What Is This Module About?

Do you like to have your own business in the future? What do you think are the
skills you need to make your business grow? How would you know if your
business is doing well or not? if you thought about these questions before, then this
module is for you!
Many people have become rich and successful in their own business. Do you
want to be an entrepreneur? One who starts and runs his/her own business is an
entrepreneur. To become a successful entrepreneur you must develop the knowledge
and skills needed in solving math problems related to business. You should know
how to compute profit and loss and prepare budgets. Also, you shall know how to
prepare and analyze reports that tell how your business is doing.
In this module, you will learn how to compute profit and losses. You will study
how to prepare budgets, balance statements and income sheets.
This module is composed of three lessons.
Lesson 1 – Computing Profit and Loss
Lesson 2 – How to Prepare a Balance Sheet and an Income Statement; and
Lesson 3 – Preparing Budgets and Estimating Future Growth

What Will You Learn From This Module?

After studying this module, you should be able to:

♦ compute profit and loss;
♦ prepare balance sheets and financial statements;
♦ prepare and monitor budgets; and
♦ estimate the future growth of a business.

1
 Let’s See What You Already Know

Before studying this module, take this simple test to determine what you
already know about the topics covered.
1. Mang Kanor owns a TV repair shop. Today, he made P800 in repairs. He
has to pay P200 to each of his two assistants and P100 in rent for their
shop. He estimated that he has to pay P150 for light and electricity. What
is his gross and net profit? Is his business doing well?
Gross Profit: Net Profit:
_____________________________________________________________
_____________________________________________________________
2. XYZ Beauty Supplies sold P2,000 worth of goods today. The actual cost
of the products sold is P 1,400. The store has two assistants that are paid
P250 each. The owner computed the selling cost of goods at P350.
Compute for the store’s net profit. Is it doing well?
Net Profit:
_____________________________________________________________
_____________________________________________________________
F. What questions do data from a balance sheet answer?
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
E. What is an income statement?
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
F.
Last month, Sarangola Store, sold =
P10,000 worth of goods. The actual
cost of goods sold was =P7,000. The operating and administrative expenses
were: salaries = P200 and miscellaneous expenses =
P1,000, supplies = P600.

2
 1. Find the gross profit and net profit for the month.
2. Prepare an income statement based on the given information.
Well, how was it? Do you think you fared well? Compare your answers with
those in the Answer Key on page 40 to find out.
If all your answers are correct, very good! This shows that you already know
much about the topics in this module. You may still study the module to review
what you already know. Who knows, you might learn a few more new things as
well.
If you got a low score, don’t feel bad. This means that this module is for you.
It will help you understand some important concepts that you can apply in your
daily life. If you study this module carefully, you will learn the answers to all the
items in the test and a lot more! Are you ready?
You may go now to the next page to begin Lesson 1.

3
 LESSON 1

Computing Profit and Loss

People go into business because they have something to sell. They could either
sell products or services that people need. In the process of selling, the entrepreneur
makes profits. Making profits is an important part of doing business. If the business
is not earning, it is doomed to fail.
Doing business is not easy. A storeowner, for example, must be able to perform
the basic functions of a businessman – buying, financing, pricing selling and
servicing. These involve constantly computing or solving number problems. These
functions are not easy. An entrepreneur who lacks the ability to run a store may be
facing trouble. Hundreds of businesses have closed because of failure to make a
profit.
After studying this lesson, you should be able to:
♦ compute gross and net profits;
♦ define selling cost, operating cost, and owner’s profits; and
♦ calculate losses.
Are you now ready to study business math? Read the story below.

Let’s Read

Mang Nilo wants to open a small sari-sari store. He has saved P10,000 and
plans to use it for the store. Mang Nilo spent P3,000 to make shelves for groceries
and paint a store sign. How much does he have left?
The P10,000 that Mang Nilo put into his business is called capital. A capital is
needed to start a business. The expenses needed to put up a business must be
deducted from the capital. These are called capital expenses.
Capital – Expenses = Remaining Capital
=
P10,000 -=
P3,000 = =
P7,000
Mang Nilo has P7,000 left. The P3,000 worth of store equipment (shelves etc.)
is now considered a property of the business. They are assets, what a business owns.
Since this type of assets stays in one place and are usually not sold, it is called fixed
assets.

4
 Using the P7,000 he had left, Mang Nilo bought groceries to be sell in his sari-
sari store. Since that money bought goods that become the business’ property, the
groceries are also considered assets. But they can be sold anytime. These assets are
called beginning inventory – the value of goods available for sale. This is also
called cost of goods for sale. Mang Nilo has P7,000 worth of beginning inventory.

Let’s Try This

Encircle the fixed assets and underline the beginning inventory.

1. Cash register
2. Groceries for sale
3. Refrigerator
4. Bread for sale
5. Glass display cases
6. Softdrinks for sale
Compare your answers with those found in the Answer Key on pages _____.
Did you get all items correct? That’s great if you did. You now know what the types
of assets are.
The next thing that Mang Nilo needs to do is to determine the selling price of
his goods. How are selling prices set?
A businessman must set prices high enough to cover different costs. There are
three basic costs:
1. Operating costs –
These include expenses like salaries of employees, rentals, insurance,
light and water payments. Operating costs are also called overhead costs.
These are expenses that are needed before a business can run.
2. Selling costs –
These include expenses like delivery charges, transportation expenses,
mail and others.
3. Owner’s profits –
The owner must receive a profit from his business for personal use.
This is a reward or payment for his efforts to keep the business going.

5
 These expenses must be computed or estimated and added to the cost of goods
for sale to determine their selling price. This is called the mark-on or gross profit.
Mark On = Selling Price – Cost
For example, if Carlo decides to sell for P100 each the T-shirts he bought for
P75 how much will be the mark-on or profit?
Selling Price = =
P100
Cost of Goods for Sale/Sold = P75
Mark On = Selling Price – Cost
=
P100 =
= = P25
– P75
Carlo has a mark-on or gross profit of P25 for every t-shirt sold
Will the whole P25 go to him as his personal profit?
No. Remember that there are three basic expenses that must be considered. The
selling cost, operational cost and owner’s profit. Only after he has alloted an amount
to cover the selling and operational costs can he take whatever’s left as owner’s
profit.

Let’s Try This

Answer the following questions.

1. =
If Enrico sells puto at P11.50 for each bag, how much gross profit will he
make if he bought each bag of puto for = P8.00? What is his gross profit if
he sells 60 bags of puto today?

2. = each. If the cost of each buco pie is =

Marissa sells buco pie at P50 P40.00,
how much profit will she make from each pie? What is her gross profit if
she sells 10 buco pies today?

Compare your answers with those found in the Answer Key on page ____.

