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Senior High School Date: 2022.01.28
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Entrepreneurship
Module 13:
Bookkeeping Task:
Generating Report on Profit and Loss

AIRs - LM
LU_Entrepreneurship _Module 13
ENTREPRENEURSHIP
Module 13: Bookkeeping Task: Generating Report on Profit and Loss
Second Edition, 2021

Copyright © 2021
La Union Schools Division
Region I

All rights reserved. No part of this module may be reproduced in any form without written
permission from the copyright owners.

Development Team of the Module

Author: Mira Joy L. Delos Santos

Editor: SDO La Union, Learning Resource Quality Assurance Team
Content Reviewer: Jimena Veronica T. Nieva
Language Reviewer: Jimena Veronica T. Nieva
Illustrator: Ernesto F. Ramos, Jr.
Design and Layout: Angela Pauline C. Ganuelas & Hasmin R. Omaoeng

Management Team:

Atty. Donato D. Balderas, Jr.

Schools Division Superintendent
Vivian Luz S. Pagatpatan, Ph.D
Assistant Schools Division Superintendent
German E. Flora, Ph.D, CID Chief
Virgilio C. Boado, Ph.D, EPS in Charge of LRMS
Lorna O. Gaspar, EPS in Charge of Entrepreneurship
Michael Jason D. Morales, PDO II
Claire P. Toluyen, Librarian II

Printed in the Philippines by: _________________________

Department of Education – SDO La Union

Office Address: Flores St. Catbangen, San Fernando City, La Union
Telefax: 072 – 205 – 0046
Email Address: [email protected]

LU_Entrepreneurship _Module 13
 Senior High School

Entrepreneurship
Module 13:
Bookkeeping Task:
Generating Report on Profit and Loss

LU_Entrepreneurship _Module 13
Introductory Message
This Self-Learning Module (SLM) is prepared so that you, our dear
learners, can continue your studies and learn while at home. Activities,
questions, directions, exercises, and discussions are carefully stated for you
to understand each lesson.

Each SLM is composed of different parts. Each part shall guide you
step-by-step as you discover and understand the lesson prepared for you.

Pre-tests are provided to measure your prior knowledge on lessons in

each SLM. This will tell you if you need to proceed on completing this module
or if you need to ask your facilitator or your teacher’s assistance for better
understanding of the lesson. At the end of each module, you need to answer
the post-test to self-check your learning. Answer keys are provided for each
activity and test. We trust that you will be honest in using these.

In addition to the material in the main text, Notes to the Teacher are
also provided to our facilitators and parents for strategies and reminders on
how they can best help you on your home-based learning.

Please use this module with care. Do not put unnecessary marks on
any part of this SLM. Use a separate sheet of paper in answering the exercises
and tests. And read the instructions carefully before performing each task.

If you have any questions in using this SLM or any difficulty in

answering the tasks in this module, do not hesitate to consult your teacher
or facilitator.

Thank you.

LU_Entrepreneurship _Module 13
 Target

Having a business that fulfill its objective in satisfying the needs of the
customers is a great pleasure to the business owners. Indeed, entrepreneurs are
encouraged to engage in this area knowing that businesses are the lifeblood of the
community and later will definitely affect and will have a great impact to our country.

In starting a business, record keeping is so essential for it is a way to track

how the business is doing. Systematic process of gathering data and recording
should be established and be practiced at all times. As the business grows, owners
will later discover that entrepreneurial skills will not be enough in managing a
business effectively, they will realize that financial management skills are equally
essential in this field, especially when the profit and wealth increases. It helps to take
sound financial judgement in terms of business concerns and that it will lead to
financial planning and the promotion of the enterprise. It will also improve the
profitability position of the business with the help of strong financial control devices.

Preparing financial record of a company at every accounting period is a must.

Financial statements are utilized and is a key indicator on the health of a certain
business. Many entrepreneurs find it challenging to use these management tools
until such time that they understand how to interpret them. The fundamental
success of a company depends on a thorough understanding of this process.

