STEPS IN PREPARING THE SCI (STATEMENT OF COMPREHENSIVE INCOME OF MDSNG ):

1. Prepare the Statement Heading

2. Determine the revenue

Sales ₱ 457,500
Less: Sales Returns and Allowances ₱ 5,950
Sales Discounts 3,550 9,500
Net Sales ₱ 448,000
3. Determine the net cost of purchases, cost of goods sold and gross
profit
profit.
a. Determine the net cost of purchases using the following
formula:

*Net Purchases = (Purchases - Purchase Ret. & allow - purchase discounts)

**Net Cost Purchases = (Net purchases + transportatio-in or freight-in)

Purchases ₱ 270,000
Less: Purchase Ret. & Allowances ₱ 5,050
Purchase Discounts 2,450 7,500
Net Purchases ₱ 262,500
Add: Transportation-In 3,100
Net Cost of Purchases ₱ 265,600

b. Determine the cost of good sold/cost of sales using the following

Beginning Inventory xxx
Add: Net cost of purchases xxx
Total Goods Available for Sale xxx
Less: Ending Inventory xxx
Cost of Goods Sold xxx

Beginning Inventory ₱ 90,000

Add: Net cost of purchases 265,600
Total Goods Available for Sale ₱ 355,600
Less: Ending Inventory 98,000
Cost of Goods Sold ₱ 257,600

c. Determine the gross profit using this formula

 Net Sales xxx
Less: Cost of Goods Sold xxx
Gross Profit xxx

Net Sales ₱ 448,000

Less: Cost of Goods Sold 257,600
Gross Profit 190,400

4. Determine the operating expenses

a. Determine the selling expenses
b. Determine the general and administrative expenses
c. Determine the other other expenses

5. Determine the net income

ILLUSTRATIVE PROBLEM:
The Green Valley Merchandising
Adjusted Trial Balance
December 31, 2021

Cash ₱ 39,000
Accounts Receivable 56,250
Allowance for Bad debts
Merchandise Inventory 90,000
Prepaid Insurance 2,150
Store Supplies 650
Office Supplies 375
Store Equipment 66,000
Accum. Depreciation- Store Equipment
Office Equipment 25,000
Accum. Depreciation-Office Equipment
Accounts Payable
Salaries Payable
Unearned Rent
Notes Payable
O. Ramos, Capital
 O. Ramos, Drawing 20,000
Sales
Sales Returns and Allowances 5,950
Sales Discounts 3,550
Purchases 270,000
Purchase Returns and Allowance
Purchase Discount
Transportation-IN 3,100
Sales Salaries Expense 37,625
Advertising Expense 12,500
Depreciation Expense- Store Equipt. 3,750
Store Supplies Expense 1,475
Uncollectible Accounts Expense 5,625
Miscellaneous Selling Expense 800
Office Salaries Expense 22,575
Rent Expense 13,000
Insurance Expense 2,700
Depreciation Expense- Office Equipt. 1,900
Office Supplies Expense 675
Miscellaneous Admin. Expense 825
Rent Revenue
Interest Expense 5,800
Total ₱ 691,275

*Additional Information: Ending inventory is P98,000.

Presentation of Expenses:
1. Nature of Expense Method
* expenses are presented according to their nature
* this is also known as single-step approach

2. Function of Expense Method

* expenses are presented according to their function
as part of cost of sales, or for example, the cost of
distribution or administrative activities.
* referred to as prepared using a multi-step approach
COME OF MDSNG ): THE GREEEN VALLEY
1
STATEMENT OF CO
For the period ended

