What Is This Module About?

Your business is your livelihood as a small business owner or entrepreneur. It is critical

to keep track of your company's financial health. Small business owners frequently focus on the
cash flow statement because it is something they must consider daily to pay overhead expenses.
However, if you ignore other reports, you may not have a clear picture of your true financial
situation.
This module was created and written specifically for you. Its purpose is to assist you in
mastering the performance of bookkeeping tasks. This module's scope allows it to be used in a
variety of learning situations.

This module will discuss about ALS Learning Competency

 Identifying Profit or loss to Generate the Overall Report on the Activity of the Business

What Will You Learn from This Module?

After going through this module, you are expected to:
1. differentiate profit from loss,
2. identify the components of the income statement, and
3. prepare a simple income statement for a trading firm.

Wait!
Before proceeding with this module, please ensure that you have read the following
modules:
Lesson 1: Implement the Business Plan
Lesson 2: Perform Key Bookkeeping Tasks

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 Let’s See What You Already Know
Hello, how are you doing? I hope everything is going well for you. Before we begin, let's
take a pre-test to assess your prior knowledge of the subject. This module will assist and guide
you in understanding the topic. Are you ready? Let's get started.

Matching Type. Match Column A to Column B by writing the letter of your answer before the
number.

Column A Column B

______ 1. It is the total value of all goods and services sold

by a company in a period. a. Financial Statement
______ 2. It is the statement that shows if a business is b. Gross
earning a profit or incurring a loss. c. Income Statement
______ 3. It shows you the company's income and d. Inventory
expenditures. e. Loss
______ 4. It is the deduction in the value of investment. f. Net profit
______ 5. It means the total amount without any g. Net sales
deductions. h. Operating Expenses
______ 6. This are the expenses incurred during the selling i. Profit
of the product such as wages or salaries. j. Revenue
______ 7. This is the amount obtained when all the selling
expenses are deducted from gross profit.
______ 8. It is obtained when refunds are deducted from
the gross sales.
______ 9. It is difference between the amount invested and
the monetary gain from the investment.
______10. It is an itemized list of goods at hand.

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 Lesson 3
Identifying Profit or Loss to Generate the Overall Report on
the Activity of the Business

Let’s Read
Your business is your livelihood as a small business owner or entrepreneur. It is critical
to keep track of your company's financial health. Small business owners frequently focus on the
cash flow statement because it is something they must consider daily to pay overhead expenses.
However, if you ignore other reports, you may not have a clear picture of your true financial
situation.

Let’s Try This

Welcome to the world of the Entrepreneurs! Let's start our journey of learning this
subject with a simple activity.
Is the activity profitable or not?

Next summer, you want to travel to your province to see a friend. Your allowance only covers
your school-related expenses, so you need to start saving money for the trip. You thought about

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reselling some items to earn money. You spent ₱750.00 on a wallet and another ₱50.00 getting
to the store to make the purchase.
The scenarios below will help you determine whether you earned or lost money by using the
price of the item. Try to answer on a separate sheet if possible.
Scenario No. 1 Scenario No. 2

You sold the wallet to your friend for You sold the wallet to your friend for
₱1,200.00. ₱750.00.

Selling Price:
Selling Price:
Less: Cost of wallet:
Less: Cost of wallet:
Transportation:
Transportation:
Profit/Loss:
Profit/Loss:

Let’s Learn
A good start toward earning money! Let us now drill down into the fundamentals of
Profit and Loss.

Profit and Loss

Profit Loss

Profit is the difference between the amount Loss is the deduction in the value of
invested and the monetary gain from the investments.
investment.
A business loss occurs when your business
The excess of returns over expenditure in a has more expenses than earnings during an
transaction or series of transactions, accounting period. The loss means that you
especially the excess of the selling price of spent more than the amount of revenue you
goods over their cost. made.

A person enters business for the sole purpose There are cases when losses are increased in
of profit or return on investment. business instead of realizing the desired
profit.

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 Profit Loss

Example: Example:
Let's say a store owner spent ₱100.00 on one If a salesperson has bought a textile material
kilogram of apples and charged ₱120.00 per for ₱300.00 and must sell it for ₱250.00. He
kg for it. What is the amount of his profit? has gone through a loss of how much?

Solution: Solution:

Selling Price: ₱120.00 Cost Price: ₱300.00

Cost Price: ₱100.00 Selling Price: ₱250.00
Profit: ₱ 20.00 Loss: ₱ 50.00

Income Statement
The Income Statement is the financial statement that shows if a business is earning a
profit or incurring a loss. It shows you the company's income and expenditures. The income
statement, along with balance sheet and cash flow statement, helps you understand the financial
health of your business.
Components of Income Statement
In interpreting the income statement, you should be aware of the following terms and formulas:

Gross means the total amount without any deductions.

