LESSON 1: COMPUTATION OF GROSS PROFIT
Let’s review of what is revenue of the business. This is an important tool and materials needed in the operation of the
business. It is said that revenue is the result when sales exceed the cost to produce or manufacture goods/merchandise as
well as costs incurred in selling.
Forecast is advance information that could help us prepare and ready for any incoming event. Forecasting is the tool
used in planning that aims to support management or a business owner in its desire to adjust and cope up with uncertainties
of the future. If anyone of us can predict that we can be rich so it means all of us will be rich. This fantasy is played out every
day in boardrooms across the globe with the practice of business forecasting.
It is important to have a good organization in the business to easily grow and expand in the future.
Activity 1
Read and understand the given problem.
Rodrigo is engaged in a buy-and sell business of perfumes. He bought 10 boxes of perfumes. Each box costs
12,000.00 and contains a dozens of perfume bottles. He is planning to sell one perfume bottle at P1,500. What is his
expected profit on the 10 boxes of perfumes?
The ultimate goal of any business whether a retail or wholesale is to earn a profit. Getting the difference between the
amount of money earned from the selling 10 boxes containing a dozen of perfume bottles and the cost of those 10 boxes
gives the profit.
In the example that I gave, answer the following questions:

1. How much does Rodrigo earned profit?
2. Is it good to engage in a business? Yes or No?
3. What do you think of Rodrigo’s business? Is it good for a beginner?
Compute the Gross Profit
The profitability ratios are a group of financial statement that primarily determine the profitability of the business
operation.
The gross profit rate on a product is computed as:
Net Sales xxxxxxx
Less: Cost of sales xxxxxxx
Gross profit xxxxxxx
By using the formula, the gross of XYZ Trading in the year 2017
Net Sales P 734, 000.00
Less: Cost of Sales 577, 000.00
Gross Profit 157, 000.00
15
Profit is the gross income. The amount of gross profit provides information to the entrepreneur about revenue
earned from sales.
The term cost refers to the purchase price of the product including of the product including the total outlay required in
producing it.
The gross profit margin is computed as follows:
The gross profit rate measures the percentage of gross profit to sales, indicating the profit that the business realizes
from the sale of the product.
The gross profit rate of XYZ Trading for the year computed as follows:
T The gross profit rate may signal to the entrepreneur that the amount of margin on sales is 21.39%. This rate will be
used to determine whether the amount of gross profit can cover the operating of the business. Since the gross profit rate of
XYZ Trading is 21.39%, the cost ratio to sales will be 78.61%. This information will help the entrepreneur in assessing
whether the cost is too high or too low. Any product with a very high cost will not become competitive in the market.
The gross profit rate will also help the entrepreneur set the selling price.
Operating Profit Margin Rate
The operating the profit margin is the excess of gross profit from operating expenses.
Gross profit xxxxx
Less: Operating Expenses xxxxx
Operating profit margin xxxxx
The operating profit margin is the second level of revenue in the income statement. At this stage, not only the cost of
buying or making the product that has been deducted is included but also the operating expenses. These are expenses
incurred during a particular period only, and are not expected to provide benefits to any future period. The operating expenses
are also period costs.
In case there are no financing charges like interest, expenses, and income tax, the amount of the operating profit
margin is equal to the net income.
Gross profit P 157,000.00
Less: Operating expenses 90,000.00
Operating profit margin P 67,000.00
This information that the business realized an income of P 67,000.00 during the year after deducting the cost and
operating expenses from the sales made.
By applying
The operating profit margin of the business measures the percentage of profit available after deducting the cost of
sales & operating expenses of the business. A higher operating profit margin is favorable to the business.
Net Profit Margin Rate
Operating profit margin xxxxxxx

Add: Interest Income xxxxxxx Total
Less: Interest Expense xxxxxx
Income Tax xxxxxx xxxxxx
Net Profit margin xxxxxx
The Income statement.is the net profit margin & the third level in the revenue.
The business is only given consideration like interest expense and income tax.
16
Operating profit margin P67,000.00
Less: Income tax 20,000.00
Net profit margin P46,900.00 The income statement of XYZ
Trading does not reflect any data on interest expense. Only income tax has been deducted from the
operating profit margin.
By applying the formula, the profit margin of XYZ
XYZ Trading appears to have earned 6.39% of its total sales of P734,000 during the year. This profits rate must be
compared with those of other similar businesses within the industry.
Analyze the Liquidity Status of the Business
Liquidity Ratios
Current ratio = Current assets / Current liabilities
Quick ratio =(Current assets – Inventories) / Current liabilities
= (Cash and equivalents + Marketable securities + Accounts receivable) / Current liabilities
The quick ratio measures its short-term obligations with its most liquid assets and therefore excludes inventories
from its current assets.
. Financial statements are important in a company management as a means of communicating past successes as well
as future expectations. The financial statement records all the operating results such as sales, expenses and profits or losses.
Return of Investment (ROI)
The Return of investment (ROI) measures the amount of net income per peso invested to the business.
The formula to compute ROI is as follows
The average total assets are by dividing the sum of the total assets at the beginning and end of the period.
Table 1
Projected Five Year Balance Sheet
Year 1 Year 2 Year 3 Year 4 Year 5
ASSET
Cash
337,398.56 686,417.05 1,052,886.47 1,437,679.36 1,841,711.89
Total Assets
337,398.56 686,417.05 1,052,886.47 1,437,679.36 1,841,711.89
Liability - - - - -
Owners’
equity 337,398.56 686,417.05 1,052,886.47 1,437,679.36 1,841,711.89
Total
Liabilities
and Owner's
Equity 337,398.56 686,417.05 1,052,886.47 1,437,679.36 1,841,711.89
Table 1
Projected Five Year Income Statement
Year 1 Year 2 Year 3 Year 4 Year 5
Revenue 1,545,673.95 1,622,957.64 1,704,105.53 1,789,310.80 1,878,776.34
17
Cost 1,213,275.38 1,273,939.15 1,337,636.11 1,404,517.91 1,474,743.81
Gross Profit
Before tax 332,398.56 349,018.49 366,469.42 384,792.89 404,032.53
Yearly increase in revenue is assumed at 5%

Yearly increase in cost is assumed at 5%
As a future entrepreneur, one should always remember that nothing is permanent in the field of entrepreneurship.
What is applicable to one entrepreneur may not be applicable to another. Certain things may happen to one entrepreneur but
may not happen to another.
Entrepreneurship should be practiced not as a science but as an art. Creativity should always be applied to
entrepreneur by regularly evaluating the market and the environment and responding to the changes in them.
The owner of an ordinary small business has the freedom to manage and operate. Ideally he/she prefers business
activities which are done easily. However, the entrepreneur has to perform the entrepreneurial activities correctly regardless
of whether they are undertaken easily or not. The important in entrepreneurship is that the business activities are performed
correctly.
Compute the Gross Profit
Activity 1.2: Answer the given problem.

