LEARNING MODULE

Fundamentals of Accounting 1
(Accounting 1 - Grade 11)

QUARTER 1-WEEK 3
LESSON 1 The Financial Statements

YOUR TOPIC
Topic: The Types of Financial Statements
Materials: Paper, Pen, Calculator, Laptop, reading texts

YOUR TARGET COMPETENCIES

By the end of the lesson, you will be able to:

 classify the types of financial statements.

YOUR INITIAL TASK

Activity 1. Pre-Test
True or False. Write true if the statement is correct and false if the statement is wrong. Write
your answer on the space provided. After activity, check your answer and determine your Level of
Proficiency found below this page.
_____1. The Statement of Financial Position or Balance Sheet shows the financial condition /position of
the business as of a given period.
____ 2. The Income Statement is a statement that contained the owner’s first initial investment.
____ 3. A statement of Changes in Owner’s Equity decreases its balance when owner makes additional
investment to the business.
____ 4. The Income Statement shows the result of business operations for a given period.
___ _5. There are five major types of accounts in the financial statements.
___ _6. The normal balance of an Asset is debit while the normal balance of a liability and capital is
credit.
___ 7. An entity that borrows money from the bank would most likely present interest income in the
Income statement.
___ 8. Accounts payable and Account receivable in the financial statements are opposite. Meaning if I
have an account payable to you, you, in turn, have an account receivable from me.

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____9. The claims of creditors on the total assets of an entity are also called liabilities.
____10.You are selling banana cue. If I buy your banana cue and informally promise to pay for it
tomorrow, your accounts payable will increase.

SCORE LEVEL OF PROFICIENCY

10 Advanced
8 Proficient
6 Approaching Proficiency
4 Developing Proficiency
3 Beginning Proficiency

YOUR TEXT
1
Types of Financial Statements
The end product of the accounting process is a set of documents called financial statements
comprised of the following:
1. Statement of Financial Position or the Balance Sheet is a financial statement
which shows the financial position of an enterprise as of a particular date. It consists of the
Assets, liabilities and Capital. It measures and evaluates in terms of the enterprise’ liquidity,
solvency, financial structure and capacity for adaptation. (Ong, 2016).
 Liquidity is the stability of the enterprise to meet currently maturing
obligations.
 Solvency is the availability of cash over the longer terms to meet maturing
obligations.
 Financial Structure is the source of financing for assets of the enterprise. It
indicates how much is borrowed capital and how much is equity capital.
 Capacity for Adaptation is the financial flexibility of the enterprise to use the
available cash for unexpected requirements and investment opportunities.

Again to reiterate Balance Sheet consists of Assets, liabilities and Owner’s equity
 Assets- in layman’s language, these are things of value or rights that are
owned and used by the business in the conduct of its operation such as cash,
land, building, inventories, furniture and fixtures, machineries and equipment,
prepaid expenses, etc. It also includes accounts collectible by the business
which we termed as “ Receivable”. Assets answer the question HOW MUCH
THE BUSINESS OWNS.(Ballada&Ballada, 2019).

 LIABILITIES- These are debts or financial obligations of the business that are
payable in cash or in some kind of assets such as Accounts Payable, Notes
Payable, Salaries Payable, Mortgage Payable, Bond Payable, Accrued Salaries

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 Payable, Interest Payable, etc. This tells us HOW MUCH THE BUSINESS
OWES.(Millan,2019).

 OWNER’S EQUITY- This refers to money or value or property put by the

proprietor in to the business to start with which refers to as “ Initial
investment”. Owner’s Equity will be increased by profits or additional
investment and decreased by Withdrawal, expenses and losses. Most often ,
Owner’s Equity is the residual interest in assets after deducting all the liabilities.
It is expressed in the equation as ASSTS LESS LIABILITIES EQUALS OWNER’s
Equity (A-L= OE),(Millan, 2019) Thus if

The business owns (assets) P200,000

Less what the business owes (liabilities) 140,000
Equals what is left for the business (owner’s equity) P 60,000
========

Owner’s Equity therefore, tells us HOW MUCH IS LEFT FOR THE BUSINESS.