6
 Let’s Think About This

How big should a mark-on be? What would happen if the selling price of a
product is too high? What would happen if the selling price is too low?
An entrepreneur must not set his
selling prices too high. If he does, he might
lose his customers to competitors, other
businessmen who sell the same products. If
his selling prices are too low, he may only
“break-even” or even lose money. Thus
pricing and selling products are important
to consider in managing a sari-sari store, or
any other business for that matter.

How are profits computed? Gross profits refer to the total amount received
=
from selling goods. If Mang Nilo was able to sell P700 worth of goods for today, his
gross profit would be =
P700.
=
If Juan made P500 in sales from his bake shop today, how much is his gross
profit? If you answered, =
P500, you got it right.
But gross profits, like mark-ons, do not all go to the owner. The expenses
incurred in selling goods must be deducted. The result would be the net profit. Net
profit is the gross profit minus the expenses (cost of goods sold ,selling and
operational costs). The remainder would be the net or owner’s profit.
Net Profit = Gross Profit – Expenses
=
For example, Katrina sells candies at school. Today, she was able to sell P200
worth of candies. If she computed the actual cost of the candies she sold at =
P150 and
= how much is her net profit or owner’s
the selling and operational expenses at P25,
profit?
Net Profit = Gross Profit – Expenses
=
Gross profit = P250
Expenses = Actual cost of goods sold =
P150
+ Selling and operating expenses = 25
P
=
P175
Net Profit = = =
P250 – P175
= 75
Net Profit = P
= That can also be considered as the owner’s profit
Katrina’s net profit is P75.
because she can do whatever she likes with the amount.

7
 Is Katrina earning well from her small business?
= for every =
She is. She makes P75 P250 worth of goods sold. That’s not bad.

Let’s Try This

1. =
Aling Tinay sells jewelry. Today, she sold P2,500 worth of jewelry. She
=
estimated the cost of goods sold at P2,200. Also she estimated her selling
expenses at =
P100. What is her net profit?

2. Tonio runs a barbershop. Today, he made =P500. He has to pay = P200 to his
=
assistant and P150 = for light
for rent. He estimated that he has to pay P50
and electricity. What is his net profit?

Compare your answers with those found in the Answer Key on pages _____.
Computing for net profit is easy as long as you know how to apply the formula.
A good businessman makes sure that he makes a profit every day. How big this
profit is depends on how much he has sold and his expenses. But how does one
know is his/her business is losing money?
Computing for losses uses the same formula as computing for profits.
=
For example, Ana sells toys. Today, she was able to sell P600 worth of toys. If
she computed the actual cost of the candies she sold as =
P550 and selling and
operational expenses at =
P55, how much is her net profit or owner’s profit?
Net Profit = Gross Profit – Expenses
=
Gross profit = P600
Expenses = Actual cost of goods sold =
P550
+ Selling and operating expenses = 55
P
=
P605
Net Profit = = =
P600 – P605
Net Profit = - =
P 5 (negative 5 pesos)

8
 Did Ana make a net profit? No. She didn’t. In fact, she is short of P5. This is
considered a loss. How then would you know if there were profits or losses?
If there is a negative sign before the number, this means that there is a loss.
= just to break even. What is breaking even?
This means that she has to raise P5
Breaking even means that there is no profit but neither is there a loss. Study the
problem below.
=
For example, Jojo sold P400 worth of T-shirts today. He computed the actual
=
cost of the t-shirts he sold as P350 and selling and operational expenses at =
P50.
What is his net profit or owner’s profit?
Net Profit = Gross Profit – Expenses
=
Gross profit = P400
Expenses = Actual cost of goods sold =
P350
+ Selling and operating expenses =
P 50
=
P400
Net Profit = = =
P400 – P400
Net Profit = 0
Did Jojo break even? Yes, he did. A net profit of 0 is called breaking even.
This means that no profits or losses have been incurred.

To summarize, getting a positive value

(above 0) for the net profit tells you that
there is a profit made. A negative value
signifies loss. A 0 means breaking even.

Is Jojo’s business doing well? No. Breaking even is not a sign that the business
is doing well. A business should earn or make a profit. If this does not happen, the
business is bound to fail.

9
 Let’s Try This

1. =
A drug store has P5,000 in total sales. The owner estimated that the cost of
goods sold was P4,200. Operating and selling expenses are at =
= P800. What
is the net profit? Is the drugstore doing well?

2. Anton owns a watch repair shop. Today, he made =P700 in repairs. He has
to pay = =
P200 to each of his two assistants and P200 for rent for their shop.
= =
He estimated that he has to pay P50 for light and P75 for electricity. What
is his net profit? Is his business doing well?

3. =
Flora’s Flower Shop sold P1,200 worth of flowers. The actual cost of the
=
flowers sold is P900. =
The flower shop has to pay P200 in rent for that day.
=
There are two florists to be paid P150 each. The owner computed his
selling cost at 150. Compute the flower shop’s profit? Is it doing well?

Compare your answers with those found in the Answer Key on pages _____.
Are your answers correct? That’s very good if they are.
If not, go back to your answers and make the necessary corrections. Make sure
that you review your computations for accuracy.

10
 LESSON 2

How To Prepare a Balance Sheet and an

Income Statement

In Lesson 1 you learned how to compute profit and loss. This skill is needed by
every businessman or entrepreneur to find out how his/her business is doing. Profit
and loss can be presented in an organized and easy-to-read report. Such a report tells
whether the business is going well or not. In this lesson, you will study how to
prepare balance sheets and income statements. These are reports that will tell
whether a business is doing well or not.
At the end of this lesson, you are expected to be able to:
♦ analyze balance sheets and financial statements; and
♦ prepare balance sheets and income statements.

Let’s Read

Preparing Balance Sheets

Do you know what a balance sheet is? A balance sheet is a very useful tool in
keeping track or monitoring the performance of a business. It gives the owner of a
business the financial status or position of the business on a specific date. If you
want to find out how well the business is doing on a specific date, study its balance
sheet.
A balance sheet is prepared daily. Why do you think it should be prepared
daily?
Study the example of a balance sheet below.
Miracle Drug Store
Ana Cruz - Proprietor
Balance Sheet
March 15,2001
Current Assets
Cash =
P7,000
Accounts Receivable =
P 600
Merchandise Inventory =
P6,000
Total Current Assets =
P13,600