Net Sales
Gross Sales
Less: Sales Returns and Allowances
Sales Discounts
Net Sales
Cost of Sales
Merchandise Inventory, Jan. 1
Purchases
Less: Purchases Returns & Allow.
Purchase Discounts
Net Purchases
rchase discounts) Transportation-In
Net Cost Purchases
n or freight-in) Cost of Goods Available for Sale
Less: Merchandise Inventory, Dec. 31
Cost of Sales
Gross Profit
Add: Other Income - Rent Revenue
Total Revenue
Less: Operating Expenses
Selling Expenses
Sales Salaries Expense
following Uncollectible Accounts Expense
Advertising Expense
Depreciation Expense- Store Equip.
Store Supplies Expense
Miscellaneous Selling Expense
Total Selling Expenses
General and Administrative Expenses
Office Salaries Expense
Rent Expense
Insurance Expense
Depreciation Expense- Office Equipt
Office Supplies Expense
Miscellaneous Admin. Expense
Total Admin. Expense
 Other Expenses - Interest Expense
Total Expenses
Net Income

₱ 5,625

23,900

10,500
33,350
2,500
10,200
52,500
77,300
 457,500

5,050
2,450

10,400

₱ 691,275

NATURE OF EXPENSE

THE GREEEN VALLEY MERCHANDISI

STATEMENT OF COMPREHENSIV
For the period ended December 31,

Revenue from Sale, Net

Add: Other Income
Total Revenue
Add (Less):
Increase in Merchandise Inventory
Net Purchases
Operating Expenses
Finance Costs
Net Income
E GREEEN VALLEY MERCHANDISING Name of the owner or b
STATEMENT OF COMPREHENSIVE Type of statement prep
the period ended December 31, 2021 Period covered

₱ 457,500
₱ 5,950
3,550 9,500
₱ 448,000

₱ 90,000
₱ 270,000
₱ 5,050
2,450 7,500
₱ 262,500
3,100
265,600
₱ 355,600
98,000
257,600
₱ 190,400
10,400
₱ 200,800

₱ 37,625
5,625
12,500
3,750
1,475
800
₱ 61,775

₱ 22,575
13,000
2,700
1,900
675
825
41,675
5,800
(109,250)
₱ 91,550
 LEY MERCHANDISING
F COMPREHENSIVE
ded December 31, 2021

₱ 448,000
10,400
₱ 458,400

₱ 8,000
(265,600)
(103,450)
(5,800)
91,550
me of the owner or business entity
pe of statement prepared
riod covered
STEPS IN PREPARING THE SCI (STATEMENT OF COMPREHENSIVE INCOME):
1. Prepare the Statement Heading

2. Determine the total revenue from the Trial Balance.

3. Determine the effect of other items if there is any, then
determine
the net income by deducting the service revenue from total
expenses
***The single-step approach uses only one subtraction function
to calculate net income: net income = (revenue + gain) – (expenses + losses).
The result will be Net income for a positive result and net loss for a negative
result.

ILLUSTRATIVE PROBLEM:

DRA. ABRYL RECTO

Adjusted Trial Balance
December 31, 2019

Cash ###
Accounts Receivable 205,000
Allowance for Bad debts ₱ 7,550
Prepaid supplies 11,500
Medical Equipment 1,964,000
Accum. Depreciation- Medical Equipment 450,131
Vehicle 1,060,000
Accum. Depreciation-Vehicle 336,000
Accounts Payable 43,200
Unearned Professional Fees 47,000
Mortgage payable 1,230,000
A. Recto, Capital 1,885,555
A. Recto, Drawing 5,000
Professional Fees 800,870 2
Salary Expense 123,400
Rent Expense 50,000
Telephone Expense 14,000
3
Utilities Expense 7,000
Repairs Expense 10,003
Total ### ₱4,800,306
 DRA. ABRYL RECTO Name of the owner
1 INCOME STATEMENT Type of statement p
For the period ended December 31, 2019 Period covered

Professional Fees ₱ 800,870

Less: Operating Expenses
Salary Expense ₱ 123,400
Rent Expense 50,000
Telephone Expense 14,000
Utilities Expense 7,000
Repairs Expense 10,003 204,403
Net Income ₱ 596,467

since this is a positive result it is a NET INCOM

R>E= NI
R<E= (NL)
 Name of the owner or business entity
Type of statement prepared
Period covered

ult it is a NET INCOME

STEPS IN PREPARING THE SCE OF A SOLE PROPRIETORSHIP (STATEMENT OF CHANGES IN OWNER'S
1. Prepare the Statement Heading
2. Determine the beginning balance of the capital (equity).
3. Determine the amount of investment (additional)
4. Determine the amount of the net income.
5. Determine the balance of the drawing account
6. Determine the ending balance of the capital or owner’s equity account.