In this module, you will be able to learn how to record business transactions,
learn the basic concepts of bookkeeping, generate financial information and
communicate them to different users. Use a tool to keep track of the operations of
your business, know how much should you collect, determine your capability to
meet the currently maturing obligations, know the levels of your
profitability, cash position, and communicate them to management and
other interested parties such as the Bureau of Internal Revenue and Local
Government Unit for tax and regulation purposes and be able to understand the
importance of it in running the business more effectively. After going through this
module, you are expected to:

1. Identify the reasons for keeping business records

(CS_EP11/12B-ENTREPIV-j-4);
2. Perform Key Bookkeeping Task (CS_EP11/12B-ENTREP-IV-j4);
3. Identify where there is profit or loss for a business; and
4. Generate an overall report on the activities of a business
(CS_EP11/12ENTREP-IV-j-4).

1 LU_Entrepreneurship _Module 13
 Jumpstart

Activity 1: MATCHING TYPE

Direction: Match Column A with Column B. Read and understand the

statements. Write your answers in a separate sheet of paper.

Column A Column B
_____ 1. Recording/organizing A. Balance Sheet
financial transaction
_____ 2. A resource with economic B. General Ledger
value owned by the business
_____ 3. Person/company owed to C. Income Statement
another D. Worksheet
_____ 4. Documents essential for E. General Journal
business. F. Purchases
_____ 5. Items you buy and sell to the G. Revenue
customers. H. Assets
_____ 6. Money earned by the business I. Owner’s Equity
_____ 7. Value remaining after J. Liabilities
liabilities are being subtracted K. Business Record
_____ 8. Book of original entry L. Bookkeeping
_____ 9. Book of final entry
_____ 10. Summary of business
assets, liabilities, and equity

2 LU_Entrepreneurship _Module 13
 Discover

Bookkeeping must be accurate for it is very essential in running a business,

for both legal and financial management purposes. Keeping business records will
enable you to assess and will give you a glimpse of your incoming and outgoing
cash or cash flow, and will help you track of your revenues and expenses; and profit
or loss.

Aspiring entrepreneurs often failed because of many reasons, one of these is

the lack of financial management skills. Although, failure may be a part of
business, and it is inevitable as they say, however, it can be avoided when you find
time to face your weaknesses and deal with it. It may add to your chores but since
it is essential for the success of your business, then, as an entrepreneur learning
these skills is a must.

WHAT IS BOOKKEEPING?

Let’s start with the definition of bookkeeping. Basically, bookkeeping is the

process of recording and organizing a business’s financial transactions. It can also
refer to the different recording techniques businesses can use. Bookkeeping is the
primary way business owners can figure out if their business is profitable: keeping
an eye on your numbers lets you identify financial challenges early on and address
them before they blossom into full-fledged crises. Bookkeeping also helps you identify
areas of profit expansion—areas you might not have noticed without clear financial
reports you can interpret easily. The one who is doing the process is the bookkeeper.

Record Keeping is a framework by which the records of an organization are

created and managed in a way that supports a business. Records are the source
documents, both physical and electronic, that specify transaction dates and
amounts, legal agreements, client, customer and business details.

These business records are so essential in the business, these are documents
that contain information relevant to business dealings. These records can be physical
or digital, which include meeting minutes, memoranda, employment contracts,
accounting source documents and legal contracts. It must be retrievable later so that
the business dealings can be accurately reviewed as required. Since business is
dependent upon confidence and trust, not only must the record be accurate and
easily retrieved, but the process also surrounding its creation and retrieval must be
perceived by customers and the business community to consistently deliver a full
and accurate record with no gaps or additions.