11
 Fixed Assets
Store Equipment =
P10,000
Office Equipment =
P 5,000
Total Fixed Assets =
P15,000
Total Assets =
P26,600
Current Liabilities
Accounts Payable =
P6,100
Notes Payable = 500
P
Total Liabilities =
P6,600
Owner’s Equity
Owner’s Capital =
P20,000
Add: Net Profit = 2,000
P
Total Owner’s Equity =
P22,000
Total Liabilities =
P6,600
Total Liabilities & Owner’s Equity =
P28,600
Can you identify the parts of a balance sheet? There are a lot of new terms that
you can find in the above example. Do you know what each one represents?
A balance sheet can answer the following questions:
As of today (date), March 15,2001….
1. How much does my business own?
2. How much does my business owe?
3. What is the value of my financial interest in the business?
The first question refers to the assets of a business. The second refers to its
debts or liabilities and the third refers to the owner’s equity. All of this information
is shown in a balance sheet.
Do you know what assets and liabilities are? An asset is something of value
that a business owns. For example, all the equipment used in a bakeshop are
considered assets because they are valuable. They can be sold. They add to the
worth of the business. Liabilities are debts or amounts that the business owes to
=
people or other business. If you borrowed P100 from a friend, then you have a debt
of =
P100 to that friend.
If you own something, that is an asset. Can you name some of your own assets
and liabilities?
_________________________________________________________________
_________________________________________________________________
_________________________________________________________________
_________________________________________________________________

12
 The owner’s equity is the owner’s share of the business. Since he/she is also an
“employee” he/she should be given a share of the business, like a salary or payment
for the efforts he/she has put into the business. This information is summarized in a
balance sheet and a financial statement.
Let us study the parts of a balance sheet.
1. The Heading shows the name of the business, the owner and the date for
which the balance sheet is made.
Miracle Drug Store
Ana Cruz - Proprietor
Balance Sheet
March 15,2001
2. Current Assets
The Assets represent anything of value that the business owns. The
Current Assets are known as liquid assets. Like water that can flow
easily, these are anything of value that the business owns that can be
readily convertible to cash
Study the sample balance sheet on page 15, what can be found under
this category? Write them down below:
a. ________________________________________
b. ________________________________________
c. ________________________________________
If you answered
Cash, Accounts Receivable, Merchandise Inventory
You are correct!
Miracle Drug Store has the following current assets as shown on its balance
sheet:
Current Assets
Cash =
P7,000
Accounts Receivable = 600
P
Merchandise Inventory =
P6,000
Total Current Assets =
P13,600
What do these represent? Read on.
1. Cash – money in bills or coins that the owner keeps.
2. Accounts Receivable – what customers still owe the company at a given
date. These are the amounts that the business expects to receive from
others.

13
 3. Merchandise Inventory – the value of unsold goods or products
4. Total Current Assets – this is the sum of the values for cash, accounts
receivable and merchandise inventory of a business.
Total Current Assets = Cash + Accounts Receivable + Merchandise Inventory
Miracle Drug Store’s Total Current Assets is the sum of the three sources of
current assets of the business.
Compute for the Total Current Assets if:
Cash =
P 4,000
Accounts Receivable = 2,000
P
= 10,000
Merchandise Inventory P
If you answered =
P16,000, that’s correct.
Put in the appropriate values for current assets based on your computation.
Current Assets
Cash _______
Accounts Receivable _______
Merchandise Inventory _______
Total Current Assets _______
Compare your work with the one in the Answer Key on page ______.
There is another type of asset. These are the fixed assets. These are the
property of the business that cannot be readily converted to cash. Store equipment
and office equipment are placed under fixed assets.
=
If store equipment is worth P6,000 and office equipment is worth =
P4,000, what
is the business’ total fixed assets?
Total Fixed Assets = Store Equipment + Office Equipment
Put in the appropriate values for fixed assets based on your computation.
Fixed Assets
Store Equipment _______
Office Equipment _______
Total Fixed Assets _______

Compare your work with the one in the Answer Key on page ______.

14
 Next, compute the Total Assets. It is computed this way:
Current Assets + Fixed Assets = Total Assets
If Current Assets is = =
P15,000 and Fixed Assets is P10,000, compute for Total
Assets.

=
If you answered P25,000, you got it right.
Go back to page 15. Check if the Current and Fixed Assets when added equal
the Total Assets.
What are liabilities?
5. Liabilities or debts refer to what the business owes other businesses or
creditors. Current Liabilities are what the business owes other businesses
that must be paid immediately, usually within a year.
Total Liabilities = Accounts Payable + Notes Payable
If Accounts Payable is =P3,000 and Notes Payable is P2,000,
= compute the Total
Liabilities. Input the given data and your answer below.
Current Liabilities
Accounts Payable _______
Notes Payable _______
Total Liabilities _______
Compare your work with the one in the Answer Key on page ______.
Owner’s Equity is the owner’s share of the business. It is computed as:
Owner’s Equity = Owner’s Capital + Net Profit
=
If the Owner’s Capital is P20,000 and Net Profit=P1,000, compute the Total
Owner’s Equity. Input the given data and your answer below.
Owner’s Capital _______
Add: Net Profit _______
Total Owner’s Equity _______
Compare your work with the one in the Answer Key on page ______.

15
 Lastly, the Total Liabilities must be added to the Owner’s Equity.
Put in your previous answers on the space below.
Total Owner’s Equity _______
Total Liabilities _______
Total Liabilities & Owner’s Equity _______
What do you notice about the value of the Total Liabilities and Owner’s
Equity? If you answered that it is equal to the Total Assets, you are correct. This is
so because the assets (worth) of a business are equal to the amount the owner has
put in the business so far minus the liabilities. You must always check for this when
you make a balance sheet.
You now know what each term in the balance sheet is. When you have your
own business, you can compute the value of each item and put it in the proper place
in your balance sheet.

When making computations for

business or preparing a balance sheet, is it
important to be accurate? Why or why not?

It is important that your computations in the balance sheet are accurate(correct)

and properly placed. The balance sheet provides the owner of a business an
immediate feedback or information on the state of its finances.
Below is a blank balance sheet. Make believe that you have a business. Put in
values or numbers on the blank spaces provided and compute as needed. Make
believe that your business is doing well. The balance sheet should show it.
My Own Business
______________________ - Proprietor
Balance Sheet
Date:_______________________
Current Assets
Cash _______
Accounts Receivable _______
Merchandise Inventory _______
Total Current Assets _______

16
 Fixed Assets
Store Equipment _______
Office Equipment _______
Total Fixed Assets _______
Total Assets _______
Current Liabilities
Accounts Payable _______
Notes Payable _______
Total Liabilities _______
Owner’s Equity
Owner’s Capital _______
Add: Net Profit _______
Total Capital _______
Total Liabilities _______
Owner’s Equity _______
Compare your work with that found in the Answer Key on page_______.

Stop. Rest for a while before

proceeding. Relax for about 20 minutes
before you move on to the next part of this
lesson.

Let’s Read

Preparing Income Statements

An income statement is a report or document which shows how much a
business earned or lost during a given period of time. An income statement is also
known as a profit and loss statement. In contrast to a balance sheet that records the
daily status of a business, an income statement is usually done weekly or monthly.
This income statement report is very important. It shows the amount of sales,
cost of goods or services sold, the expenses incurred in the running or operation of a
business and the profits earned for a given period. To prepare an income statement,
one must learn how to compute profit and loss. You learned this in Lesson 1.