ILLUSTRATIVE PROBLEM:

DRA. ABRYL RECTO

Adjusted Trial Balance
December 31, 2019

Cash ###
Accounts Receivable 205,000
Allowance for Bad debts ₱ 7,550
Prepaid supplies 11,500
Medical Equipment 1,964,000
Accum. Depreciation- Medical Equipment 450,131
Vehicle 1,060,000
Accum. Depreciation-Vehicle 336,000
Accounts Payable 43,200
Unearned Professional Fees 47,000
Mortgage payable 1,230,000
A. Recto, Capital 1,885,555
A. Recto, Drawing 5,000
Professional Fees 800,870
Salary Expense 123,400
Rent Expense 50,000
Telephone Expense 14,000
Utilities Expense 7,000
Repairs Expense 10,003
Total ### ₱4,800,306
NT OF CHANGES IN OWNER'S EQUITY): DRA. ABRYL RECTO
STATEMENT OF CHANGES IN OWNER'S EQUITY
For the year ended December 31, 2019

A. Recto, Capital (beg.)

Add: Additional Investment (if any)
Net Income
Total
Less: Drawing
A. Recto, Capital,Dec. 31, 2019 (ending)
CTO
OWNER'S EQUITY
mber 31, 2019

₱ 1,885,555
-
596,467
₱ 2,482,022
5,000
₱ 2,477,022
STEPS IN PREPARING THE SFP (STATEMENT OF FINANCIAL POSITION):
1. Prepare the Statement Heading
2. Prepare the Asset Section
3. Prepare the Liabilities Section
4. Prepare the Owner’s Equity Section
5. Ensure that the Assets equate to Liabilities and Equity.

ILLUSTRATIVE PROBLEM:

DRA. ABRYL RECTO

Adjusted Trial Balance
December 31, 2019

Cash ###
Accounts Receivable 205,000
Allowance for Bad debts ₱ 7,550
Prepaid supplies 11,500
Medical Equipment 1,964,000
Accum. Depreciation- Medical Equipment 450,131
Vehicle 1,060,000
Accum. Depreciation-Vehicle 336,000
Accounts Payable 43,200
Unearned Professional Fees 47,000
Mortgage payable 1,230,000
A. Recto, Capital 1,885,555
A. Recto, Drawing 5,000
Professional Fees 800,870
Salary Expense 123,400
Rent Expense 50,000
Telephone Expense 14,000
Utilities Expense 7,000
Repairs Expense 10,003
Total ### ₱4,800,306
ACCOUNT FORM: (FABM2 MODULE 3)
DRA. AB
STATEMENT OF F
AS OF DECE
ASSETS
Current Assets
Cash
Accounts Receivable ₱ 205,000
Less: Allowance for Bad Debts 7,550
Prepaid Supplies
Total Current Assets
Non-Current Assets
Medical Equipment ₱ 1,964,000
Less: Accum. Depreciation- Medical Equipment 450,131
Vehicle ₱ 1,060,000
Less: Accum. Depreciation- Vehicle 336,000
Total Non-Current Assets
TOTAL ASSETS

REPORT FORM (FABM2 MODULE 2)

DRA. ABRYL RECTO
STATEMENT OF FINANCIAL POSITION
AS OF DECEMBER 31, 2019

ASSETS
Current Assets
Cash
Accounts Receivable ₱ 205,000
Allowance for Bad Debts 7,550
Prepaid Supplies
Total Current Assets
Non-Current Assets
Medical Equipment ₱ 1,964,000
Less: Accum. Depreciation- Medical Equipment 450,131
Vehicle ₱ 1,060,000
Less: Accum. Depreciation- Vehicle 336,000
Total Non-Current Assets
TOTAL ASSETS