1. Annie bought one dozen smartphones for P200,000.00 with a discount of 5%. She sold half dozen at a price of
P18,000.00 per unit. However, a new model of smartphone became available in the market, so she sold the
remaining half dozen @ P12,000.00 each unit. What was her profit or loss?
Compute the following requirements:
a. Gross profit rate
b. Operating profit margin rate
c. Net profit margin rate
d. Return on Investment
Now ask yourself the following questions:

1. Is creativity present in the operation of ordinary small businesses along the streets and highways and in
your neighborhood? Why do you say so?
__________________________________________________________________
__________________________________________________________________
2. Will you consider the daily business practices of the small owner within the concept of entrepreneurship?
Why?
__________________________________________________________
___________________________________________________________
The profitability and ratios are a group financial statement ratios that primarily determine the profitability of the
business operation. They provide information on the efficiency of resource utilization.
The gross profit represents the difference between net sales and cost of sales of the entrepreneurial venture during a
given period. It is computed as follows:
Net Sales xxxxxx

Less: Cost of Sales xxxxxx
Gross Profit xxxxxx
By using the formula, the gross profit of XYZ Co., in the year 2017 is computed as follows:
Net Sales P734,000.00
Less: Cost of Sales 577,000.00
Gross profit P 157,000.00
Profit is determined by:
• the money you get from sales
• the cost of stock – if you're selling a product
• all the expenses you incurred
Income earned by the business are sales & gross profit. Commissions, discounts, fixed expense are business
expenses.
How to Increase your Sales?

❖ Improve profit by looking at the money you earn from sales, and increase:
o The number of customer’s
o The volume of goods or services existing customers to buy
18
o The sales price
Assessment
How did you understand the lessons that you have studied in this module?
Answer the following questions.
Write True if the statement is correct & write False if you think the answer is not correct.
_________ 2. The gross profit rate provides information on the cost ratio of the business.
_________3. In evaluating the profitability of the entrepreneurial venture the evaluation must focus on the information
reflected on the face of the balance sheet.
_________4. The operating profit margin rate indicates information on the percentage of operating expenses on the net sales.
_________5. Mr. Q is a practicing Doctor of Medicine. During the month of March 2019 he received Professional Fees
amounting to P 1,000,000 and total expenses of P250,000. The net income of Mr. Q is P 750,000.
_________6. Profit is the money received from customer in exchange of products given to customer.
_________8. The gross profit rate provides information on the cost ratio of business.
_________ 9. One of the objectives in evaluating the gross profit rate of the business is determine whether the amount of
the gross profit is sufficient to cover the operating expenses.
_________10. The operating profit margin rate indicates information on the percentage of operating expenses to net sales.
_________11. The government is not interested in financial statements since it is not a party to any of the transactions of the
business.
_________12. The net profit margin rate presents the general perspective of the operating performance of the business.
_________13. The amount of income per peso investment can be determined by computing the net profit margin rate.
_________14. In normal situation, it is favorable for the business to have high inventory
_________15. Preparation & presentation of the financial statements of the entity is the primary responsibility of an
accountant.
Activity 2:
After learning how to compute the gross profit at least you have learned now how to do it by your own. Solve and
compute the following:
1. A watch store owner decided to offer 20% discount for a particular brand of watch that sells at P35,000.00. By doing
so, his average sales increased from 5 watches to 12 watches a day. If he bought one watch at a price of P22,000.00
from the supplier, by how much was his daily profit increased or decreased by offering such discount on the watch?
2. Michelle went to Baguio and bought 20 jars of strawberry jam for P3,500.00 with 1 5% discount. When she got back
to Manila, she sold 10 of the jars for a total of P1,800.00and the rest as P185.00 each. How much profit did Michelle
again?
MODULE 9: BUSINESS IMPLEMENTATION
In this module, you will be able to practically implement your newly developed Business Plan. In which case, will help
your target business most likely to succeed. Because this is where you will actually operate the business. Thus, selling your
product/service to the potential customers.
You are expected to operate your own business and keep your business records to monitor the progress of your
business operation.
This module covers learning competencies:

• Implementing the business plan
• Operating the business
• Selling the product
• Identifying reasons for keeping business records
PRE-TEST
Before starting with this module, let us see what you already know about implementing a business plan. Answer the questions
below.
Instruction: Read the statements carefully then Write True if the statement is correct & write False if you think the
answer is not correct. Write your answer on the space provided before the number.
You go to the office of the Department of Industry (DTI) if you will register your corporation
1.
business.
19
The office to visit when registering your solely owned business is Securities and Exchange
2.
Commission (SEC)
3. You go to the Bureau of Internal Revenue when you get Tax Identification Number (TIN)
4. Employers are the only one to pay contribution at the Social Security System(SSS)
5. You cannot start your business without a consultant.

6. Record keeping is not necessary in business operation
7. Record keeping is beneficial to the owner
8. The objective of the businessman should be clear
9. Tasks before starting the business should have a time allotment
10. Records are sources of documents
11. Professional advices is necessary before starting the business
12. Professional advice is not needed during the business operation
13. Bookkeeping is only important to the accountant
14. Record keeping can measure the profit and performance of the enterprise
15. Recordkeeping can be both physical and electronics
Before you proceed, let us first recall our previous lesson.

Profit is the amount you gain after selling your product. In computing your profit, you just simply follow this formula:
Sales - Cost of Goods Sold = Gross Profit
The gross profit represents the difference between net sales and cost of sales. Variable costs are those things that
change based on the amount of product being made and are incurred as a direct result of producing the product.
Variable costs include:
1. Materials used
2. Direct labor
3. Packaging
4. Freight
5. Plant supervisor salaries
6. Utilities for a plant or a warehouse
7. Depreciation expense on production equipment
8. Machinery
Fixed costs generally are more static in nature. They include:

1. Office expenses such as supplies, utilities, a telephone for the office, etc.
2. Salaries and wages of office staff, salespeople, officers and owners
3. Payroll taxes and employee benefits
4. Advertising, promotional and other sales expenses
5. Insurance
6. Auto expenses for salespeople
7. Professional fees
8. Rent
Activity 1.1
Identify the services offered by the following offices to you as an entrepreneur.
1. Department of Trade and Industry (DTI)_____________________
2. Securities and Exchange Commission (SEC)_________________
3. Bureau of Internal Revenue (BIR)__________________________
4. Mayor’s Office_________________________________________
5. Social Security System (SSS)____________________________
6. Philhealth____________________________________________
7. Pag-ibig Fund_________________________________________
Activity 1.2
Answer the following questions:

1. As an entrepreneur, is it important to know the services offered by the offices mentioned above?
2. If your answer is YES, in what way that their services becomes important to you?
3. If your answer is NO, what makes their services unnecessary to you?
4. Do you think a business can last without availing the services of the said offices? Why? Or why not?
RUBRIC FOR ESSAY
20
The content was well-thought ,
Content guide questions were thoroughly 4
answered
The paper was well-written with
Organization ideas easily conveyed to readers. 3
Development Points are thoroughly developed 3

TOTAL 10
Guidelines for successful business plan implementation:

1. Objectives- the entrepreneur should have a clear idea on what is his purpose of putting up his enterprise.
2. Tasks- this means that the entrepreneur must know what the tasks are he has to perform in order that his objectives
will be realized.
3. Time allocation- This means that the entrepreneur should have a timetable or a schedule to follow every task, so
that it will be accomplish on time and realize his objective.
4. Progress- This means that the entrepreneur should monitor the development of the tasks and the accomplishment of
the objective.
In Operating a business, the entrepreneur should first consult professional for advices, like accountants or
consultants from small enterprises. In your case, you can consult your teacher in entrepreneurship or anyone you
think that could help you.
The following are the basic requirements to start a business in the Philippines:
• Securities and Exchange Commission (SEC) Registration-for partnership or Corporation
• Department of Trade and Industry (DTI) Registration- for your business tradename
• Mayor’s Business Permit- for getting the license to operate in the city or municipality and payment of your local
business taxes.
• Bureau of Internal Revenue (BIR) Registration - for getting TIN, official receipts and invoices, registering your
books of accounts and paying your national Internal revenue taxes
• SSS, PhilHealth, and Pag-Ibig Fund registration- for registering yourself or company as an employer and for
remitting your employees’ contribution together with your employer’s share
Other steps to follow before operating a Business are as follows:
1. Set up an accounting system or hire an accountant. Knowing how the business is doing financially is important
for planning and survival.
2. Advertise the business. No one will buy the products or services if customers do not know that the company exists.
You can make use of the social media.
3. Secure insurance for the business. Liability insurance protects the business in the event of litigation. Consider life
and disability insurance, health insurance and fire insurance when you are leasing an office or storefront.
Keeping Business Records
Good record keeping can help protect the business, measure the performance and maximize profit.
Records are the source documents, both physical and electronic, that specify transaction dates and amounts, legal
agreements and private customer and business details.
Developing system to log, store and dispose of records can benefit the business. A systematic recording allows you
to:
A. Plan and work more efficiently
B. Meet legal and tax requirements
C. Measure profit and performance
D. Protect your rights, and
E. Manage potential risks
Activity 2: Create your own business Plan.
With no less than 10 pages following the format:

- Executive summary
- Marketing plan
- Management plan
- Financial Plan
You are going to implement your business for one and a half month. Following the Business plan, you have
presented.
RUBRICS FOR THE BUSINESS PLAN IMPLEMENTATION
Feasibility The business is operated 50
21
according to the plan.
Bookkeeping The records are properly kept 40
and accounted for
Profitability
The business is gaining
10
as to its projected financial plan
TOTAL 100
Assessment
Now that you are finished accomplishing the module, let us check what you have learned. Answer the questions given
below by encircling the letter of the correct answer.
1. Which office will you go to register your single owned business?
A. SEC C. BIR
B. DTI D. Mayor’s Office
2. Which office do you visit to register partnership or corporation business?
A. SEC C. BIR
3. To secure Tax Identification Number (TIN) , which office will you go?
A. SEC C. BIR
4. SSS, Philhealth and Pag-ibig fund contributions is made by ___
A. Employees only C. Both Employees and Employers
B. Employers only D. None of the choices
5. Which of the following is not a step to follow before operating a business?
A. Register your business C. Advertise the business using Facebook
B. Set up accounting system D. Selling the product
6. Which of the following is true?

A. Good record keeping is not important to the business owner
B. Good record keeping is important only to the accountant
C. Good record keeping gives benefits to the enterprise
D. Good record keeping gives no importance at all.
7. Which of the following is NOT a benefit to the enterprise?
A. Plan and work more efficiently C. Can check if the business is doing good
B. Meet legal and tax requirements D. It cannot protect the rights of the owner
8. The objectives of the entrepreneur should be
A. Specific and clear C. Short and blurred
B. Specific and long term D. Long and not specific
9. The tasks before operating the business must be ____
A. Specified to be accomplished by the owner alone
B. In detail so that the owner will know what to do
C. Kept by the owner for future reference
D. None of the choices
10. The tasks to be accomplished before operating the business should have:
A. Design C. Time allotment
B. Decoration D. Measurement
11. Which of the statements is true?
A. Before starting a business, the entrepreneur may not consult a
professional for advice
B. Before starting a business, the entrepreneur should consult a
professional for advice
C. Before starting a business, the entrepreneur must start selling when there are available buyers
D. None of the choices
12. To register your Business Trade name is done in the office of?
A. SEC C. Mayor’s Office
B. DTI D. Philhealth Office
13. The sources of documents are called?
A. Income statement C. Record
B. Balance sheet D. Record Keeping
14. Which of the following is not a benefit of record keeping
A. It will not help in managing potential risks
B. It will measure profit and performance
C. It will protect the rights of the owner
D. It will not let you know how much you are earning
15. Which of the following statements is true?
A. Professional advice is only needed before starting the business
B. Professional advice is needed all throughout the life of the business
C. Professional advice is made only by consultants
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D. Professional advice is only a waste of money
MODULE 10: BOOKKEEPING
Welcome to this module. In this module you will learn how to record business transactions, generate financial
information and communicate them to different users. This is your tool to keep track of the operations of your business,
know how much should you collect, determine your capability to meet the currently maturing obligations, know the levels of
your profitability, cash position, and communicate them to management and other interested parties such as the Bureau of
Internal Revenue and Local Government Unit for tax and regulation purposes.
This module is divided into four lessons:

Lesson 1 – Perform bookkeeping tasks
Lesson 2 – Prepare an income statement and a balance sheet,
Lesson 3 – Identify where there is a profit or loss for a business,
Lesson 4 – Interpret financial statements (balance sheet, income statement), cash flow projections, and
summary of sales and cash receipts
To be able to completely learn this module, you need to know and understand the basic concepts of
bookkeeping and apply the same by performing bookkeeping tasks, prepare income statement and balance sheet,
interpret financial statements, identify whether the business is profitable or not and most importantly, you will be able
to generate overall report on the company’s financial status.
Before starting with this module, let us evaluate what you already know about bookkeeping by answering
the pre-assessment questions below.
PRE-TEST: Multiple Choice: Identify the correct answer among the given choices. In your answer sheet, write the
letter only.
1. A source document evidencing that orders have been placed by the customer waiting to be served by the
supplier-
A. Purchase request B. Purchase order
C. Purchase invoice D. Purchase check
2. The source document evidencing that goods have been delivered by the supplier to the customer-
A. Supplier’s sales invoice C. Customer’s sales invoice
B. Vale slip D. Customer’s delivery receipt
3. A source document issued by the supplier acknowledging that full payment has been received from the
customer-
A. Official receipt C. Delivery receipt
B. Purchase receipt D. Receiving report
4. Is a statement of the financial position of a business which states the assets, liabilities, and owners' equity at a
particular point in time.
A. Balance Sheet B. Income Statement C. Owner’s Equity D. Assets
5. A source document which accompanies a check when payment is made-
A. Check voucher C. Cash voucher
B. Purchase voucher D. All of the above
6. All of the following are examples of source documents, except-
A. Check B. Invoices C. Contract D. Journal
7. A source document which shows that the customer has already made partial payment to the supplier through
issuance of-
A. Check B. Voucher C. Official receipt D. Sales invoice
8. Are things or properties that the business owns, example includes cash, account receivable and prepaid
expenses.
A. Assets B. Liabilities C. Owner’s Equity D. Revenue
9. It is the obligations of the company, payable in money, goods or services.
10. It is the claim of the owner of the business also known as the capital.
11. Is a record comprising the sales and other income received by the business.
12. The most liquid form of asset that can be used anytime to purchase another assets or pay liabilities.
A. Inventories B. Receivables C. Payable D. Cash
13. An example of asset that can be used in the business for a long period of time.
Usually more than a year.
A. Inventories B. Computer C. Receivables D. Cash
14. A type of business that is purely engage in providing all types of service activities such as medical or legal
services.
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A. Service Business C. Manufacturing business
B. Merchandising business D. Trading Business
15. A type of business that is engage in buying and selling of food products such as Grocery/convenient stores.
A. Service Business C. Manufacturing business
B. Merchandising business D. Forex Trading Business
LESSON 1: PERFORM BOOKKEEPING TASK
In the previous lesson, you learned how to make and prepare a business plan, operate the business, know
how to sell the product, and the significance for keeping business records.
A business plan is an effective tool in making your dream business come true. It reiterates different plans or
strategies in Operation and Administration, Marketing, Production and Logistics, Finance, etc.
The operational plan put into details on what business model you are going to employ and how are you going to
start the business. Among others, it’s also reiterated the layer’s of management, type of skills and employee attitude
your business need and the steps on how to get the government license.
The marketing plan contains valuable strategies as to what product you are going to produce or sell, what
industry you want to enter, group of target customers, or your target market and the business model or strategies
you are going to employ.
The production plan revealed the production processes and the quality control system of the goods produced for
sale. While the logistics provides a channel of distribution of the goods from production lines down to the
wholesalers/retailers or directly to consumers.
The financial plan talks about monetary requirements before you open the business. While financial forecast informs
the business owners of the expected outcome of the business in monetary terms.
What is Bookkeeping?
Bookkeeping is the process of recording business transactions in a systematic and chronological