17
 An income statement must be interpreted and assessed. Like the balance sheet, it
also answers questions about the business. The owner can use the income statement or
report to answer the following questions:
1. Are the goals set at the start of the business being met?
2. Is the business making a profit?
3. Are the sales increasing or decreasing?
4. Is the business making more money through sales? Or is it losing
money through operation and other expenses?
Study an example of an income statement below.

Maharlika Sari-Sari Store

Income Statement
For the month of March, 2001
Sales =
P25,000
Less: Cost of Sales =
P10,500
Net sales P14,500
Beginning Inventory =
P10,400
Purchases = 5,200
P
Goods available for sale =
P15,600
Less: Ending Inventory = 9,800
P
Cost of goods sold: =
P5,800
Gross Profit on Sales =
P8,700
Less: Selling and Administrative Expenses =
P4,500
Net Profit =
P4,200

To be able to prepare an income or financial statement, study the meaning of

the terms below.
1. Sales – the amount of money a business makes by selling goods or
services.
For example, Pacing sells halo-halo. If in a month, she sold =
P7,600 worth
of halo-halo, how much are her sales for the month? If you answered
=
P7,600, you are correct!

18
 2. Net Sales – is computed as:
Net Sales = Sales – Returns and Allowances
Returns and allowances are the value of goods returned by a customer
or discounts given to customers.
If Pacings Return and allowance amount to =P1,500, what is her net
sales for the month?
Net Sales = Sales – Returns and Allowances
= = =
P7,600 – P1,500 =
= P6,100
3. Inventory – the process of counting available goods for selling and/or
determining the price or value of left over goods.
4. Beginning Inventory – the amount of goods at the start of the inventory
period. An inventory is usually made weekly or monthly.
Do you know what is needed to prepare halo-halo? Write them down
below:
a. __________________________________________
b. __________________________________________
c. __________________________________________
d. __________________________________________
To prepare halo-halo, you need to have ice and ingredients such as ube, sago,
leche-flan and nata de coco. The cost of these would be the beginning inventory.
For that month, Pacing began by listing the cost of all the needed ingredients to
make halo-halo. She estimated that they cost =
P4500, what would be the beginning
=
inventory? That would be P4,500, too.
5. Purchases – the goods bought for additional supply.
In the middle of the month, Pacing ran out of sugar. She bought 20kilos of
=
sugar at P30.00 per kilo. How much would be the purchases she made for that day
that added to her inventory?
=
If you answered P600, you are correct!
6. Goods available for sale – also called the merchandise inventory, this
refers to the value of the goods available on hand at any time.
This is computed as
Goods Available for Sale = Beginning Inventory + Purchases
How much is Pacing’s goods available for sale if:
Beginning Inventory : =
P4,500
Purchases: = 600
P

19
 Goods Available for Sale = = P600 = =P5,100
P4,500 + =
7. Ending Inventory – amount of goods left over during the inventory
period.
At the end of the month, Pacing also did an inventory. She estimated the cost of
=
available halo-halo ingredients. She computed it at P2,000. The ending inventory is
=
P2,000.
8. Cost of goods sold – is computed as:
Cost of Goods Sold = Beginning Inventory + Purchases – Ending Inventory
Compute for Pacing’s cost of goods sold, if
Beginning Inventory =
= P4,500
Purchases = 600
=P
Ending Inventory =
= P2,000
If your answer is =
P3,100, you got it right!
9. Gross Profit on Sales – computed as:
Gross Profit = Net Sales - Cost of Goods Sold
=
If Net sales = P6,100 =
and Cost of Goods Sold = P3,100, compute for
the Gross Profit on Sales.

If you answered P3,000, you are correct!

10. Selling and Administrative Expenses – expenses for business operations
such as salaries, office supplies and other expenses
Why should this be deducted (subtracted) from the Gross Profit on Sales?
The Gross Profit on Sales only considers the actual cost of the goods sold.
Aside from that, the owner has to consider other expenses such as salary or payment
for the workers and cost of other materials such as paper and pen used for the
business.
Anita, Pacing’s sister, helps her to sell halo-halo. Pacing agreed to pay her
P1,000 a month. She also bought pens, notebooks and other needs to record her
sales. She spent P500.00 for that. If she has no other expenses, what would Pacing’s
Selling and Administrative Expenses?
If you answered P1,500 you are correct.
11. Net Profit – this is also known as net income. The net profit tells the
owner how much he/she is making from the business. It is computed as
Gross Profit on Sales – Selling and Administrative Expenses

20
 Compute for Pacing’s Net Profit for that month.
If you came up with P 1,500.00 , you are correct!

After a month of selling halo-halo,

Pacing had a net profit of P1,500. Is she
earning well? Is her profit high enough? If
not, what do you suggest Pacing does?

For most businesses, a net profit of only P1,500 a month is not a good sign that
the business is doing well. There is even a possibility that the business would start
having losses. I would suggest that Pacing think of ways to increase her profits. Can
you think of ways for her to achieve this?
She could increase the selling price of her halo-halo. She could also lessen the
cost of goods sold by purchasing cheaper ingredients. Aside from these, she can also
advertise.

But all of these have considerations.

Pacing cannot just increase her prices.
What would the effect of this be if she
does?

This is where Pacing sells halo-halo. Study this drawing.

21
 If she increases her prices, she might lose some of her customers. This is
especially true if she has competition. As shown in the drawing above, two of her
neighbors are also selling halo-halo at a cheaper price. If she increases her prices,
Pacing’s customers might buy from her neighbors instead of her!

Let’s Try This

On the next page is a blank Income Statement. Use the same values found in
Pacing’s business to fill it out and compute accurately. If you forgot what the values
are, below is a summary for a month:
Sales = 7,600
P
Return and allowance = 1,500
P
Net Sales = 6,100
P
Beginning Inventory = 4,500
P
Purchases: = 600
P
Goods Available for Sale = 5,100
P
Ending Inventory = 2,000
P
Cost of Goods Sold = 3,100
P
Gross Profit on Sales = 3,000
P
Selling and Administrative Expenses = 1,500
P
Net Profit = 1,500
P

22
 Pacing’s Halo-Halo Stand
Income Statement
For the month of____________________________
Sales ______________
Less: Returns and Allowances ______________
Net Sales ______________

Beginning Inventory ______________

Goods available for sale ______________
Less: Ending Inventory ______________
Cost of goods sold ______________
Gross Profit on Sales ______________

Less: Selling and Administrative Expenses ______________

Net Profit ______________

What can you say about Pacing’s business based on her income statement?
Compare your version of Pacing’s Income statement with mine on page____.
Are they similar? If not, make the needed corrections before proceeding.