LIABILITIES AND OWNER'S EQUITY

LIABILITIES
Current Liabilities
Accounts Payable ₱ 43,200
Unearned Professional Fees 47,000
Total Current Liabilities
Non-current Liabilities
Mortgage Payable
Total Liabilities

OWNER'S EQUITY
A. Recto, Capital December 31, 2019
TOTAL LIABILIIES AND OWNER'S EQUITY
 DRA. ABRYL RECTO
STATEMENT OF FINANCIAL POSITION
AS OF DECEMBER 31, 2019
LIABILITIES AND OWNER'S EQUITY
LIABILITIES
₱ 1,350,403 Current Liabilities
Accounts Payable ₱43,200
197,450 Unearned Professional Fees 47,000
11,500 Total Current Liabilities ₱ 90,200
₱ 1,559,353
Non-current Liabilities
Mortgage Payable ###
1,513,869 Total Liabilities

724,000 OWNER'S EQUITY

2,237,869 A. Recto, Capital December 31, 2019
₱ 3,797,222 TOTAL LIABILITIES AND OWNER'S EQUITY

O
POSITION
2019

₱ 1,350,403

197,450
11,500
₱ 1,559,353

1,513,869

724,000
2,237,869
₱ 3,797,222

S EQUITY

₱ 90,200
 1,230,000
₱ 1,320,200

Y
2,477,022
₱ 3,797,222
QUITY

₱ 1,320,200

2,477,022
₱ 3,797,222
 BEAUTY DELIVERY SERVICES
INCOME STATEMENT
For the period ended December 31, 2019

Delivery Fees Earned ₱ 695,200

Less: Operating Expenses
Salary Expense ₱ 177,000
Telephone Expense 2,400
Utilities Expense 7,000
Repairs Expense 8,600
Supplies Expense 5,400
Insurance Expense 12,000
Depreciation Expense - Building 10,000
Depreciation Expense - Equipment 18,000
Interest Expense 4,200 244,600
₱ 450,600

BEAUTY DELIVERY SERVICES

STATEMENT OF CHANGES IN EQUITY
For the period ended December 31, 2019

Beauty, Capital, beginning ₱ 1,432,600

Add: Additional investment -
Total ₱ 1,432,600
Add: Net Income 450,600
Beauty, Capital, December 31, 2019 (end) ₱ 1,883,200

BEAUTY DELIVERY SERVICES

STATEMENT OF FINANCIAL POSITION
As of December 31, 2019

ASSETS
Current Assets
Cash ₱ 126,800
Accounts Receivable 38,200
Supplies 12,400
Prepaid Insurance 26,000
Total Current Assets ₱ 203,400
Non-current Assets
Land 960,000
Buildings ₱ 1,640,000
Less: Accum. Depreciation- Buildings 389,200 1,250,800
Equipment ₱ 1,060,000
Less: Accum. Depreciation- Equipment 354,000 706,000
Total Non-current Assets 2,916,800
TOTAL ASSETS ₱ 3,120,200

LIABILITIES AND OWNER'S EQUITY

LIABILITIES
Current Liabilities
Accounts Payable ₱ 43,200
Unearned Delivery Fees 26,000
Interest Payable 4,200
Salary Payable 3,600
Total Current Liabilities ₱ 77,000
Non-current Liabilities
Mortgage Payable 1,160,000
TOTAL LIABILITIES ₱ 1,237,000

OWNER'S EQUITY
Beauty, Capital, December 31, 2019 ₱ 1,883,200
TOTAL LIABILITIES AND OWNER'S EQUITY ₱ 3,120,200
Thus, the statement of
owner’s equity is often
viewed as the
connecting link
between the income
statement and
balance sheet.
 COMPANY NAME
Statement of Cash Flows
Period Covered