manner.
It is systematic because it follows procedures and principles. On the other hand, it is chronological because the
transactions are recorded in order of the date of occurrence.
Bookkeeping is the starting point of the accounting process. A sound bookkeeping system is the foundation
for gathering the information necessary to answer questions related to profitability, solvency and liquidity of the
business.
What is a Bookkeeper?
Each business has a bookkeeper who is in charge to record, maintain and update business records from all
sorts of financial transactions using account title that can be found in the charts of accounts already set up by the
Accountant.
The bookkeeping function dictates the bookkeeper to keep track of all financial transactions of the business.
Only transactions that has monetary value will be recorded.
The bookkeeper uses the Book of Accounts to record the business transactions which is to be
consolidated later to help construct financial statement such as the Trial Balance, Income Statement and Balance
Sheet.
What is a Book of Account?
The book of accounts is composed of the Journal and Ledger. It depends on the type of business, some
businesses used special journals when they are engaged merchandising type of business to records business
transactions. This module will cover and provide example for service oriented business. Thus, only journal and
ledger will be used in the succeeding examples.
There are two types of books used in recording business transactions. They are called journals and
ledgers.
Journal refers to the book of original entry while the Ledger refers to the book of final entry.
24
What is a General Journal?
The general journal is the most basic journal which provides columns for date, account titles and
explanations, folio or references and a separate column for debit and credit entries. Depicted in figure 1 below is a
sample format of a general journal:
Figure 1 – General Journal

What is a General Ledger?
The general ledger is a grouping of all accounts directly traceable to chart of accounts. These accounts will
be reflected in the financial statements as a summary of all financial activities that have taken place as recorded in
the general journal and subsidiary ledgers. Depicted in figure 2 below is a sample format of a general ledger:
Figure2 – GeneralLedger
What is a Subsidiary Ledger?
The subsidiary ledger is a group of accounts directly associated from the general ledger. This record is
created to maintain individual accounts for customers and vendors whose cash is not being used as a medium of
exchange when purchasing or selling merchandise. Depicted in figure 3 and 4 below is a sample format of a
subsidiary ledgers Accounts Receivable and Accounts Payable respectively:
Accounts Receivable
Buyer/Customer: Veggies Trading 11
Figure 3 – Accounts Receivable Ledger
Figure 4 – Accounts Payable Ledger

The Rules of Debit and Credit
In the process of journalization, following the rules of Debit and Credit are essential part to ensure accurate
recording and sound decision making. Debit is abbreviated as DR while CR for Credit.
It is a requirement that the bookkeeper is able to master the normal balance of each account title before
performing the tasks of bookkeeper.
When to Debit?
25
When cash or non-cash items are received, the said cash or non-cash items must be recorded in the debit column.
This means that the debit balance increased. It is called Value Received.
When to Credit?
When cash or non-cash items are given, the said cash or non-cash items must be recorded in the credit
column. This means that the credit balance is increased. It is called Value Parted with.
The following steps will be undertaken in determining account balances for every account title such as cash,
account receivable, etc.:
1. Add all the debit side to generate total debit 2. Add all the credit
side to generate total credit.
3. Subtract total debit to the total credit.
4. Determine the balance of each account.
TRIAL BALANCE
Trial balance is a list of all ledger accounts with closed or final balances on a certain period arranged
according to the rules of debit and credit. The debit and credit columns must be equal in total amount. This is the
first report prior to financial statement preparation. Depicted in figure 7 below is a sample format of a trial balance
report with peso amount.
Figure 7: Sample format of Trial Balance
–
As you have observed, the accounts reflected in figure 7 above are arranged according to the proper
placement of the five major accounts. The Assets, Liabilities,
Owner’s Equity, Revenue and Expense accounts. You may refer to figure 6.
On the other hand, the trial balance report has two phases. The first phase “Unadjusted trial balance” is a report of
all balances after the posting of the general ledger accounts. The general ledger account balances are extracted to
construct the unadjusted trial balance. Meanwhile, the second phase is the “Adjusted trial balance”. This phase is a
final report of trial balance after all necessary adjustments in journal entries are posted in the general ledger.
What is an Adjusting Entry?
Making an adjusting entry helps the bookkeeper capture all financial events happened over a period of time
within the accounting cycle. It is essential in keeping the financial record updated. The bookkeeper is going to look or
examine accounts that needs to be updated. Outlined below are the five basic sources of adjusting entries:
1. Depreciation expense
2. Deferred expenses of prepaid expenses
3. Deferred income of unearned income
4. Accrued expenses of accrued liabilities
5. Accrued income or accrued assets
1. Depreciation.
This is a method of allocating the cost of an asset to an expense over the accounting periods that make up
the asset’s useful life. Examples of assets subject to depreciation are: Store, Office, Building, and Transportation
equipment. These types of assets lose their ability to provide useful service as time passes. Depreciation can also be
referred to as the decrease in the usefulness of these types of assets. Take note that Land is not subject to
depreciation because the value of land mostly increases as time passes.
There are several methods or formulas to compute the amount of depreciation.

The simplest is the straight line method.
26
The formula:
(Acquisition Cost – Salvage or Residual Value)
Annual Depreciation = Useful Life

Where:
• Acquisition cost – the actual cost of the asset acquired.
• Salvage value – the selling price of the asset upon reaching the useful life.
• Useful life – is the economic or productive life of the asset.
Illustrative problem:
The cost of the equipment is PHP25,000. It was estimated to have a useful life of five years. It is estimated
that after five years, the office equipment can be sold at a scrap value of PHP1,000. To compute for the monthly
depreciation, just divide the annual depreciation by 12. One year is composed of 12 months.
(P 25 ,000 – P 1,000)
P 40 0 =
60 months
- (5 yrs x 12 mos. = 60 months) Adjusting entry:

GENERAL JOURNAL PAGE 1
POST.
DATE PARTICULARS REF. DEBIT CREDIT
1 June 30 Depreciation expense 400.00
2 Accumulated depreciation – (equipment name) 400.00
To record the allocation of depreciation expense
3
The depreciation expense is an allocated for all sixed assets except land. Example are building, equipment
and or machineries that the business is using to generate income. It shall be reported as an expense account in the
income statement directly attributable in the said fixed assets. While the accumulated depreciation is a balance sheet
account but treated as a contra-account to the concerned fixed asset.
Refer to the illustration below:
Balance Sheet
As of ____________
Equipment (at cost) P 25,000
Less: Accumulated Depreciation-Equipment 400
Net Book value of Equipment P 24,600
2. Deferred expenses or prepaid expenses.
These are items that have been initially recorded as assets but are expected to become expenses over time
or through the operations of the business.
In order to recognize the correct amount of expenses, prepayments shall be amortized weekly, semi-
monthly or monthly, depending on its nature and purpose.
Purchased P5,000 worth of office supplies on account. By the end of the month, PHP2,000 worth of these
supplies are still unused.
27
Adjusting entry:
POST.
1 June 30 Supplies expense 3,000
2 Supplies 3,000
3 To set up the value of used supplies.
The supplies expense is an income statement account, while the supplies which is now credited is an asset
account. All asset has a normal debit balance. Considering that the supplies in this record is credited, this will be
deducted to the supplies account in the balance sheet to generate the remaining balance in supplies.
3. Deferred income of unearned income
These are items that have been initially recorded as liabilities but are expected to become income over time
or through the operations of the business.
On February 15, 2016 Matapang entered into a contract with Makisig to maintain the computers of Makisig
for two months starting on February 15, 2016 up to April 15, 2016. On the same date, Makisig paid the total contract
amount of PHP40,000 in full. The entries to record and adjust the books are: In the February 29, 2016 entry above,
as of end of February 2016, Matapang has already earned the service revenue for the first 15 days, thus an
adjusting entry is recorded.
POST.
Journal entry:
1 Feb 15 Cash 40,000
2 Unearned service revenue 40,000
To record receipt of full payment for the two-month
3 service contract with Makisig
Adjusting entry:
4 Feb 29 Unearned Service Revenue 10,000
5 Service Revenue 10,000
To record service income earned from Feb 15-
6 29, 2016; P40,000 x (1/2 month /2 months)
These are items of expenses that have been incurred but have not been recorded and paid.
On February 29, 2016, Matapang received the electric bill for the month of February amounting to
PHP3,800. Matapang will pay this bill on March 2016. The electric bill represents the cost of electricity used (or
incurred) for February. Although the said bill is still unpaid and thus was not recorded, the matching principle and
accrual basis of accounting dictates that the same should be recorded in February. Otherwise, your expense will be
understated and thus the company will be reporting an overstated income (or an erroneous income). Needless to
say, erroneous information may lead to wrong decisions. The entry to record the accrual of this expense is:
Adjusting entry:
POST.
28
1 Feb 29 Utilities Expense 3,800
2 Utilities Payable 3,800
To accrue the cost of electricity incurred
3 for the month of February.
These are income items that have been earned but have not been recorded and paid by the customer. In
short, these are receivables of the business.
On February 28, 2016, Matapang repaired the computer of Pedro for PHP15,000. Pedro was on an out-of-
town trip so he could not pay Matapang. He told Matapang that he will pay for their services on March 1, 2016.
Matapang has already earned the PHP15,000 but was not paid as of the end of February 2016. Therefore, an
income should be properly recognized in February 2016 for this transaction. The entry to record this is:
Adjusting entry:
POST.
1 Feb 29 Accounts Receivable 15,000

2 Service Income 15,000
To record accrued income for the services already
rendered during the
3 month of February.
LESSON 2: PREPARE INCOME STATEMENT AND A BALANCE SHEET
INCOME STATEMENT
This statement is one of the major financial report. Also known as profit and loss statement or statement of
comprehensive income. This statement summarizes the results of company’s operations for a specific period of
time. If the result of operation is positive, then the business earns net income otherwise, net loss.
Ledger accounts that can be found in the income statement are called Temporary accounts of Nominal accounts.
They are called such because at the end of the accounting period, balances under these accounts are transferred to
the capital account, thus having only temporary amounts and resulting to zero beginning balances at the beginning
of the following year. (Haddock, Price, & Farina, 2012) Examples of temporary accounts include revenues, sales,
utilities expense, supplies expense, salaries expense, depreciation expense, interest expense among others.
Depicted in figure 8 below is sample format of an income statement.
The different parts of income statement are:

• The heading or title of report
• Name of the company
• Date or period covered Major parts are:
• Income or revenues - consist of all income received within the period upon provision of services for
service-concern business and sales for merchandising
• Expenses – money spent during the conduct of business operations
• Net income / net loss – the outcome of business operations.
29
Figure 8 – Income statement of a Service Type Business
BALANCE SHEET
Also known as the statement of financial position. This statement summarizes the total balances of assets, liabilities
and owner’s equity. In general, it provides the financial condition of the business on a specific date.
The balance sheet is composed of Permanent accounts. Permanent in nature because their balances remain
intact and will be forwarded from one period to another.
Contra asset are those asset account presented under the asset portion of the balance sheet such as Allowance for
Bad debts and Accumulated depreciation. Depicted in figure 9 below is sample format of a balance sheet of a
service type business presented in as an account format with contra asset account.
The different parts of balance sheet are:

• The heading or title of report
• Name of the company
• Date or period covered
Major parts are:
• Assets (Current and Non-current)
Current Assets – Assets that can be realized (collected, sold, used up) one year after year-end date.
Examples include Cash, Accounts Receivable, Merchandise Inventory, Prepaid Expense, etc.
Current Assets are arranged based on which asset can be realized first (liquidity). Current assets and
current liabilities are also called short term assets and shot term liabilities.
Noncurrent Assets – Assets that cannot be realized (collected, sold, used up) one year after yearend
date. Examples include Property, Plant and Equipment (equipment, furniture, building, land), Long Term
investments, Intangible Assets etc.
• Liabilities (Current and Non-current)
Current Liabilities – Liabilities that fall due (paid, recognized as revenue) within one year after year end
date. Examples include Notes Payable, Accounts Payable, Accrued Expenses (example: Utilities Payable),
Unearned Income, etc.
Noncurrent Liabilities – Liabilities that do not fall due (paid, recognized as revenue) within one year after
year-end date. Examples include Loans Payable, Mortgage Payable, etc.
Noncurrent assets and noncurrent liabilities are also called long term assets and long term liabilities.
• Owner’s Equity or Capital

Capital is an item of balance sheet wherein the capital or interest of the owner of the business is listed.
Initial withdrawal of capital will be recorded in a drawing account of the owner and will be reflected as a
deduction to the capital balance.
30
Figure 9 – Balance Sheet of a Service type Business
(Account Form)
LESSON 3: IDENTIFY IF THERE IS PROFIT OR LOSS OF A BUSINESS
Profitability has always been the overall goal of the business. It is of great achievement in a successful
implementation of strategic, operating and other plans.
In identifying the profit or loss of a business, the business will record every detail of all business
transactions and translate it into financial report.
An income statement is a financial report that reveals the total revenue or income, total expenses incurred during the
conduct of the business and, most of all the net profit or net loss as a result of business operations over a specified
period of time.
Below is the basic equation of income statement of a service-concern business:
Net Income/Loss =Service Income - Total Expenses
LESSON 4: Interpret Financial Statements (Balance Sheet, Income Statement,

Cash Flow Projections and Summary of Sales and Cash Receipts)
INTERPRETATION OF FINANCIAL STATEMENTS
Financial statements will reveal the outcome of the business operations. A financial analyst is like a medical
doctor who will conduct diagnosis by reading the financial report and render interpretations on it which will be used
as the basis of a sound economic decision making.
As previously defined, balance sheet reflects the financial position and condition of the business. The financial
position refers to the assets of the business which will be financed by the liability and owner’s equity. On the other
hand, financial condition refers to the situation wherein assets, liability and owner’s equity are used to maximize
income. Also, assets, liability and owner’s equity may encounter growth or decline in value.
There are many available financing tools to be used in analysing and interpreting financial statements. It depends
on the purpose. Most of these tools are able to evaluate and interpret asset growth of the business, profitability,
liquidity and solvency. In general, it will provide a bird’s eye view of the overall health of the business.
Depicted in figure 14 below is a matrix of financial interpretation with formula and explanation.
Accounts Formula Interpretation
Profitability ratios Measure the ability of the company to generate income from the use of its
assets and invested capital as well as control its cost
31
Operating income It measures the percentage of profit
ratio earned from each peso of
Operating Income Net Sales (Horngren et.al. 2013).
Return on asset Measures the peso value of income

(ROA) Net Income Ave. generated by employing the
Assets company’s assets.
Return on equity Measures the return (net income)
(ROE) Net Income Ave. generated by the owner’s capital
Equity invested in the business
Financial Health Refers to the company’s capacity to pay their short and long term obligations
Ratios as they become due.
Debt ratio Total Debt Total Indicates the percentage of the