3 LU_Entrepreneurship _Module 13
IMPORTANCE OF KEEPING GOOD RECORDS

1. It Monitors the Progress of the Business

2. Prepares the Financial Statements
3. Identify sources of Income
4. Keep Track of the Deductible Expenses
5. Keep Track as the Basis in Property

REASONS FOR KEEPING BUSINESS RECORD:

1. Constant record keeping helps you as a business owner to track the

performance of your business (whether you are making a profit or a loss).
2. It gives you vision on which of your product is moving in sales
3. It also gives you a clear direction to aid your business decisions
4. Your record keeping figures helps in making plans for future operations.
5. Should you need financial assistance from banks and other financial
institutions, proper record keeping of your business helps you stand a better
chance to getting a loan

TYPES OF BUSINESS RECORDS THAT SHOULD BE KEPT

1. Proof of Income Received/Gross Receipts

These are the documentation showing income received, it will differ depending
on the type of business you run. Gross receipts are the income you receive from
your business. You should keep supporting documents that show the amounts and
sources of your gross receipts. Documents for gross receipts include the following:

o Cash register tapes

o Deposit information (cash and credit sales)
o Receipt books
o Invoices
o Forms 1099-MISC

2. Documentation for Expenses

Business owners likely have expenses, these documents are the costs you
incur (other than purchases) to carry on your business. Your supporting
documents should identify the payee, the amount paid, proof of payment, the date
incurred, and include a description of the item purchased or service received that
shows the amount was for a business expense. Documents for expenses include
the following:

o Canceled checks or other documents reflecting proof of

payment/electronic funds transferred
o Cash register tape receipts
o Account statements
o Credit card receipts and statements

4 LU_Entrepreneurship _Module 13
 Travel, Transportation, Entertainment, and Gift Expenses
If you deduct travel, entertainment, gift or transportation expenses, you must be able
to prove (substantiate) certain elements of expenses. For additional information,
refer to Publication 463, Travel, Entertainment, Gift, and Car Expenses.

3. Prior Tax Returns

An official document that income taxpayers are required to complete to state
income amounts, deductions, contributions and related financial information for tax
purposes.
More delay = More penalty
If you have any pending past year Tax returns, we strongly recommend getting
it done as soon as possible to reduce the risk of a penalty.

4. Employment Tax Forms

There are specific employment tax records you must keep. Keep all records of
employment for at least four years. For additional information, refer
to Recordkeeping for Employers and Publication 15, Circular E Employers Tax Guide

5. Documentation for Assets

You must keep records to verify certain information about your business
assets. You need records to compute the annual depreciation and the gain or loss
when you sell the assets. Documents for assets should show the following
information:

o When and how you acquired the assets

o Purchase price
o Cost of any improvements
o Section 179 deduction taken
o Deductions taken for depreciation
o Deductions taken for casualty losses, such as losses resulting from
fires or storms
o How you used the asset
o When and how you disposed of the asset
o Selling price
o Expenses of sale

The following documents may show this information.

o Purchase and sales invoices

o Real estate closing statements
o Canceled checks or other documents that identify payee, amount, and
proof of payment/electronic funds transferred

6. Records for Purchases Made

With the knowledge of bookkeeping concept, you’ll feel more confident and
excited in your business’s future and an increase in profitability. Basic bookkeeping
will help your small business succeed.

5 LU_Entrepreneurship _Module 13
 Purchases are the items you buy and resell to customers. If you are a
manufacturer or producer, this includes the cost of all raw materials or parts
purchased for manufacture into finished products. Your supporting documents
should identify the payee, the amount paid, proof of payment, the date incurred, and
include a description of the item to show that the amount was for
purchases. Documents for purchases include the following:

o Canceled checks or other documents reflecting proof of

payment/electronic funds transferred
o Cash register tape receipts
o Credit card receipts and statements
o Invoices
 Note: A combination of supporting documents may be needed to substantiate
all elements of the purchase.

Bookkeeping and accounting are similar, but bookkeeping lays the basis for
the accounting process— accounting focuses more on analyzing the data that
bookkeeping merely collects.
There are Five Basic Types of Accounts:

• Assets are the cash and resources owned by the business (e.g., accounts
receivable, inventory)
•
• Liabilities are the obligations and debts owed by the business (e.g.,
accounts payable, loans)
• Revenues or income is the money earned by the business, usually
through sales
• Expenses or expenditures is the cash that flows out from the business to
pay for some item or service (e.g., salaries, utilities)
• Equity is the value remaining after liabilities are subtracted from assets,
representing the owner’s held interest in the business (e.g., stock, retained
earnings)