Cash flows from operating activies

(List of individual items) xxx

Net cash from (used by) operating activities xxx

Cash flows from investing activies
(List of individual items) xxx

Net cash from (used by) investing activities xxx

Cash flows from financing activies
(List of individual items) xxx

Net cash from (used by) financing activities xxx

Net increase (decrease) in cash xxx

Cash at beginning of period xxx
xxx
Cash at end of period

Listed elsewhere in the financial report

Material non-cash investing and financing activities
(List of individual non-cash transactions) xxx

Cash flows from operating activities:

Cash receipts from sale of goods Php xx
Cash paid for purchase of inventory (xx)
Cash paid for salaries expense (xx)
Cash paid for utilities expense (xx)
Cash paid for interest expense (xx)
Net cash from operating activities Php xx

Cash flows from operating activities:

Profit (loss) Php xx
Non-cash items:
Depreciation xx
Gain on sale of equipment (xx)
Total Php xx
Changes in operating assets and liabilities:
Increase in accounts receivable (xx)
Decrease in inventory xx
Increase in prepaid assets (xx)
Increase in accounts payable xx
Decrease in salaries payable (xx)
Net cash from operating activities Php xx
Illustration 1:
ABC Co's cash balance on January 1, 2020 was P20,000. The following were the transactions that
affected cash during the period: O, I, F

a. Collections from customers for the sale of goods P580,000 O

b. Cash receipt from loan obtained from a bank, P180,000 F
c. Cash receipt from additional investment by ownwer, P20,000 F
d. Payments to suppliers for the purchase of inventory, P120,000 O
e. Payments for employee salaries, P140,000 O
f. Payments for rent expense, P70,000 O
g. Payments for utilities expense, P20,000 O
h. Payment for the acquistion of equipment, P200,000 I NCA
i. Cash disbursements for drawings by owner, P60,000 F

Requirement:
Prepare the statement of cash flows. Use the direct method of presenting cash flows from operating activities.
 O - CA, CL, INCOME & EXPENSES
I- NCA
F- CAPITAL (INVESTMENT / DRAWING) NCL

rating activities.
 ABC Co.
Statement of Cash Flows
For the period ended December 31, 2020

Cash flows from operating activities

Cash receipts from sale of goods ₱ 580,000
Cash paid for purchases of inventory (120,000)
Cash paid for salaries expense (140,000)
Cash paid for rent expense (70,000)
Cash paid for utilities expense (20,000)
Net cash from operating activities 230,000

Cash flows from investing activities

Cash paid for the acquisition of equipment (200,000)
Net cash from investing activities (200,000)

Cash flows from financing activities

Cash proceeds from loan borrowed 180,000
Cash proceeds from investment of owner 20,000
Cash payments to owner (60,000)
Net cash from financing activities 140,000

Net increase in cash 170,000

Cash, beginning balance 20,000
Cash, ending balance ₱ 190,000
 580,000
- 120,000
- 140,000
- 70,000
- 20,000
230,000

- 200,000

180,000
20,000
- 60,000
140,000

170,000
20,000
190,000 SFP CASH
Illustration 2:
The comparative balance sheet and statement of comprehensive income of ABC Co. on December 31,
2020 are shown below:

ABC Co.
Statement of Financial Position
As of December 31, 2020

ASSETS 2020 2019

Cash and cash equivalents ₱ 220,000 ₱ 100,000
Trade and other receivables 65,000 60,000
Inventory 60,000 240,000
Prepaid Assets 20,000 80,000
Total current assets ₱ 365,000 ₱ 480,000

Property, Plant and Equipment 380,000 220,000

Total non-current assets 380,000 220,000

TOTAL ASSETS ₱ 745,000 ₱ 700,000

LIABILITIES
Trade and other payables ₱ 310,000 ₱ 280,000

EQUITY
Owner's capital 435,000 420,000

TOTAL LIABILITIES AND EQUITY ₱ 745,000 ₱ 700,000

ABC Co.
Statement of Comprehensive Income
For the year ended December 31, 2020

Sales ₱ 500,000
Cost of sales (300,000)
GROSS PROFIT ₱ 200,000
Rent Income 75,000
Depreciation expense (120,000)
Insurance expense (60,000)
Bad debts expense (15,000)
Loss on sale of equipment (20,000)
PROFIT FOR THE YEAR 60,000
Other comprehensive income -
COMPREHENSIVE INCOME FOR THE YEAR ₱ 60,000