Let’s Try This

A. What three questions about a business can a balance sheet answer?

_____________________________________________________________
_____________________________________________________________
__________________________________________________________________________________________________________________________
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________

23
B. Prepare a balance sheet based on the following information. Compute for
the values left blank. Follow the format of a balance sheet on page .
Business: Apple’s Sari-Sari Store
Owner: Ms. Apple Cruz
Date: April 30,2001
Cash =
P10,000
Accounts Receivable =
P 500
Merchandise Inventory = 5,000
P
Total Current Assets ___________
Store Equipment =
P 6,000
Office Equipment P 3,000
Total Fixed Assets ___________
Total Assets ___________
Accounts Payable = 800
P
Notes Payable = 500
P
Total Liabilities ___________
Owner’s Capital =
P20,000
Net Profit = 5,400
P
Total Owner’s Equity ___________
Total Liabilities ___________
Total Liabilities
& Owner’s Equity ___________
C. Is the business doing well based on the balance sheet that you prepared?
Why?
_____________________________________________________________
_____________________________________________________________
__________________________________________________________________________________________________________________________
D. What are the four questions that an income statement can answer?
_____________________________________________________________
_____________________________________________________________
__________________________________________________________________________________________________________________________
__________________________________________________________________________________________________________________________
__________________________________________________________________________________________________________________________
__________________________________________________________________________________________________________________________

24
 E. Prepare an income statement based on the information below. Compute for
the values left blank. Follow the format of an income statement on page.
Sales = 4,500
P
Return and allowance = 1,000
P
Net Sales ___________
Beginning Inventory = 6,500
P
Purchases: = 800
P
Goods Available for Sale ___________
Ending Inventory = 1,500
P
Cost of Goods Sold ____________
Gross Profit on Sales ____________
Selling and Administrative Expenses = 1,800
P
Net Profit ____________
F. Is the business doing well based on the balance sheet that you prepared?
Why?
__________________________________________________________________________________________________________________________
__________________________________________________________________________________________________________________________
__________________________________________________________________________________________________________________________
__________________________________________________________________________________________________________________________
Compare your work with the one found on the Answer Key on page___. Were
you able to prepare a similar balance sheet and income statement? If not, make the
needed corrections before proceeding to the next lesson.

Let’s Remember

♦ A balance sheet gives the owner of a business the financial status or

position of the business on a specific date. A balance sheet can answer
the following questions:
As of today (date),….
a. How much does my business own?
b. How much does my business owe?
c. What is the value of my financial interest in the business?

25
 ♦ An asset is anything of value that a business owns. Liabilities and debts are
the amounts that the business owes to people or other business. The
owner’s equity is the owner’s share of the business
♦ Current assets are known as liquid assets. This composed of cash,
accounts receivable and merchandise inventory.
♦ Fixed assets are the property of the business that cannot be readily
converted to cash like store equipment and office equipment.
♦ Current assets + fixed assets = total assets
♦ Total liabilities = accounts payable + notes payable
♦ Owner’s equity = Owner’s capital + net profit
♦ An income statement is a report which shows how much a business
earned or lost from it’s operations during a given period of time.
♦ An income statement is also known as a profit and loss statement. It is
usually done weekly or monthly.
♦ An income statement can answer the following questions:
a. Are the goals set at the start of the business being met?
b. Is the business making a profit?
c. Are the sales increasing or decreasing?
d. Is the business making more money through sales? Or is it losing
money through operation and other expenses?
♦ Net sales = sales – returns and allowances
♦ An inventory is the process of counting available goods for sale and
determining the price or value of leftover goods.
♦ Goods available for sale = beginning inventory + purchases
♦ Cost of goods sold = Beginning Inventory + purchases – ending
inventory
♦ Gross profit on sales = net sales - cost of goods sold
♦ Gross profit on sales – selling and administrative expenses
You may take a short break before proceeding to Lesson 3. Walk around or just
sit down and relax.

26
 LESSON 3

Preparing Budgets and Estimating Future

Growth

In Lesson 1 you learned how to compute profit and loss. A business is doing well
if it is making profits. The status of a business can immediately be assessed though a
balance sheet or an income statement, which you studied in Lesson 2. Skills in
business math have to be developed by every businessman or entrepreneur in order to
be successful. Another important skill he/she must learn is how to prepare and
monitor budgets and estimate the future growth of a business.
At the end of this lesson, you are expected to be able to:
♦ prepare and monitor budgets; and
♦ estimate the future growth of a business.

Let’s Read

Preparing and Monitoring Budgets

A budget is a fixed amount of money that one puts into a business for a given
period. In Pacing’s case, she has to control the money she spends for the business
each day. To do this, she has to compute for the cost of each glass of halo-halo sold.
She made this computation:
Cost of Each Halo halo
Ice = 0.50
P
Ube = 1.00
P
Sago = 0.50
P
Sweet beans = 1.00
P
Leche Flan = 1.50
P
Sweetened banana = 1.00
P
Sweetened langka = 1.50
P
Gelatin = 0.50
P
Milk = 1.50
P
Total P 9.00

27
 =
If she plans to sell it at P10.00 per glass, how much profit does she expect from
each?
Selling Price -Cost of sale of each glass = Profit
=
P10.00 =
– P9.00 =
= P1.00

=
Pacing will earn only P1.00 for each
glass sold. If you were she, would this
profit be enough? If =
P1.00 is not enough,
what selling price would you suggest?

If she sells halo-halo at a higher price, she would have more profit. If she sells
=
halo halo at P13.00 each, how much would she earn?
Selling Price -Cost of sale of each glass = Profit
=
P13.00 =
– P9.00 =
= P4.00
=
Would earning P4.00 for each glass of halo halo sold be better than earning
=
P1.00 for each? Of course! But again, Pacing must consider a lot of things. In the
drawing on page ____, her neighbor also sells halo-halo at = P12.00 each. What
selling price would you then suggest?
I suggest she sell halo halo at the same price. Earning P3.00 profit for each
glass sold is better than losing customers to another business who sells the same
goods at a lower price!
=
Pacing decided to sell at P12.00 per glass. If she plans to sell a hundred glasses
a day, how much does she have to spend for the goods to be sold each day?
Cost of goods X 100 = Budget for cost of goods
= 9.00 X P100
P = ==
P900.00
=
This means that she has to buy P900.00 worth of halo-halo ingredients each
day. If she is able to sell a hundred glasses of halo-halo, how much profit could she
make?
Profit per glass X 100 = Gross profit
=
P3.00 =
X P100 =
= P300
=
Pacing expects to make a profit of P300 each day.