Net is the remaining amount after the deductions.

Net Sales are obtained when refunds are deducted from the gross sales.

The Cost of Goods Sold or Buying Price refers to the actual amount paid for articles
bought including the buying expenses.

The Inventory is an itemized list of goods at hand.

The Gross Profit is equal to net sales less cost of goods sold.

The Net Profit is the amount obtained when all the selling expenses are deducted

The Operating or Expenses Overhead are the expenses incurred during the selling of
the product such as wages or salaries, water and electric bills, rental, transportation,
and commissions.

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 The Revenue is the total value of all goods and services sold by a company in a period.
Revenue (also known as Sales or Income) is the first item on a company's income
statement and is often referred to as the "Top Line" of a business.

Formulas:
Gross profit = Net Sales – Cost of goods sold
Net Sales = Gross sales – Refund and allowances
Net Profit = Gross profit – Operating expenses
Available Goods = Beginning Inventory + Purchases
Cost of Goods Sold = Available Goods – Ending Inventory

Let’s Try This

Did you enjoy the lesson in your module? Let's engage in another activity to help us
comprehend it better. Enjoy!
Directions: Encircle and write the correct word for each of the following descriptions. Use a
separate sheet of paper in writing your answer.

1. An itemized list of goods at hand.

2. The total amount without any
deductions.
3. The total value of all goods and
services sold by a company in a
period.
4. The amount obtained when all the
selling expenses are deducted.
5. Obtained when refunds are deducted
from the gross sales.
6. The difference between the amount
invested and the monetary gain from
the investment.
7.
8. Examples of Operating
9. Expenses
10.

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There are two forms of income statement, the Income statement for Service Company and
Income Statement for Merchandising Company.

1. Income Statement for Service Company

XXX Company
Income Statement
For the Year Ended December 31, 20**

Revenue xxx
Less Expenses:
Salaries Expense xxx
Transportation Expense xxx
Utilities Expense xxx
Rent Expense xxx
Total Expense xxx
Net Income xxx

Example:

Sarung Banggi Company

Income Statement
For the Year Ended December 31, 2022
Revenue ₱58,670.00
Less Expenses:
Salaries Expense ₱14,600
Transportation Expense ₱ 1,500
Utilities Expense ₱ 6,000
Rent Expense ₱ 8,000
Total Expense ₱30,100.00
Net Income ₱28,570.00

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 2. Income Statement for Merchandising Company

XYZ Company
Income Statement
For the Year Ended December 31, 20**
Revenue xxx
Less: Cost of Goods Sold
Materials xxx
Labor xxx
Gross Profit xxx
Less: Expenses xxx
Utilities Expense xxx
Miscellaneous Expense xxx
Total Expense xxx
Net Income xxx

Example:

Sarung Banggi Company

Income Statement
For the Year Ended December 31, 2022

Revenue ₱55,653.00
Less: Cost of Goods Sold
Materials ₱ 8,923.00
Labor ₱12,364.00
Gross Profit ₱34,366.00
Less: Expenses
Utilities Expense ₱10,567.00
Miscellaneous Expense ₱ 6,192.00
Total Expense ₱ 4,375.00
Net Income ₱29,991.00

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To better understand these formulas, consider the following examples:
1. SkRider Bikeparts & Accessories' merchandise inventory was ₱75,405.50 on March 5,
and its purchases since then totaled ₱43,690.50. The store inventory on May 31 was
₱56,446.00. How much merchandise was sold?

Solution:
Beginning Inventory ₱ 75,405.50
Add Purchase ₱ 43,690.50
Goods for Sale ₱119,096.00
Less Ending Inventory ₱ 56,446.00
Cost of Goods Sold ₱ 62,650.00

2. ABC Plus Mart Sari-sari Store's total sales for the month of January were ₱43,258.75.
During the month, the cost of goods was ₱15,543.00. The expenses were as follows:
salaries and wages ₱3,500.00; rent ₱3,000.00; electric and water bills ₱2,150.00;
miscellaneous expenses ₱1,100.00; and some merchandise totaled ₱10,940.00. Find the
month of January's (a) gross profit, (b) operating expenses, and (c) net profit.