Assets company’s assets that are financed by
debt. A high debt to asset ratio implies
a high level of debt.
Equity ratio Indicates the percentage of the
Total Equity Total company’s assets that are financed by
Assets capital. A high equity to asset ratio
implies a high level of capital.
Indicates the company’s reliance to
Debt to equity debt or liability as a source of financing
ratio relative to equity. A high ratio
Total Debt Equity
suggests a high level of debt that may
result in high interest expense.
Liquidity Measure the company’s ability to pay debts that are coming due (short term
debt).
Solvency Refers to the company’s capacity to pay their long term liabilities.
Current ratio It seeks to measure whether there are

Current Assets Current sufficient current assets to pay for
Liabilities current liabilities. Creditors normally
prefer a current ratio of 2.
Quick ratio It does not consider all the current
assets, only those that are easier to
Quick Assets
liquidate such as cash and accounts
Current Liabilities
receivable that are referred to as quick
assets.
Figure 14 - Matrix of financial interpretation with formula and explanation.
ACTIVITY TIME: Now, let us complete the accounting cycle by recording financial transactions and applying
the concept of bookkeeping which will generate financial statements. Upon completing this activity, you will
be able to know the financial position, profitability and the condition of the business thru financial statement
analysis and interpretation.
Activity 1 : Identifying and recording a business transaction using the General Journal
Below is an example of business transactions of a service type business. You are task to record the said
transactions in the general journal by means of journal entry applying the rules of debit and credit.
Depicted in figure 11 is the standard chart of accounts of Alpha Laundry System.
32
Figure 11 – Chart of Accounts
Let us begin!
Mr. Denver Ambrose is a retired public school teacher. He started his laundry business in June 2018. He
used all of his savings to start a “coin-operated laundry” business. He named it Alpha Laundry Systems (ALS). The
following are business transactions for the month of June 2018, the first month of business operation:
1. June 1, 2018 - Mr. A invested P 200,000 cash in his newly opened Alpha Laundry System business.
Your Journal Entry:

POST.
1 June 1
2
3 To record the initial Capital investment of Mr. A.
2. June 2, 2018 - Mr. A hired his former classmate Doree Dy to be the laundry operator of ALS for a fixed monthly
salary of P10,000. The operator will be paid every quencina.
3. On June 5, 2018 – Alpha Laundry Systems purchased laundry equipment for cash, P150,000.
Your Journal Entry:

POST.
PARTICULARS
DATE REF. DEBIT CREDIT
4 June 5
5
6 To record the acquisition of Laundry equipment
4. On June 6, 2018 – Alpha Laundry Systems paid cash in advance for the 1 year insurance coverage of laundry
equipment for the whole year amounting to P6,000.
Monthly insurance expense will be recognized for each month end report.
Your Journal Entry:
POST.
PARTICULARS
7 June 6
8
33
9 To record the prepaid Insurance for the Laundry equipment
5. On June 7, 2018 – Alpha Laundry Systems bought supplies for laundry amounting to P10,000. The supplies
bought are laundry consumables such detergent powder, soap bar and fabric softener. Monthly inventory will be
conducted to determine unused supplies and will be recognized for each month end report.
Your Journal Entry:

POST.
PARTICULARS
10 June 7
11
To record the acquisition of laundry consumables
12
6. On June 15, 2018 – Alpha Laundry Systems paid P4,750 cash for salary of laundry operator.
Your Journal Entry:

POST.
13 June 15
14
To record the payment of Laundry operator’s salary
15
7. On June 16, 2018 – Alpha Laundry Systems received P25,000 cash for laundry services rendered to MZ. Hotel.
Your Journal Entry:

POST.
16 June 16
17
To record the payment received from MZ Hotel.
18
8. On June 17, 2018 – Alpha Laundry Systems rendered service to Argon Hotel amounting to P45,000. Argon
promised to pay on June 20 of the same year.
Your Journal Entry:

POST.
PARTICULARS
19 June 17
20
To record the service rendered to Argon Hotel
21
9. On June 18, 2018, Alpha Laundry Systems purchase office supplies from Ku Enterprises amounting to P2,000
on account. ALS will pay it on June 25 of the same year.
Your Journal Entry:
34
POST.
22 June 18
23
To record the acquisition of Office
24 Supplies on account from Ku Enterprises
10. On June 20, 2018, Alpha Laundry Systems collected payment of Argon Hotel.
Your Journal Entry:

POST.
PARTICULARS
25 June 20
26
27 To record the full payment from Argon Hotel
11. On June 25, 2018, Alpha Laundry Systems paid in full the amount owed to Ku Enterprises.
Your Journal Entry:

POST.
PARTICULARS
28 June 25
29
To record the full payment of account to Ku
Enterprises
30
12. On June 27, 2018, Alpha Laundry Systems paid electric bill for the month amounting to P1,000 in cash. The
payment is charged to Utility expense account.
Your Journal Entry:

POST.
PARTICULARS
31 June 27
32
To record the payment Electricity for the month
33
13. On June 30, 2018, Alpha Laundry Systems paid a month’s transportation expense amounting to P 1,300.
35
Your Journal Entry:
POST.
34 June 30
35
To record the payment of transportation for the month.
36
14. On June 30, 2018, Alpha Laundry Systems paid P5,000 cash for salary of laundry operator.
Your Journal Entry:

POST.
37 June 30
38
39 To record the payment Laundry operator’s salary.
15. On June 30, 2018, Alpha Laundry Systems paid P7,500 cash for the month’s rent of laundry space.
Your Journal Entry:

POST.
PARTICULARS
40 June 30
41
To record the payment of rent for Laundry space.
42
Completing the monthly General Journal record will give the owner of the business a financial record of all
business transactions that transpired during the month. It will reflect the inflows and outflows of cash, provisions of
services which generate income.
The debit and credit columns should always be equal. Otherwise, the record will affect overall accuracy of
the entire financial record. The error should be properly corrected before the next step in the recording process takes
place.
Activity 2 : Posting journal entries to the General Ledger using T - accounts.
In this activity, you are task to post journal entries in the general ledger. The most convenient and fastest
way of posting journal entries to the ledger is by way of using “T” Account. A T- Account is divided into two sides.
The left- hand side is called the debit side and the right-hand side which is the credit side. The left -hand or debit
side shows the value received while the right-hand side shows the value parted with.
This is called T account because it resembles capital letter “T.” an account title is written above the T- account.
After performing the T-accounts, balances for each account under Assets, Liabilities, Capital,
Revenue/Income and Expenses, can now be determined.
36
Depicted in figure 12 below is a T-account and its description:
ACCOUNT TITLE
Left -Hand Side Rigt -Hand Side
or Debit Side or Credit Side
is for is for
VALUE VALUE
RECEIVED PARTED WITH
Figure 12 : T - account
To strengthen your focus on the posting of journal entries to the general ledger, it is suggested to create T –
account and label them with account title and group them according to Assets, Liabilities, Owner’s Equity, Revenue
and Expense. Given below are T – accounts for all ledger accounts group according to the five major accounts.
ASSETS LIABILITIES
OWNER’S EQUITY
REVENUE EXPENSES
37
Figure 13 - Basic Accounting Equation
What is cash receipt?
Cash Receipts include all of a firm’s inflows of cash in a given financial period. The most common
components of cash receipts are cash sales, collections of accounts receivable, and other cash receipts.
What is a sales report?
A sales report is a record of all sales transactions. There are two type of sales transactions. A cash sales and a
credit sale.
The amount received in cash sales transactions will be recorded in the cash receipt record book bearing the account
cash. This will increase cash inflow. While the credit sales transactions cannot be recorded in the cash receipt
record book because there were no inflows of cash. Instead, it will be recorded in the account receivable account.
This means, that the business has a collectible account from a customer who bought the merchandise on his/her
account.
What Is Cash Flow Projection?
A cash flow report records all cash inflow or out flow of the business.
Normally, it will report three business activities, namely, the operating, investing and financing activities.
The operating activities involves the main operations of the business which the buying supplies (cash outflow) and
selling (cash inflow) of its products.
The investing activities involves the acquisition of long term or fixed assets of the business (cash outflow) and
selling the old one’s cash inflow).
The financing activities involves the acquisition of capital of the business thru borrowings or investors ( cash inflow)
and payments of investors and creditors (cash outflow).
The cash flow projection is an important task of an accountant to determine the cash requirement for the next period
of business operations. The business will be guided as to how much cash should be needed in order to pay
operating expenses and how much cash should the business spend for fixed assets in order to increase sales, cash
collection or a market share.
ACTIVITY 3
Answer the following fill in blank questions:
1. ___________ is an employee of the company in charge to maintain bookkeeping records of the business.
2. ___________ Is considered the book of original entry.
3. ___________ Is considered the book of final entry.
4. ____________ Is a financial statement that reports the financial position of the business.
5. ____________ Is a financial statement that reports net income or net loss of the business.
6. ____________ Is an entry necessary to update ledger accounts from unadjusted trial balance to adjusted
trial balance.
7. _____________ Is a report summarizing the ledger accounts with updated balances in debit and credit
columns.
8. _____________ Is a statement that reports the cash inflow and cash outflow of the business.
9. _____________ Is a type of sales report that presents cash collection only.
10. _____________ Is a record that report cash inflow of the business.
ASSESSMENT
1. Measure the ability of the company to generate income from the use of its assets and invested capital as well as
control its cost.
a. Solvency ratio c. Profitability ratio
b. Liquidity ratio d. Acid-test ratio
38
2. The following are financial records of ABC C
• Revenues – 20,000
• Rent expense – 3,000
• Salaries expense – 4,000
• Utilities expense – 2,000
How much is the total expenses?
a. P9,000 b. P10,000 c. P 18,000 d. P1,000
3. How much is the net income?
a. P9,000 b. P10,000 c. P 18,000 d. P1,000
4. All of the following is an income statement accounts, except.
a. Rent expense c. Accounts receivable
b. Service fees d. Insurance expense
5. All of the following is a balance sheet accounts, except.
a. Cash c. Depreciation expense
b. Equipment d. Accumulated depreciation
6. One of the accounts title below is used in making an adjusting entry.
a. Liability c. Asset
b. Prepayments d. Capital
7. A financial statement that reports the Asset, Liability and Owner’s equity of the business.
a. Income statement c. General journal
b. Balance sheet d. General ledger
8. A financial statement that reports the Sales or Income received, Expenses and the Net income of the
business.
9. Is a book used to record journal entries called the book of original entry.
10. Is a book used to record account balances called the book of final entry.
Mr. Izatsuki Hamida, the bookkeeper of Honda Massage and Spa Services reported the following data for
the month of January to March 2018:
Water expenses ---------------------- P 4,000

Soap expense ---------------------- 7,500
Massage oil expenses ---------------------- 15,000
Light & power expenses ---------------------- 12,000
Rent of the Massage parlor---------------------- 24,000
Salary of staff (4 massage worker)-------- 72,000
Income received from massage service-------- 120,000
Telephone expenses ------------------------ 7,500
How much is the net profit or net loss?
Quarter Challenge 2
1. Which of the following is the process or activities by which a company adds value to an article, including
production, marketing, and the provision of after-sales service?
A. 4Ms of production C. Value Chain
B. Supply Chain D. Business Model
2. Benjie is engage in buying and selling shoes in his neighborhood. He gets his stocks from a local shoes dealer.
Suppose each pair costs 1, 200.00 and Benjie add 50% mark-up. How much is the mark-up price?
A. 500.00 C. 700.00
B. 600.00 D. 800.00
3. Assuming no returns outwards or carriage inwards, the cost of goods sold will be equal to:
A. Sales less gross profit
B. Opening stock plus purchases plus closing stock
C. Closing stock less purchases plus opening stock
D. Purchases plus closing stock less opening stock
4. Which section of a business plan is generally first but written last?
A. Business description and vision
B. Appendices
39
C. Executive summary
D. Description of market
5. Is the process of evaluating risks, performance, financial health, and future prospects of a business by
subjecting financial statement data to computational and analytical techniques with the objective of making
economic decisionsHorizontal analysis.
A. Horizontal analysis C. Ratio analysis
B. Vertical analysis D. Financial statement analysis
6. Statement I- Manpower in production operation refers to the workers involved in the production of goods.
Statement II- Machine refers to the raw materials needed in the production of a product.
A. Statement I is true. C. Both statements are true.
B. Statement II is true. D. Both statements are false
7. Costs incurred through payment of utilities such as electricity and water –
A. Revenue C. Free
B. B. Mark-up D. Operating Expenses
8. Gross profit less expenses is known as:
A. Total drawings C.Net turnover
B. Cost of goods sold D. Net profit
9. What is typical timeframe that a business plan addresses?
A. One year
B. the anticipated life of the business
C. At least three to five years
D. At least five years
10. Is a technique for evaluating a series of financial statement data over a period of time with the purpose of
determining the increase or decrease that has taken place? Also called trend analysis.
11. Which of the following is a replica of a product as it will be manufactured, which may include such details as
color, graphics, packaging and instructions?
A. Prototype C. Supplies
B. Materials D. Outputs
12. Which of the following is a system of organizations, people, activities, information, and resources involved in
moving a product or service from supplier to customer.
A. Business Model C. Supply chain
B. Suppliers D. Value Chain
13. The selling price of an item or merchandise is computed by adding cost per unit and __________?
A. Revenue C. Discount
B. Mark Up D. Number of Items
14. It is a tool that allows managers to make educated estimates on revenue and costs of the business in order to
cope up with uncertainties of the future –
A. Estimating C. Forecasting
B. Guessing D. Benchmarking
15. Net turnover can be calculated as:
A. Sales plus returns inwards
B. Gross profit plus cost of goods sold
C. Sales less returns outwards
D. Purchases plus opening stock less returns outwards
16. Which of the following would not appear in the profit and loss account?
A. Drawings C. Cash expenses.
B. Carriage outwards. D. Rent received
17. What is the biggest mistake you can make when preparing a business plan?
A. Not telling a compelling story
B. Forgetting the executive summary
C. Failing to include at least one appendix
D. Misrepresenting facts
E. Failing to have a clear vision of the business
18. This section will discuss information about your business, your goals and the customers you plan to serve.
A. Executive summary
B. Company description
C. Marketing plan
D. Financial projection
19. Is a technique that expresses each financial statement item as a percentage of a base amount. Also called
common-size analysis.
20. Which of the following best describes recruitment?
A. tools to produce goods or to generate services
B. process by which a business seeks to hire the right person for a vacancy
C. marketing copy that explains what a product is and why it's worth purchasing
40
D. rationale of how an organization creates, delivers, and captures value in economic, social,
cultural or other contexts
21. Which of the following is a set of procedures and instructions?
A. Value chain C. Manpower
B. Supply chain D. Methods
22. Claire is a fish vendor selling at the local public market. He gets his fish from a supplier at 100.00 pesos per
kilo and sells it at160.00 45 per kilo to his customers. How much mark-up did Claire add to his selling price?
A. 40.00 C. 60.00
B. 50.00 D. 70.00
23. Refers to the amount added to the cost of a product to determine the selling price –
A. Revenue C. Mark Up
B. Cost D. Mark Down
24. The correct double-entry to transfer commission received for the year to the profit and loss account is:
The correct double-entry to transfer commission received for the year to the
profit and loss account is:
Debit Credit
A Trading Commission received
B Commission received Profit and loss
C Profit and loss Commission received
D Commission received Trading
25. What is an entrepreneur?