28
 Preparing a budget requires that you consider many things. Pacing’s daily budget
= is enough to cover the cost of goods sold. But note that in the income
is P900. This
statement, administrative and other expenses must also be considered. This must be
added to the cost of goods sold, too.
Study the budget that Pacing made for this date and compare it with the profits
she made.
Daily Budget March 13,2001
Cost of goods sold = 900.00
P
Administrative and other expenses = 100.00
P
Total: =
P1000.00
Compare this with:
Actual sales ( P12.00 X 56 glasses sold) =
P672.00
Less: Actual cost of goods for 56 glasses (P9.00 X 56) =
P504.00
Administrative and other expense (P1.00X56) = 56.00
P
Profit =
P112.00
Pacing was not able to sell a hundred glasses as she expected. She earned
something, all right. But remember that halo-halo ingredients spoil after some time.
Did she over-budget?

Yes. Pacing alloted more expenses in

her budget than what she can actually sell.
What do you suggest she does?

I suggest that she monitor her budget. To monitor a budget means to compare
the cost of goods sold with the sales and find out the profits. This is done daily to
make the necessary changes in the budget.
If after a week, Pacing has established that she can only sell an average of 50
glasses of halo-halo a day, what should her daily budget be?

29
 Daily Budget March 21,2001
Cost of goods sold P450.00
Administrative and other expenses P 50.00
Total: P500.00
This is considering:
Average daily sales ( P12.00 X 50 glasses sold) P600.00
Less: Actual cost of goods for 50 glasses (P9.00 X 50) P450.00
Administrative and other expense (P1.00X50) P 50.00
Profit P100.00
Pacing can make P100 a day based on her new budget. Adjusting the expenses
for cost sold helps her avoid overspending for ingredients and limits spoiling. Based
on what you have studied in making and monitoring budgets, can you think of some
guidelines to follow? Write them down below.
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
Compare your work with mine. Read the guidelines for preparing a budget.
Guidelines for preparing a budget
1. A budget should be made for a specific time frame. You could make a
daily, weekly or monthly budget.
2. A budget carefully considers the cost of goods sold and the profits made
on these sales.
3. All factors that affect the business must be considered such as prices of
the competition, spoiling of goods yet to be sold and other considerations.
All, of these must be reflected in the budget.
4. A budget is made to make sure that the business will not lose money.
Money that is poured into the business must earn. If this is not achieved,
changes in the budget should be made based on the present situation.
Basically, a budget is made to prevent over-spending. It is constantly monitored
using computations for profit and loss. The balance sheet and income statement for
a given period must be assessed to make the necessary changes in the budget.

30
 Let’s Think About This

Have you seen your mother or any older member of your family prepare a
budget for your household expenses? What are the reasons why a household budget
is made? Can these reasons also be the same for business?

Let’s Read

Estimating The Future Growth of a Business

A good entrepreneur makes plans for his/her business. He/she can foresee (tell
ahead or predict) what the future holds for his/her business. To do this, he/she
should learn how to prepare and analyze budgets, income statements and balance
sheets.
Remember Pacing in the previous lesson? If she earns =
P25.00 a day from
selling halo-halo, how much does she expect to earn in a month if she sells halo-
halo from Monday to Saturday?
Daily Profit X Number of Selling Days in a Month = Monthly Profit
= x 6 days (Monday to Saturday ) X 4 weeks (in a month)= =
P25 P600
=
Pacing expects to earn P600 a month from selling halo-halo.
Do you think she is earning enough? Would you expect her business to show
good growth?
=
P600 a month may not be enough for her business to grow.
=
If Pacing adds P200 =
to her beginning inventory of P800, how much would her
beginning inventory be? If you answered = P1,000, that’s correct. Why should Pacing
add some of her profits to her beginning inventory? If she increases her beginning
inventory, she would have more halo-halo to sell! This would make her business
grow.
But she also knows that she can sell an average of 50 glasses of halo-halo a day
at P12.00 each. That would give her total daily sales of P= 600. If we deduct the cost
=
=
of sales of P450 =
(P9.00 =
for each halo-halo X 50), Pacing would only have P200 in
=
profits a day at most. Would adding P200 to her beginning inventory be a good
idea?
It would not be good idea because she could only have more losses because of
extra supplies (halo-halo ingredients) that can get spoiled.
Estimating the future growth of a business depends on the type of business and
the profits earned. To make a business grow, some of the profits are “returned to the
business” as capital or beginning inventory. This is in the hope of increasing sales in
the future. But this does not always happen.

31
 To estimate the future growth of a business, one must prepare and analyze
budgets, income statements and balance sheets. Special attention must be given to
profits made.
If a business has good profits, would
you expect that business to have growth in
the future? Of course! And the bigger the
profit is, the bigger the business is expected
to grow. Lesser profits or losses are not
indications of good growth in business. The
entrepreneur must be able to assess his
profits and losses to predict what will
happen in the future.

Let’s Try This

1. Josefa has profits of P100 a day selling bananacue outside at a school.

How much can she earn in a month if she sells bananacue 5 x a week?
What can she do to make her business grow?
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
2. Pedring studied his balance sheet. It shows that he has losses of P145.00 a
day from selling bread. Is this a sign of business growth? Why?
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
3. Mang Tibo is a barber. He earns P200 a day in his barbershop. How much
can he earn in a month if works every day? What can he do to make his
business grow?
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
Compare your answers with those found in the Answer Key on page ____. Did
you get your answers correct? Find out why some of your answers are wrong and
make the necessary corrections before proceeding.

32
 Let’s Remember

♦ A budget is a business’ plan for spending in a given period.

♦ A budget is made to prevent over-spending. It is constantly monitored
using computations for profits and losses. The balance sheet and income
statement for a given period must be assessed to make needed changes in
the budget.
♦ To monitor a budget means to compare the costs of goods sold with the
sales to find if a profit is made.
♦ To estimate the future growth of a business, a business owner should
learn how to prepare and analyze budgets, income statements and balance
sheets.
♦ Estimating the future growth of a business depends on the type of business
and the profits earned. To make a business grow, some of the profits are
“returned to the business” as capital or beginning inventory.
♦ Generally, the bigger the profit is, the bigger the business is expected to
grow. Lesser profits or losses are indications of poor growth in business.

What Have You Learned?

Congratulations! You are now finished studying this module. By this time, you
already have the needed knowledge and skills in business. You can solve number
problems in business and prepare business-related reports like balance sheets and
income statements. Test what you have learned by answering the following. You
may use a separate sheet of paper for your computations.
A. Use these values to answer the questions that follow
Merchandise Inventory = 5,500
P
Accounts Payable = 3,400
P
Store Equipment =
P12,000
Cash = 6,000
P
Accounts Receivable = 2,500
P
Owner’s Capital =
P15,000
Net Profit = 6,000
P
Notes Payable = 2,000
P
1. Compute for Total Current Assets, Total Fixed Assets, Total Assets, Total
Liabilities, and Owner’s Equity.
2. Using a separate sheet of paper, prepare a balance sheet following the
format given on page 30.