Solution:
Gross Sales ₱ 43,258.75
Less Sales Returns ₱ 10,940.00
Net Sales ₱ 32,318.75
Less Cost of Goods Sold ₱ 15,543.00
Gross Profit ₱ 16,775.75 (a)
Less Operating Expenses:
Salaries and wages ₱ 3,500.00
Rent ₱ 3,000.00
Electric and water bills ₱ 2,150.00
Miscellaneous expenses ₱ 1,100.00
Total expense ₱ 9,750.00 (b)
Net Profit ₱ 7,025.75 (c)

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 Let’s See What You Have Learned
The time has come for you! Now is the moment to apply all you have learnt so far. Now
is the time to apply!
Think and Solve
Since you are doing well in your studies for determining profit in a business, put your
knowledge to use and solve these problems! Each problem will be worth 15 points.
1. Jessica’s baked product sales in August totaled ₱30,350.00, with a cost of goods sold of
₱19,750.00. The expenses were the following: salaries were ₱1,500.00, rent ₱2,000.00,
electric and water bills ₱2,750.50, and miscellaneous expenses ₱800.50.

A. Determine the following:

1) Gross Sales
2) Cost of goods sold
3) Operating Expenses
B. Compute for the (a) Gross Profit and (b) Net Profit or Loss.

Solution:
Net Sales
Less Cost of Goods Sold
Gross Profit
Less Operating Expenses:
Salaries
Rent
Electric and water bills
Miscellaneous expenses
Total expenses
Net Profit/Loss

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2. The Angels Baby Burger had the following activities for year ended 2021: gross sales
amounting to ₱55,537.75; cost of goods sold of ₱28,458.00; operating expenditures of
₱5,389.75; and refunds for defective goods of ₱8,794.25.

A. Determine the following:

1) Gross Sale
2) Refund for defective goods
3) Cost of goods sold
4) Operating Expenses
B. Generate an income statement and find: (a) Net Sales, (b) Gross Profit, and (c) Net
Profit/Loss.

Solution:
Gross Sale
Refund for defective goods
Net Sales
Cost of goods sold
Gross Profit
Operating Expenses
Net Profit/Loss

Let’s Think About This

Answer the questions below to see if you understood the lesson now that you are familiar
with how to organize and generate the business's overall activity.

1. What are the similarities and differences between profit and loss?
2. Why do we need to understand the income statement components?
3. How can we generate and compute an income statement?
4. Why is generating an income statement should be practiced in business?

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The rubric below will serve as guide and basis of your score.

Performance
4 3 2 1 Score
Areas
The thought The thought The thought The thought
about the about the about the about the
content is very content is content is content is
Content
informative and informative slightly unclear.
well organized. and well unclear.
organized.
Demonstrates Demonstrates The response The response
clear understanding demonstrates demonstrates a
understanding of of the some complete lack
Knowledge of
the questions questions and knowledge of
understanding
and process. process. the questions.
of the process.
No grammatical, Almost no A few Many
spelling or grammatical, grammatical, grammatical,
Mechanics punctuation errors spelling or spelling or spelling or
punctuation punctuation punctuation
errors errors errors

Congratulations! You are now ready for assessment!

Assessment
Are you ready with the Post-test? You'll be put to the test here to see how well you
comprehended the lesson. Best of luck!
A. Identification. Choose the appropriate answer to the following descriptions from the list
of words below.

Discounts Profit Loss Financial Statement Inventory

Expenses Decrease in owner’s capital Cost of Goods Sold Merchandising
Decrease in assets Income Statement Revenue Service
Gross profit Net income Net sales Net profit

1. It is the deduction in the value of investment.

2. It is one of the payments made to customers for returned merchandise, defective goods
and for pricing adjustments.

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 3. It is the total value of all goods and services sold by a company in a period.
4. It is statement that shows if a business is earning a profit or incurring a loss.
5. It is the additional expenditures incurred during the selling of the product such as wages
or salaries, water and electric bills, rental, transportation, and commissions.
6. It could result due to a net loss in operations.
7. It refers to the actual amount paid for articles bought including the buying expenses.
8. It shows you the company's income and expenditures.
9. The difference between the amount invested and the monetary gain from the investment.
10. It is an itemized list of goods at hand.
11. Net Sales – Cost of Goods Sold = __________
12. Gross Profit – Operating Expenses = __________
13. Revenue – Expenses = __________
14. Gross sales – Refund and allowances = __________
15. Available Goods – Ending Inventory = __________

B. Prepare an Income Statement. Read the problems/situations listed below and fill out
the forms.

a. Income Statement for Service Company

Pretty Nails Salon total revenue for the month of November 2021 was amounting to
₱74,800.00. The expenses of the salon were as follows: salaries and wages ₱35,750.00; rent
₱5,000.00; electric and water bills ₱6,785.00; and miscellaneous expenses ₱2,700.00. Find the
month of November’s Net Income and complete the form.