ACCOUNT TYPE ACCOUNT DESCRIPTION

Assets Cash, Account Receivable, Equipment, Supplies,

Inventory, Real Estate, etc.
Liabilities Accounts Payable, Interest Payable, Unearned Service
Revenue
Revenue/Income Sales Income, Interest Income, Rental Income

Expense Salaries and Wages Expense, Rent Expense, Supplies

Expense, Interest Expense, Utilities Expense, Interest
Expense

Equity Owner’s Capital, Dividends, Retained Earnings

6 LU_Entrepreneurship _Module 13
TYPES OF BOOKKEEPING SYSTEM
Are you going to use single entry bookkeeping or double-entry bookkeeping?

1. Single Entry Method

It is similar to a checkbook. When you make a deposit your balance increases, and
when you write a check, your balance decreases.

Example Format of a Single Entry Method

No. Date Particulars Revenue Expenses Inventory Payroll
Balance P50,000 P5,000 P8,000 P3,000
forwards
10001 June Wages P10,000
30
10002 July 1 Utilities P1,000

10003 July 2 Deposit P21,000

10004 July 3 Goods P4,000

Ending P71,000 P6,000 P12,000 P13,000

Balance

It is an inaccurate and unscientific way of recording transactions where there

is no linkage among the transactions or the available information. There is no record
of real and personal accounts, and the cash book mixes up the business and
individual transactions. Problems may arise later, assets may easily be stolen or
lost, it is impossible to audit statements in a single-entry system and soon be
converted to double entries and balance it for auditing. Also, it can increase risk
of errors due to lack of keeping a check or finding missing entries and track errors,
and difficult to Perform Financial Analysis since there is no proper balance sheet
maintained due to the limited information, which is hard to analyze it performance
and estimate future metrics.
2. Double-entry accounting system, which is sort of like Newton’s Third Law of
Motion, but for finances. Newton’s law holds that “for every action (in nature), there
is an equal and opposite reaction.” Likewise, in double-entry accounting, any
transaction in one account requires an equal and opposite entry in another
account. It isn’t physics, but for managing a business, it’s just as important. When
you write a check, you decrease cash but at the same time, you increase the account
corresponding to other reason for the expense such as salaries, office supplies etc.

In the double-entry bookkeeping system, it uses the simple accounting

equation, “Assets = Liabilities + Capital”.

You will record two entries for each transaction:

1. a debit (Dr)

2. a credit (Cr)

7 LU_Entrepreneurship _Module 13
 Debits and credits are recorded as journal entries in the ledger. The debit is
usually recorded first (on the left), followed by the credit (on the right).

Account Type Debit recorded for Credit recorded for

Asset Increase Decrease

Liability Decrease Increase

Revenue Decrease Increase

Expense Increase Decrease

Equity Decrease Increase

Business Transaction is a financial transaction or an economic event between

two or more parties that involves the exchange of goods, money or services. It is
business exchange measurable by monetary value. The value received and the value
parted with. Every transaction must be recorded for accounting purposes, for it will
affect the financials of the company. It can be as simple as a cash purchase or as
complex as a long-term service contract.

To record a transaction, first determine the accounts that will be debited and
credited. Every accountable event has a dual but self-balancing effect on the
accounting equation. Recognizing these events will not in any manner affect the
equality of the basic accounting model.
For example, imagine that you’ve just purchased a new point-of-sale system for
your retail business. You paid for the system, which cost P250,000, in cash.

The transaction will affect two accounts:

a. cash (an asset account) and b. equipment (also an asset). Because you’re
decreasing your cash and increasing your equipment, you would record a
P250,000 debit (on the left) for the equipment account and a P250,000 credit for
the cash account (on the right). Note that journal entries don’t include specific
details about the item, vendor, or biller; you just track debits and credits by
account.

The following business transactions can be analyzed as follows.

ASSETS = LIABILITIES + CAPITAL
Sale System (increase)P250,000

Cash (decrease) P250,000

Both assets are involved, Sale System as an equipment increases, while another
form of assets decreases which is cash. You may use the T-accounts in analyzing
and recording the event.