33
 Compare your work with that found in the Answer Key on page _____. Is your
balance sheet similar? If it is, that’s good! If not, make the needed corrections in
your balance sheet before proceeding.
B. Match Column A with Column B by connecting the words with a line
Column A Column B
Assets money in bills or coins.
Liabilities an example is equipment
Entrepreneur what the business owns
Current Assets also known as liquid assets
Cash one who runs his/her own business
Merchandise inventory value of unsold goods or products
Fixed assets what the business owes
Check if you got your answers correct. Compare them with those in the Answer
Key on page _____.
C.
=
Last month, Petals Flower Shop sold P20,000 worth of flowers. The
=
cost of goods sold was P13,000. The operating and administrative
expenses were: salaries = =
P2,500, supplies P500 and miscellaneous expenses
=
P600.
1. Find the gross profit and net profit for the month. Net income is
computed as Net Income = Gross Profit – Operating Expenses
2. Prepare an income statement based on the given information.
D.
Using a separate sheet of paper, prepare an income statement based on
the values given on the next page. Follow the format of an income
statement on page ___.In this case, the information needed for the value of
the beginning inventory is not given. You need not put it in your income
statement.
Sales =
P5000
Cost of Sales =
P2500
Selling and Administrative Expenses = 600
P
Compare your work with that found in the Answer Key on page ___. Is your
income statement similar? That’s good! If not, make the needed corrections in your
income statement.

34
 E. Use these values to answer the questions that follow
Merchandise Inventory = 6,000
P
Accounts Payable = 3,400
P
Store Equipment =
P10,000
Cash = 5,000
P
Accounts Receivable = 7,500
P
Owner’s Capital =
P11,000
Net Profit = 4,000
P
Notes Payable = 1,000
P
1. Compute for Total Current Assets, Total Fixed Assets, Total Assets,
Total Liabilities, and Owner’s Equity
2. Using a separate sheet of paper, prepare a balance sheet following the
format given on page 30.
F.
=
For the month of August, Carla’s Sari-Sari Store sold P16,000 worth
of groceries. The cost of goods sold was =P12,000. The operating and
administrative expenses were: salaries =P1,500, supplies =
P200 and
miscellaneous expenses = P300.
1. Find the store’s gross profit and net income for the month of August.
Net income is computed as Net Income = Gross Profit – Operating
Expenses
2. Prepare an income statement based on the given information, using a
separate sheet of paper.
=
G. Carlos has daily losses of P90.00 in his video rental business. Do you
suggest he continue his business? If not, why? If yes, what can he do to
make his business grow? Why?
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
Compare your work with that found in the Answer Key on page _____. Are
your balance sheet and income statement similar? That’s good! If not, make the
needed corrections before proceeding.
Compare your answers with those found in the Answer Key on page ____. Are
your answers correct? That’s very good.

35
 I hope you learned a lot from this module. If you did, congratulations for a job
well done! If you already got your answers correct, study the module summary
below.

Let’s Sum Up

In this module on business math, you learned how to solve business related
math problems and lhow to prepare balance sheets and income statements.
In Lesson 1, you learned how to compute for profit and loss.
In Lesson 2, you learned how to analyze and prepare balance sheets and income
statements.
In Lesson 3, you learned how to prepare and monitor a budget and predict the
future growth of a business.

36
 Answer Key

A. Let’s See What You Already Know (page )

1. Gross Profit = =
P 800
Net Profit = Gross Profit - Expenses
== =
P800 – (P400 =
+ 100 + 150) = P800- =
P650 = =
P150
=
The repair shop is earning P150 a day in net profit. That’s a sign that
the business is doing well.
2. Sales: = 2,000
P
Less: Actual Cost of products sold = 1,400
P
Less: Expenses = 750
P
Selling Cost =
P250
Salaries =
P500
Net Profit = =
-P150
=
The business is losing at the rate of P150 per day. It is not doing well.
3. A balance sheet gives the owner of a business the financial status or
position of the business on a specific date. It is prepared daily. A
balance sheet can answer the following questions:
As of today (date),….
a. How much does my business own?
b. How much does my business owe?
c. What is the value of my financial interest in the business?
Net Profit = Gross Profit - Expenses
=
= P800 =
– (P400 P800- =
+ 100 + 150) = = P650 = =
P150
E. What is an income statement?
An income statement is a report that helps the owner of a business to
assess his/her business’’ performance. It answers the following questions:
a. Are the goals set at the start of the business being met? Is the
business making a profit?
b. Are the sales increasing or decreasing?
c. Is the business making more money through sales? Or is it losing
money through operation and other expenses?

37
F. Sarangola Store
Income Statement
Date:____________________________
Sales =
P10,000
Less: Cost of goods sold =
P 7,000

Gross Profit on Sales =

P 3,000

Less: Operating and Administrative Expenses = 1,800

P
Salaries =
P1,000
Supplies = 200
P
Miscellaneous Expenses =
P 600

Net Profit = 1,200

P
Let’s Try This (page__)
1. =
Gross Profit = # of bags of puto sold X P11.50
= 60 X =
P11.50 = =
P690.00
Actual cost of goods sold = 60 X =P8.00 = P480
=
Net profit = Gross profit – Cost of goods sold
== =
P690- P480 =
= P210
=
2. Gross Profit = # of buco pies sold X P50
= 10 X = =
P50 = P500
Profit from each pie = Selling price – actual cost of each pie
= P50 = = P10
= – P40 =
Actual cost of goods sold = 60 X =P.80 = =
P48
Net profit = Gross profit -– Cost of goods sold
=
= P90- =
= = P42
P48
Let’s Try This (page__)
1. Gross Profit =
P2,500
Less:
Actual cost of goods sold =
P2,200
Selling expenses = 100
P
Net profit = Gross profit – (Cost of goods sold + expenses)
== =
P2,500- (P2,200 =
+ P100) =
= P2,500 =
– P2,300 =
= P200

38
2. Gross Profit =
P500
Less: Expenses
Salaries =
P200
Rent =
P150
Light and water = 50
P
Net profit = 40
P
Let’s Try This (page__)
1. Gross Profit (Sales) =
P5,000
Less:
Actual cost of goods sold =
P4,200
Operating and Selling expenses = 800
P
Net profit = Gross profit – (Cost of goods sold + expenses)
== =
P5,000 – (P4,200 =
+ P800) == =
P5,000 – P5,000 =
= P0
The drugstore is just breaking even. It is not doing well.
2. Gross Profit = 700
P
Less: Expenses
=
Salaries (P200 X 2) = 400
P
Rent = 200
P
Water = 50
P
Electricity = 75
P
Net profit =
P 25
Net profit = Gross profit – expenses
== = = = =
P700 – (P400+P200+P50+P75) =
= P700 =
– P750 =
= - P25
The repair shop is losing money. It is not doing well.
3. Gross Profit =
P1,200
Less: Expenses
Actual cost of goods sold P= 900
=
Salaries (P150 X 2) P= 300
Rent = 200
P
Sellign cost P= 50
Net profit = 250
- P
Net profit = Gross profit – expenses
=
= P1,200- (=P900 + =P300+ =
P200 + =
P50) = =
P1,200 – =
P1,450
=
= Net profit = - P250
The flower shop is losing =
P250 a day. It is not doing well.