A. Someone who invests time and money to start a business.
B. Someone who makes a lot of money.
C. Someone who takes a risk to make a profit.
D. Both A & C.
26. This section of your business plan will show that you know the ins and outs of the industry and the specific
market you are planning to enter.
A. Executive summary C. Competitive analysis
B. Marketing plan D. Market Analysis
27. Your rival in the industry is called?
A. Competitor C. lending Firms
B. Suppliers D. Board of Directors
28. Expresses the relationship among selected items of financial statement data. The relationship is expressed in
terms of a percentage, a rate, or a simple proportion.
29. Statement I- A product description is the marketing copy that explains what a product is and why it's worth
purchasing.
Statement II- Educational qualifications and experience is one of the criteria in considering manpower.
a. Statement I is false. C. Both statements are true.
b. Statement II is false. D. Both statements are false.
30. Statement I- Value chain is the process or activities by which a company adds value to an article, including
production, marketing, and the provision of after-sales service.
Statement II- A supply chain is a system of organizations, people, activities, information, and resources
involved in moving a product or service from supplier to customer.
A. Both statements are true. C. Statement I is false.
B. Both statements are false. D. none of the above.
31. Merchandise or goods purchased are referred to as –
A. Costs C. Expenses
B. Purchases D. Loss
32. Refers to goods and merchandise at the end of operation of business or accounting period.
A. Merchandise Inventory, end C. Expenses
B. Freight-in D. Merchandise Inventory, beg.
33. Gross profit is the
A. Amount of money you get for profit lab.
B. Amount of money collected from selling products
C. Amount of money your product costs to produce
D. Has nothing to do with money.
34. Net profit is the:
A. Amount of money you get for profit lab.
B. Amount of money collected from selling products.
41
C. Amount of money your product costs to produce.
D. Has nothing to do with money.
35. The diagram showing your workers in the organization with their job responsibilities is called?
A. Organizational perspective C. Organizational chart
B. Organizational layout D. Organizational diagram
36. Promotional activity is found in which section of your business plan?
A. Management section C. Marketing Section
B. Financial section D. Company description section
37. Measure the ability of the company to generate income from the use of its assets and invested capital as well
as control its cost.
A. Solvency ratio C. Profitability ratio
B. Liquidity ratio D. Acid-test ratio
38. Statement I- . Output represents the final products from the production process and distributed to the
customers.
Statement II- The 4Ms in the production operation are the materials, manpower, machine and money.
A. Both statements are true. C. Statement I is false.
B. Both statements are false. D. Statement II is false.
39. Which of the following is the marketing copy that explains what a product is and why it's worth purchasing?
A. Production method C. Business model
B. Product description D. Prototyping
40. Mang Antolin sells bottled water in nearby public bus terminal, every day he can sell 30 pieces of bottled water
at 20 pesos each. How much is his daily revenue?
A.900.00 C. 800.00
B. 700.00 D. 600.00
41. Measure the ability of the company to generate income from the use of its assets and invested capital as well
as control its cost.
a. Solvency ratio c. Profitability ratio
b. Liquidity ratio d. Acid-test ratio
42. The following are financial records of ABC C

• Revenues – 20,000
• Rent expense – 3,000
• Salaries expense – 4,000
• Utilities expense – 2,000 How much is the total expenses?
a. P9,000 b. P10,000 c. P 18,000 d. P1,000
43. How much is the net income?
a. P9,000 b. P10,000 c. P 18,000 d. P1,000
44. All of the following is an income statement accounts, except.
a. Rent expense c. Accounts receivable
b. Service fees d. Insurance expense
45. All of the following is an balance sheet accounts, except.
a. Cash c. Depreciation expense
b. Equipment d. Accumulated depreciation
46. One of the account title below is used in making an adjusting entry.
a. Liability c. Asset
b. Prepayments d. Capital
47. A financial statement that reports the Asset, Liability and Owner’s equity of the business.
48. A financial statement that reports the Sales or Income received, Expenses and the Net income of the
business.
49. Is a book used to record journal entries called the book of original entry.
50. Is a book used to record account balances called the book of final entry.
42
43

Module 6: 4M'S of Production and Business Model

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Module 6: 4M'S of Production and Business Model

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2nd Quarter Module 6-10

Pls.submit on or before January 20, 2021

Name of Student: ________________________________

MODULE 6: 4M’s OF PRODUCTION AND BUSINESS MODEL

ACTIVITY 1. GUESS THE PICTURE

- Talks about human labor force involved in the manufacture of products.

1. Who would be your manpower? _______________________________

Direction: Encircle the letter of your choice.

MODULE 7: FORECASTING REVENUES AND COSTS

FORECASTING THE REVENUES

Mark Up Price = ( Cost x desired mark up percentage)

Jeans 345.00 180 62,100.00 2,190 755,550.00

Projected Revenue for February = Revenue (January) + Amount of increase

On the other hand, decrease in revenue is computed as follows:

Projected Revenue for September = Revenue (August) - Amount of decrease

Revenue 102,600.00 107,730.00 113,116.50 118,772.33 124,710.94 137,182.04

Month July August September October November December

Revenue 144,041.14 144,041.14 136,839.08 129,997.13 136,496.98 150,146.68

June Increase of 10% from previous revenue

September to October Loss 5% from previous revenue

November Increase 5% from previous revenue

December Increase 10% from previous revenue

(C)= F= (D x 30 days) G= (C x F) H= (D x 365 days) I= (C x H)

Month July August September October November December

LESSON 2: FORECASTING THE COST INCURRED

Breakdown on Daily Allowance

Daily Allowance: Ᵽ __________

Merchandise Inventory, beginning P XX.XX

T-Shirts 90.00 300 27,000.00

Jeans 230.00 180 41,400.00

Total 320.00 480 68,400.00

Table 5 shows how freight-in is calculated.

Cost of Goods Available for Sale P 78,400.00

Cost of Goods Sold P 78,400.00

Cost of Goods Sold P 78,400.00

Expenses 2,399.00 2,446.98 2,495.92 2,545.84 2,596.75 2,648.69

Month July August September October November December

Expenses 2,701.66 2,755.70 2,810.81 2,867.03 2,924.37 2,982.85

MODULE 8: COMPUTATION OF GROSS PROFIT

This module is divided into two lessons:

Lesson 1 – Compute for profits CS_EP11/12ENTREP-0h-j-16

LESSON 1: COMPUTATION OF GROSS PROFIT

Read and understand the given problem.

In the example that I gave, answer the following questions:

Compute the Gross Profit

Operating Profit Margin Rate

Net Profit Margin Rate

Operating profit margin xxxxxxx

By applying the formula, the profit margin of XYZ

Analyze the Liquidity Status of the Business

Return of Investment (ROI)

Revenue 1,545,673.95 1,622,957.64 1,704,105.53 1,789,310.80 1,878,776.34

Yearly increase in revenue is assumed at 5%

Compute the Gross Profit

Activity 1.2: Answer the given problem.

Now ask yourself the following questions:

Net Sales xxxxxx

How to Increase your Sales?

MODULE 9: BUSINESS IMPLEMENTATION

This module covers learning competencies:

5. You cannot start your business without a consultant.

15. Recordkeeping can be both physical and electronics

Before you proceed, let us first recall our previous lesson.