8 LU_Entrepreneurship _Module 13
 Assets (Decrease) Assets (Increase)

Cash Equipment
Debit Credit Debit Credit
P250,000 P250,000

The bookkeeping function dictates the bookkeeper to keep track of all

financial transactions of the business. Only transactions that has monetary value
will be recorded.

The bookkeeper uses the Book of Accounts to record the business

transactions which is to be consolidated later to help construct financial
statement such as the Trial Balance, Income Statement and Balance Sheet.

Each business has a bookkeeper who is in charge to record, maintain and

update business records from all sorts of financial transactions using account title
that can be found in the charts of accounts, it can be the owner itself for small
businesses and enterprises or a hired one

What is a Book of Account? The book of accounts is composed of the Journal and
Ledger. It depends on the type of business, some businesses used special journals
when they are engaged merchandising type of business to records business
transactions.

Journal refers to the book of original entry while the Ledger refers to the
book of final entry. What is a General Journal? The General Journal is the most
basic journal which provides columns for date, account titles and explanations,
folio or references and a separate column for debit and credit entries

Name of the Company

Month, Year

GENERAL JOURNAL

Page ___

Balances

DATE PARTICULARS Folio Debit Credit

Month Day

9 LU_Entrepreneurship _Module 13
What is a General Ledger? The General Ledger is a grouping of all accounts
directly traceable to chart of accounts. These accounts will be reflected in the
financial statements as a summary of all financial activities that have taken place
as recorded in the general journal and subsidiary ledgers.

GENERAL LEDGER

Account : Account No:

Date ITEM Ref Debit Credit Balance

What is a Subsidiary Ledger? The subsidiary ledger is a group of accounts directly

associated from the general ledger. This record is created to maintain individual
accounts for customers and vendors whose cash is not being used as a medium of
exchange when purchasing or selling merchandise. Depicted in figure 3 and 4 below
is a sample format of a subsidiary ledgers Accounts Receivable and Accounts
Payable respectively:

Accounts Receivable
Subsidiary Ledger

Buyer/Customer Vendor Number:

Date ITEM Ref Debit Credit

Accounts Payable
Subsidiary Ledger
Vendor/ Address: Vendor Number:
Supplier:
Date ITEM Ref Debit Credit

The Rules of Debit and Credit

In the process of journalizing, following the rules of Debit and Credit are
essential part to ensure accurate recording and sound decision making. Debit is

10 LU_Entrepreneurship _Module 13
abbreviated as DR while CR for Credit. It is a requirement that the bookkeeper is
able to master the normal balance of each account title before performing the tasks
of bookkeeper.
When to Debit?

When cash or non-cash items are received, the said cash or non-cash
items must be recorded in the debit column. This means that the debit balance
increased. It is called Value Received.

When to Credit?
When cash or non-cash items are given, the said cash or non-cash items
must be recorded in the credit column. This means that the credit balance is
increased. It is called Value Parted with.

The following steps will be undertaken in determining account balances for

every account title such as cash, account receivable, etc.:

1. Add all the debit side to generate total debit

2. Add all the credit side to generate total credit.
3. Subtract total debit to the total credit.
4. Determine the balance of each account.

Assets = Liabilities + Equity

If two sides of the equations don’t match, you’ll need to go back through the
ledger and journal entries to find errors. Post corrected entries in the journal and
ledger, then follow the process again until the accounts are balanced. Then you’re
ready to close the books and prepare financial reports.

PREPARATION OF FINANCIAL STATEMENTS

Financial statement are the means by which a business communicates their

story and they are used by investors, market analysts, and creditors to evaluate a company’s
financial health and earning potential. It is critical to your business. Without them, you
wouldn’t be able to do things like plan expenses, secure loans, or sell your business.
Together these statements represent the profitability and financial strength of your
business.
The four basic financial statement created in bookkeeping are the following:

1. Balance Sheet or Statement of Financial Position

• Balance sheet This document summarizes your business’s assets,

liabilities, and equity at a single period of time. Your total assets should equal the sum of
all liabilities and equity accounts. The balance sheet provides a look at the current health
of your business and whether it has the ability to expand or needs to reserve cash.