39
Let’s Try This (page __)
Pacing’s Halo-Halo Stand
Income Statement
Date:____________________________
Sales = 7,600
P
Less: Return and Allowances = 1,500
P
Net Sales = 6,100
P
Less:
Beginning Inventory =
P4,500
+ Purchases =
P 600
Goods available for sale =
P5,100
Ending Inventory = 2,000
P
Cost of goods sold =
P 3,100
Gross Profit on Sales =
P 3,000
Less: Selling and Administrative Expenses = 1,500
P
Net Profit = 1,500
P
Let’s Try This (page __)
A. A balance sheet gives the owner of a business the financial status or
position of the business on a specific date. A balance sheet can
answer the following questions:
As of today (date),….
a. How much does my business own?
b. How much does my business owe?
c. What is the value of my financial interest in the business?

40
B.
Apple’s Sari-Sari Store
Ms. Apple Cruz
Balance Sheet
April 30,2001
Current Assets
Cash =
P10,000
Accounts Receivable = 500
P
= 5,000
Merchandise Inventory P
Total Current Assets =
P15,500
Fixed Assets
Store Equipment = 6,000
P
Office Equipment = 3,000
P
Total Fixed Assets = 8,000
P
Total Assets = 26,500
P
Current Liabilities
Accounts Payable =
P 800
Notes Payable =
P 500
Total Liabilities = 1,100
P
Owner’s Equity
Owner’s Capital =
P20,000
Net Profit = 5,400
P
Total Owner’s Equity = 25,400
P
Total Liabilities = 1,100
P
Total Liabilities
& Owner’s Equity = 26,500
P
C. Is the business doing well based on the balance sheet that you
prepared? Why? Yes, it is has a good net profit. The assets are big and
the liabilities are small.
D. What are the four questions that an income statement can answer?
An income statement can answer the following questions:
a. Are the goals set at the start of the business being met?
b. Is the business making a profit?
c. Are the sales increasing or decreasing?
d. Is the business making more money through sales than losing
money through operation and other expenses?

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E. Income Statement.
X Store
Income Statement
For the Month of….
Sales =
P4,500
Less: Return and allowance =
P1,000
Net Sales = 3,500
P
Cost of Goods Sold:
Beginning Inventory =
P6,500
Purchases: = 800
P
Goods Available for Sale =
P7,300
Ending Inventory =
P1,500
Cost of Goods Sold =
P5,800
Gross Profit on Sales =
P9,300
Selling and Administrative Expenses =
P1,800
Net Profit =
P7,500
F. Yes, the business is doing well based on the income statement. It
=
made a profit of P7,500 in a month.
Answer This (page )
1. Monthly earnings:
=
P100 =
X 5 (days a week) X 4 (weeks in a month) = P2,000
To make her business grow, Josefa can add more capital to
increase the number of banana cue she sells every day. She can also
increase her prices or lessen the cost of goods sold.
2.
No. Losses is not a good sign of business. It means that the business is
not growing. In fact, it means that the business has problems. The
bigger the amount lost, the more the business is in trouble.
3. Monthly earnings:
=
P200 X 7 (days a week) X 4 (weeks in a month) = =
P5,600
To make his business grow, Mang Tibo can add more capital to
increase the size of his barbershop, add more barber chairs or employ
additional barbers. He can also increase the cost of the services he
provides.
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What Have You Learned (page )
A. The total current assets, total fixed assets, total assets, total liabilities
and owner’s equity have already been computed.
XYZ Company
____________ - Proprietor
Balance Sheet
Date:_______________
Current Assets
Cash P6,000
Accounts Receivable P2,500
Merchandise Inventory P5,500
Total Current Assets P14,000
Fixed Assets
Store Equipment P12,000
Total Fixed Assets P12,000
Total Assets P26,000
Current Liabilities
Accounts Payable P3,400
Notes Payable P2,000
Total Liabilities P5,400
Owner’s Equity
Owner’s Capital P15,000
Add: Net Profit P 6,000
Total Capital P21,000
Total Liabilities P5,400
Owner’s Equity P15,600
B.
Assets money in bills or coins.
Liabilities an example is equipment
Entrepreneur what the business owns
Current Assets also known as liquid assets
Cash one who runs his/her own business
Merchandise Inventory value of unsold goods or products
Fixed Assets what the business owes

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 Petal’s Flower Shop
Income Statement
Date:____________________________
Sales P 20,000
Less: Cost of goods sold P13,000
Gross Profit on Sales P 7,000
Less: Selling and Administrative Expenses P 3,600
Salaries P 2,500
Supplies P 500
Miscellaneous Expenses P 600

Net Profit P 3,400

C. ABC Business
Income Statement
Date:____________________________
Sales P5,000
Less: Cost of sales P2,500
Gross Profit on Sales P2,500
Less: Selling and Administrative Expenses P 600
Net Profit P1,900

D. The total current assets, total fixed assets, total assets, total
liabilities and owner’s equity have already been computed.
_________Company
____________ - Proprietor
Balance Sheet
Date:_______________
Current Assets
Cash P5,000
Accounts Receivable P7,500
Merchandise Inventory P6,000
Total Current Assets P18,500
Fixed Assets
Store Equipment P10,000
Total Fixed Assets P10,000

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Total Assets P28,500
Current Liabilities
Accounts Payable P 3,400
Notes Payable P 1,000
Total Liabilities P 4,400
Owner’s Equity
Owner’s Capital P11,000
Add: Net Profit P 4,000
Total Capital P15,000
Total Liabilities P 4,400
Owner’s Equity P10,600
E.
Carla’s Sari-Sari Store
Income Statement
Date:____________________________
Sales P16,000
Less: Cost of goods sold P12,000
Gross Profit on Sales P 4,000
Less: Selling and Administrative Expenses P 2,000
Salaries P1,500
Supplies P 200
Miscellaneous Expenses P 300
Net Profit P 2,000
F. Carlos should think very hard about his business situation. Although
P90.00 is a relatively small loss, he should find out why his business
is losing money. I suggest he continue to do business for a while until
such time that he cannot recover his losses anymore.

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 References

Compton’s encyclopedia (1995). US: Compton’s Learning Company

Grolier academic encyclopedia.(1990). New Jersey: Arete Publication
Company.
Pagoso, Cristobal (1990). Business Math. Manila, Philippines: Rex Book Store.

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