Additional information:
1. Equipment with carrying amount of P120,000 was sold for P100,000 resulting to a loss on sale of
P20,000.
2. Acquisition of equipment for cash amounted to P400,000.
3. Owner drawings totalled P45,000
 CHANGES
inverse relationship
+ 5,000 deduct
- 180,000 add
- 60,000 add

direct relationship
+ ₱ 30,000 add
O + inflow

I - outflow
F - outflow
 ABC Co.
Statement of Cash Flows
For the period ended December 31, 2020

Cash flows from operating activities

PROFIT FOR THE YEAR ₱ 60,000
Non-cash items:
Depreciation 120,000
Loss on sale of equipment 20,000
Total 200,000 200,000
Changes in operating assets and liabilities:
Increase in Trade and other receivables (5,000)
Decrease in inventory 180,000
Decrease in prepaid assets 60,000
Increase in Trade and other payables 30,000
Net cash from operating expenses 265,000 265,000

Cash flows from investing activities

Cash proceeds from sale of equipment 100,000
Cash paid for the acquisition of equipment (400,000)
Net cash from investing activities (300,000) -300000

Cash flows from financing activities

Cash payments to owner (45,000) -45000
Net cash from financing activities (45,000)

Net increase in cash and cash equivalents ₱ 120,000 120,000

Cash, beginning balance 100,000 100,000
Cash, ending balance ₱ 220,000 220,000
Illustraton: FINANCIAL RATIO ANALYSIS
The financial statements of DEF Co. are provided below:

DEF Co.
Statement of Financial Position
As of December 31, 2019

ASSETS 2019 2018

Current Assets
Cash and cash equivalents ₱ 30,000 ₱ 80,000
Accounts receivable - net 1,672,000 304,000
Inventory 500,000 300,000 400,000
Prepaid assets 48,000 50,000
Total current Assets 2,250,000 734,000

Property, Plant and Equipment 780,000 720,000

Total non-current assets 780,000 720,000
TOTAL ASSETS ₱ 3,030,000 ₱ 1,454,000

LIABILITIES AND EQUITY 2019 2018

LIABILITIES
Accounts Payable - net ₱ 980,000 ₱ 420,000
Notes payable (current portion) 180,000 180,000
Total current liabilities 1,160,000 600,000

Notes payable (non-current portion) ₱ 180,000 ₱ 360,000

Total non-current liabilities 180,000 360,000
TOTAL LIABILITIES 1,340,000 960,000

EQUITY
Owner's Capital 1,690,000 494,000
TOTAL LIABILITIES AND EQUITY 3,030,000 1,454,000
 DEF Co.
Statement of Comprehensive Income 1.
For the year ended December 31, 2019

Sales (credit sales amount to P3,200,000) ₱ 4,000,000

Less: Cost of Sales 1,400,000
GROSS PROFIT 2,600,000
Less: Operating Expenses
Salaries Expese ₱ 780,000
Utilities Expense 120,000
Rent Expense 156,000
Depreciation Expense 240,000 2.
Bad debts Expense 72,000
Interest Expense 36,000 1,404,000
PROFIT FOR THE YEAR ₱ 1,196,000

REQUIREMENT: Compute for the following financial ratios in 2019:

1. Current ratio
2. Quick ratio (Acid-test ratio)
3. Working capital
4. Inventory turnover
5. Days of inventory (ave. sale period)
6. Accounts receivable turnover 3.
7. Days of receivable (ave. collection period)
8. Debit ratio (debt-to-asset ratio)
9. Equity ratio (debt-to-asset ratio)
10. Debt-to-equity ratio
11. Gross profit ratio
12. Net profit ratio
13. Return on assets
14. Return on equity (return on net assets)

4.
5.