2. Statement of Comprehensive Income which is previously known as Income Statement is a

financial statement that shows the “results of business operations” of the business for a given
period of time. It consists of three (3) sections which are the Revenue or Income, Expenses and
Profit and Loss. The period covered by the statements may be (Millan, 2019).

“For the month ended _________________”.

“For the quarter ended_________________”
“For the six month period ended__________”
“For year ended_______________________”.
3. A Statement of Changes in Owner’s Equity – is a financial statement that summarizes the
changes in equity for a given period of time. The beginning equity of the owner is increased by
the additional investment and profit. Correspondingly, it is decreased by Withdrawals and
loss.(Ong,2016).
4. Statement of Cash Flows – summarizes the cash receipts and cash disbursements for the
accounting period. It summarizes the cash activities of the business by classifying cash inflows
(receipts) and cash outflows (payments) into operating, investing, and financing activities. It
shows the net increase or decrease of cash in a given period and the cash balance at the end of
the period. This allows management to assess the business’ ability to generate cash and project
future cash flows.(Ong, 2016).

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 YOUR TECHNO-TIME

 For additional information, please open you flash drive with the file name:
 VIDEO 4 - The Financial Statements

YOUR PRACTICE TEST

Practice Test.

DRILL 1 Identification.
Instruction: Indicate which financial statement the following items listed below appear as
either Income Statement under COLUMN A and as either a BALANCE SHEET account under
COLUMN B .
Account Titles COLUMN A COLUMN B
1. Accounts receivable Ex. Balance sheet
2.Bad debt expense
3.Building
4.Notes payable
5.Rent expense
6.Owner’s equity
7.Interest income
8.Cash
9. Gain
10.Computer equipment
11.Depreciation
12.Utilities payable
13.Freight-out
14.Rent income
15. Unearned income

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 YOUR FINAL TASK

TASK A
Instruction: Below are accounts taken from the books of Andres Repair Services for
the month of May, 2020. Prepare an income statement in good form from the given
data and answer the questions below. Present your answers in the worksheet.

Repair Revenue P400, 000

Rent Income 20,000
Salaries and Wages 70,000
Utilities Expense 28,000
Supplies Expense 22,000
Depreciation Expense 4,000
Miscellaneous Expense 6,000

Questions:

1. How much is the total Revenue or Income of the business? (5pts)

2. How much are the total expenses incurred by the business?(5 pts)
3. What is the result of the business operation, is it a profit or a loss? explain (5 pts).

TASK B

Post Test. After going through this learning module, I am sure that you can now perfectly answer the
following:

Instruction: Answer the following questions. Show your computations .

1. If owner’s equity is P125, 000 which is 40% of the total assets, how much is the total liabilities
of the business?
2. If the economic resources of a business amount to P2,400,000 and its residual interest amounts
to P1,995,000, what is the amount of its economic obligations?
3. The economic resources of a business amount to P1,600,000 and its economic obligations
amount to P788,000, what would be its residual interest?
4. If the total owner’s equity is P580,000 which is ¼ of the total assets, what is the amount of the
residual interest of the business?
5. If the economic obligations of a business amount to P160,000 and its residual interest amounts
to P264,000, what would be the amount of the economic resources of the business?

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 YOUR Thoughts

In this lesson, I learned/realized that

______________________________________________________________________
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COR JESU COLLEGE

Basic Education Department

WORKSHEET IN Accounting 1
(Fundamentals of Accounting 1)

NAME: _______________________________SECTION: _________

TEACHER: _______________________________ DATE SUBMITTED: _________

Task A

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NAME: _______________________________SECTION: _________
TEACHER: _______________________________ DATE SUBMITTED: _________

Task B

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