11 LU_Entrepreneurship _Module 13
 Balance Sheet Accounts

Assets Liabilities and Owner’s Equity

Debit Credit Debit Credit

Increases Decreases Decrease Increases

Example of a Balance Sheet

This Balance Sheet dated “Dec 31, 2018” simply means, “at the close of business
on Dec. 31, 2019.

Future Achievers Academy

Balance Sheet
Dec. 31, 2018

Assets

Current Assets
Cash P144,500
Accounts Receivable 200,000
Office Supplies 307,000
Prepaid Insurance 10,000
Total Current Assets P661,500
Property and Equipment (net)
Land P500,000
Building P600,000
Less: Accum Depreciation 50,000 550,000
Office Equipment P89,000
Less: Accum Depreciation 16,000 73,000 P1,123,000
Total Assets P1,784,500

LIABILITIES

Current Liabilities
Accounts Payable P450,000
Salaries Payable 18,000
Interest Payable 90,000
Total Current Liabilities P558,000

12 LU_Entrepreneurship _Module 13
 Owner’s Equity

Future Achievers Academy, Capital, Dec 31, 2018 P1,226,500

Total Liabilities and Capital P1,784,500
2. Income Statement or Profit or Loss

Profit and loss (P&L) statement. Also called an income statement, this
report breaks down business revenues, costs, and expenses over a period of time
(e.g., quarter). The (P&L) helps you compare your sales and expenses and make
forecasts. Profit and loss report is also known as the income statement that
measures the profitability of your business. It summarizes all revenues, expenses,
and profit/loss over a given period. Every product has a cost price
and selling price. Based on the values of these prices, we can calculate the profit
gained or the loss incurred for a particular product. The important terms covered
here are cost price, fixed, variable and semi-variable cost, selling price, marked
price, list price, margin, etc. Also, we will learn the profit and loss percentage
formula here.

Figure 1. Profit and Loss Statement of Operations

https://corporatefinanceinstitute.com/resources/knowledge/accounting/profit-and-loss-statement-pl/

Profit and loss statement focuses on the following components:

1. Revenue
2. Cost of goods sold
3. Gross Profit
4. Expenses
5. Operating income
6. Net Profit

In general, it splits into 2 sections, the revenue and expenses.

 Revenue — the total amount of income generated by selling of goods
or services in given period.
 Expenses — the amount of money spend to generate revenues during
the period.

The two main sets of figures in the expenses section are:

a. Cost of goods sold (COGS) - the price/cost you pay to create your
products or services.
13 LU_Entrepreneurship _Module 13
 b. Operating expenses – expenses required to operate the business for
a specific period. It includes rental expenses, payroll, utilities and
non-cash expenses such as depreciation.

 Gross profit - the total revenue minus your COGS. It is also

known as gross income or gross margin. Gross profit is an
indicator of overall production effectiveness for setting prices and
sales targets.
 Operating income - the amount of revenue left after deducting
the operational costs from sales revenue. EBIT is also known as
operating profit/EBIT(earnings before interest and taxes) since they
both exclude interest expenses and taxes from their calculations.
However, there are cases when operating income can differ from EBIT

 Net Profit - It is the total amount earned after deducting all the
expenses, also known as the 'bottom line’.

Points to remember:

 For-profit, the selling price should be more than the cost price
 For loss, cost price should be more than the selling price.
 The percentage value for profit and loss is calculated in terms of cost price.

3. Cash flow statement (also called as the statement of cash flow) is one of
the three key financial statements that report the cash generated and spent during
a specific period of time (e.g., a month, quarter, or year). The statement of cash
flow is similar to the P&L, but it doesn’t include any non-cash items such as
depreciation. Cash flow statements help show where your business is earning and
spending money and its immediate viability and ability to pay its bills.

The statement of cash flows acts as a bridge between the income statement
and balance sheet by showing how money moved in and out of the business.