6.
Solutions: Interpretation

Current Ratio = Current assets The current ratio means that DEF
Current liabilities Co. has P1.94 current asset for
every P1 of a current liability.
Current Ratio = 2,250,000
1,160,000

Current ratio = 1.94

"Quick Assets"
Quick Ratio (Acid-test ratio) = Cash + MS + AR (net) The quick ratio means that DEF
Current liabilities Co. has P1.47 quick funds on hand
* MS - marketable securities for every P1 of a current liability.
* AR - Accounts receivable

Quick Ratio (Acid-test ratio) = (30,000+0+1,672,00) 1,702,000

1,160,000 1,160,000

Quick Ratio (Acid-test ratio) = 1.47 1.47

Working Capital = CA - CL The business has a positive wor-

* CA - current assets king capital (current assets are
* CL - current liabililties greater than current liabilities)

Working Capital = 2,250,000 - 1,160,000 A positive working capital means

that the busines is able to pay off
Working Capital = 1,090,000 its short-term liabilities. On the
other hand, a negative working
capital means that the business
is currently unable to meet its
short-term liabilities.

Inventory Turnover = Cost of goods sold The result means that the
Average inventory^ business was able to sell and
replenish an inventory level of
Where: P400,000 3.5 times during the
^ Average Inventory = Invty. Beg + Invty. End period.
2
*Invty - Inventory
*beg. - beginning

Inventory Turnover = 1,400,000

400,000
 (500,000+ 300,000)/2

Inventory Turnover = 3.50

Days of inventory = 365 days in a year The result means that inventory
Inventory turnover ventory is held 104.29 days before
it is sold.
Days of inventory = 365 days in a year
3.50

Days of inventory = 104.29 days

Accounts Rec'ble turnover = Credit Sales The result means that the business
Ave. Accounts Rec'ble^ was able to generate and collect
an account receivable level of
Where: P988,000 3.24 times during the
^Ave. Accounts Rec'ble = AR beg. + AR end period.
2

Accounts Rec'ble turnover = 3,200,000

988,000
(1,672,000 + 304,000)/2

Current ratio = 3.24

 Solutions:

7. Days of receivable = 365 days in a year

(ave. collection period) Receivable turnover

Days of receivable = 365 days in a year

3.24

Days of receivable = 112.65 days

8. Debt-to-asset ratio = Total liabilities

Total assets

Debt-to-asset ratio = 1,340,000

3,030,000

Debt-to-asset ratio = 0.44

9. Equity ratio = Total equity

Total assets

Equity ratio = 1,690,000

3,030,000

Equity ratio = 0.56

10. Debt-to-equity ratio = Total liabilities

Total equity

Debt-to-equity ratio = 1,340,000

1,690,000

Debt-to-equity ratio = 0.79

11. Gross profit ratio = Gross profit

Net sales

Gross profit ratio = 2,600,000

4,000,000

Gross profit ratio = 0.65

12. Net profit ratio = Profit for the year

 Net sales

Net profit ratio = 1,196,000

4,000,000

Net profit ratio = 0.30

13. Return on assets = Profit for the year

Total assets

Return on assets = 1,196,000

3,030,000

Return on assets = 0.39

14. Return on equity = Profit for the year

(return on net assets) Total equity

Return on equity = 1,196,000

1,690,000

Return on equity = 0.71

 Interpretation

The result above means that it

takes 112.65 days to collect an AR.

The result means that, for every P1

of asset, P.44 pertains to creditor
(or 44% of the total assets pertains
to creditors)

The result means that, for every P1

of asset, P.56 pertains to the owner
(or 56% of the total assets pertain
to the owner).

The 0.79:1 ratio means that for

every P.79 financed through debt,
there is corresponding P1 that is
financed through equity. This indi
cates that the business relies more
on equity than on debt financing.

The ratio means for every P1 sale,

a P.65 gross profit is earned.

The ratio means thaf for every Ps

sale, a P.30 net profit is earned.

The ratio means that the business

is able to generate a profit of P.39
for every P1 of its total resources.

The ratio means that the business

is able to generate a profit of P.71
for every P1 of owner's equity.