___________________
Income Statement
_____________________________

Revenue
Less Expenses:
Salaries Expense
Rent Expense
Utilities Expense
Miscellaneous Expense
Total Expense
Net Income

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b. Income Statement for Merchandising Company
Crafty.co is a small business with the following operations for the fiscal year ended 2021:
sales revenue of ₱126,760.00; the materials cost of goods sold of ₱36,765.75; salaries of
₱25,500.00; rent of ₱15,000.00; light and water expenses of ₱15,550.00 and miscellaneous
expenses of ₱8,220.00. Generate an income statement and find the Gross Profit and Net Income.

a. ______________________
b. Income Statement
c. For the Year Ended December 31, 2021
d.
Revenuee.
Less: Cost
f. of Goods Sold
Gross Profit
g.
Less: Expenses
h.
Salaries
i. Expense
Rent
j. Expense
Utilities Expense
Miscellaneous Expense
Total Expense
Net Income

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 Answer Key
Assessment
1. Loss
Let’s See What 2. Discounts
You Already 3. Revenue Let’s Try This Let’s Try This
Know 4. Income/Financial 1. Inventory
Statement 2. Gross Scenario No. 1
1. J 5. Expenses 3. Revenue Selling Price ₱1,200.00
2. A 6. Owner’s capital 4. Net Profit Less: Cost of the Wallet (₱ 750.00)
3. C 7. Cost of goods 5. Net Sales Transportation Cost (₱ 50.00)
4. E sold 6. Profit Profit ₱ 400.00
5. B 8. Income statement 7. Rent
6. H 9. Profit 8. Wages Scenario No. 2
7. F 10. Inventory 9. Bills Selling Price ₱750.00
11. Gross profit 10. Transportation Less: Cost of the Wallet (₱750.00)
8. G
12. Net profit Transportation Cost (₱ 50.00)
9. I
13. Net income Loss ₱ 50.00
10. D 14. Net sales
15. Cost of goods
sold

Let’s See What You Have Learned

Let’s See What You Have Learned
2.
1.
Gross Sales ₱ 55,537.75
Net Sales ₱30,350.00
Refunds for defective goods ₱ 8,794.25
Less Cost of Goods Sold ₱19,750.00
Net Sales ₱ 46,743.50 (a)
Gross Profit ₱ 10,600.00 (a)
Cost of goods sold ₱ 28,458.00
Less Operating Expenses:
Gross Profit ₱ 18,285.50 (b)
Salaries ₱ 1,500.00
Operating Expenses ₱ 5,389.75
Rental ₱ 2,000.00
Net Profit ₱ 12,895.75 (c)
Electric and Water Bills ₱ 2,750.00
Miscellaneous ₱ 800.00
Total Expenses ₱ 7,051.00 Crafty.co
Loss ₱ 3,544.00 (b) Income Statement
For the Year Ended December 31, 2021
Pretty Nails Salon Revenue ₱126,760.00
Income Statement
Less: Cost of Goods ₱ 36,765.75
November 2021
Sold
Gross Profit ₱ 89,994.25
Revenue ₱74,800.00
Less: Expenses
Less Expenses:
Salaries Expense ₱25,500.00
Salaries Expense ₱35,750.00
Rent Expense ₱15,000.00
Rent Expense ₱ 5,000.00
Utilities Expense ₱15,550.00
Utilities Expense ₱ 6,785.00
Miscellaneous Expense ₱ 8,220.00
Miscellaneous Expense ₱ 2,700.00
Total Expense ₱ 64,270.00
Total Expense ₱50,235.00
Net Income ₱ 25,724.25

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 References

Fernando, J. (2022, August 30) What Is a Profit and Loss (P&L) Statement?
https://www.google.com/search?
q=profit+and+loss&rlz=1C1VDKB_enPH1013PH1013&oq=profit+and+loss&aqs=chrome..69i5
7j0i512l4j69i65j69i60l2.7416j0j4&sourceid=chrome&ie=UTF-8

Chopra, H. (2022, January 31) Revenue: Definition, Types and Examples.

https://www.indeed.com/career-advice/career-development/revenue-definition

The Investopedia Team (2021, September 5) Gains and Losses vs. Revenue and Expenses:
What's the Difference? https://www.investopedia.com/ask/answers/101314/what-are-differences-
between-gains-losses-and-revenue-expenses.asp#:~:text=Revenue%20describes%20income
%20earned%20through,offering%20a%20primary%20business%20operation.

Elic, M. (2020). Self-Learning Module: Entrepreneurship: Quarter 2 - Module 4 Perform Key

Bookkeeping; Profit or Loss for a Business; and Generate an Overall Report on the Activity.

Danganan, M. (2020). Entrepreneurship Quarter 2 – Module 5 Identifying Profit or loss to

Generate the Overall Report on the Activity of the Business.

Cameron, A. (2017, June 10). Know How Financial Loss Affects Your Small Business.
https://www.patriotsoftware.com/blog/accounting/small-business-loss-claiming-deducting-nol/

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