There are three sections of the statement of cash flows, these are:

a. Operating activities: Cash generated or used to run the day to day

operations of the business. It refers to the main activities of a business of
purchase or sale of goods, providing of service, etc.

b. Investing Activities: Cash used for investing in assets like securities,

bonds, equipment, or other fixed assets and cash generated from the sale of
these type of assets

c. Financing Activities: Cash generated from loan or capital contributions

by owners and payments made to reduce loan balances or pay distributions
or dividends to the shareholders or owners.

14 LU_Entrepreneurship _Module 13
Cash flow Formula are as follows:

CASH FROM OPERATING ACTIVITIES + (-) CASH FROM INVESTING

ACTIVITIES + (-) CASH FROM FINANCING ACTIVITIES + BEGINNING
CASH BALANCE = ENDING CASH BALANCE.

4. Statement of Changes in Equity - refers to the reconciliation of the opening

and closing balances of equity in a company during a particular reporting period,
also known as the Statement of Retained Earnings. It explains the connection
between a company’s income statement and balance sheet and also includes all
those transactions not captured in these two financial statements, such as
dividend payment, equity withdrawal, accounting policies changes, and
corrections of prior period errors, etc.

The primary purpose of Statement of Changes in Equity is to provide details

about all the movements in the equity account during an accounting period,
which is otherwise not available anywhere else in the financial statements. As
such, it helps the shareholders and investors in making more informed decisions
about their investments. Further, it also allows the analysts and other readers of
the financial statements to understand what factors resulted in the change in the
equity capital.

At least once a week, record all financial transactions, including incoming

invoices, bill payments, sales, and purchases. And make it a priority to close your
books regularly too. You may do every month, but at the very least, balance and
close your books every quarter. Another pro tip? Make sure to tackle your books
when your mind is fresh and engaged—say, at the start of the day before you open
your doors rather than late at night, after you’ve closed up shop. You want to be at
your best when you’re looking at figures that explain your business’s profitability
and help you chart a course for progress. Plus, doing the books earlier in the day
can help you minimize the temptation to put off bookkeeping until the next day . .
. and then the day after that.

Nowadays, Bookkeeping software helps you prepare these financial reports,

many in real-time. This can be a lifeline for small business owners who need to
make quick financial decisions based on the immediate health of their business.

Most businesses use computer software to record accounts. It might be a

virtual record rather than a hard copy, but the overall file is still called the general
ledger.

There are three main methods for creating a GL:

• Spreadsheet software (e.g., Excel)
• Desktop accounting bookkeeping software (e.g., QuickBooks
Desktop)

• Cloud-based bookkeeping software (e.g., QuickBooks Online,

Wave)

15 LU_Entrepreneurship _Module 13
 Spreadsheet software is the cheapest option; Google Sheets doesn’t cost a
monthly fee but trying to craft your own general ledger in a spreadsheet program
can spiral quickly into disaster. Desktop bookkeeping software usually requires a
high up-front fee, but the software is then yours to keep. With online, cloud-based
bookkeeping software, you have to pay a monthly fee to keep your online
subscription, but it’s a much lower cost than that of desktop software.

Alternatively, you can pay an accountant, bookkeeper, or outsourced accounting

company to manage your accounts and ledger for you.

Explore

ENRICHMENT ACTIVITIES

Activity 1 Applying Basic Accounting Equation

Direction: Future Achievers Academy reports the following assets, liabilities and
Owner’s Equity. Based from the Elements of Accounting equation, classify the
following accounts where they belong.
(Assets = Liabilities + Owner’s Equity)
1. Cash P280,000
2. Accounts Payable 25,000
3. Office Supplies 35,000
4. Loan Payable 300,000
5. Accounts Receivable 60,000
6. Furnitures and Fixtures 100,000
7. Salaries Expense 20,000
8. Prepaid Insurance 10,000
9. Notes Receivable 5,000
10. Insurance Expenses 3,000
11. Tuition Fees 250,000.00
12. Service Income 40,000.00
Account Title ASSETS LIABILITIES OWNERS EQUITY
1. Cash Cash P280,000
2. Accounts Payable
3. Office Supplies
4. Loan Payable
5. Accounts Receivable
6. Furnitures and
Fixtures
7. Salaries Expense
8. Prepaid Insurance
9. Notes Receivable
LU_Entrepreneurship _Module 13
16
 10. Insurance Expenses
11. Tuition Fees
12. Service Income

Deepen

From our lesson, you’ve learned the importance of bookkeeping to the

business and entrepreneurial activities. At this time, you will need to analyze the
daily business transactions occur in an enterprise.

Below is an example of business transactions of a service type business. You

are task to record the said transactions in the general journal by means of journal
entry applying the rules of debit and credit.

Mrs. Carmelita Dela Cruz is a retired public school teacher. She started her
Day Care Center in June 2018. She used all of her savings to start a “a learning
center”. She named it Future Achievers Academy.

The following are business transactions for the month of June 2018, the first
month of business operation:

Record these transactions in a journal.

In June 3 Mrs. Dela Cruz, paid cash worth P50,000 for the purchase of
supplies.
1. A day after June 4, Mrs. Carmelita bought office equipment on account worth
P32,000.

2. June 5, First day of School opening 2018. late enrollees still coming in which
she received a cash worth of P250,000 from students’ tuition fees.

3. June 6, she purchased tables and chairs worth P100,000.00 for cash.

4. On June 10, she paid her teachers their weekly salaries and wages worth
P30,000.

17 LU_Entrepreneurship _Module 13
Illustrative Journal Entries

Name of the Company

Month, Year

GENERAL JOURNAL

Page ___

Balances

DATE PARTICULARS Folio Debit Credit

Month Day
June 3 Supplies P50,000.
Cash P 50,000.
To record the amount
paid for the office
supplies purchased.

10

18 LU_Entrepreneurship _Module 13
 Gauge

Directions: Read carefully each item. Use a separate sheet for your answers,
write only the letter of the best answer for each item.
1. Which financial statement will allow you to determine the gross profit for a retailer
or manufacturer?
A. Balance sheet B. Statement of cash flow
C. Income statement D. Statement of shareholder’s equity
2. A corporation’s working capital is calculated using which amounts?
A. Total assets and total liabilities
B. Current assets and current liabilities
C. Total assets and current liabilities
D. None of the choices
3. The amount spent for capital expenditures will be reported in which section of
the statement of cash flow?
A. Cash provided/ used in financing activities
B. Cash provided/ used in investing activities
C. Cash provided/ used in operating activities
D. Supplemental information
4. What does an income statement show about a company over a period of time?
A. Equity B. Liability
C. profitability D. reliability
5. Which of the following is NOT a standard financial statement?
A. Balance sheet B. Income Statement
C. Cash flow statement D. Shareholder sheet
6. Which of the following basic calculation used to analyze an income statement?
A. Assets minus liabilities B. Revenue plus sales
C. Income minus expenses D. Sales plus operating costs
7. Which of the following is a category or element of the balance sheet?
A. Expenses B. gain
C. liabilities D. losses
8. Which of the following is NOT a current asset?
A. Accounts receivable B. Prepaid insurance
C. land D. supplies
9. Notes payable could NOT appear as a line on the balance sheet in which
classification?
A. Current assets B. Long-term liabilities
C. current liabilities D. long-term assets
10. If a company has a total asset of ₱ 200,000.00 and with some total liabilities of ₱
150,000.00. How much is the owner’s equity?
A. ₱ 49,000.00 B. ₱ 50,000.00
C. ₱ 55,000.00 D. ₱ 150,000.00

19 LU_Entrepreneurship _Module 13
 Answer Key

JUMPSTART

Activity 1 MATCHING TYPE

1. L (Bookkeeping) 6. G (Revenue)
2. H (Asset) 7. I (Equity)
3. J (Liabilities 8. E (General Journal)
4. K (Bus. Records) 9. B (General Ledger)
5. F (Purchases) 10. A (Balance Sheet)

Explore
Account Title ASSETS LIABILITIES OWNERS EQUITY
1. Cash Cash P280,000
2. Accounts Payable A/P
3. Office Supplies O/S
4. Loan Payable L/P
5. Accounts Receivable A/R
6. Furnitures and Furniture & Fix
Fixtures
7. Salaries Expense Salaries Expense
8. Prepaid Insurance Prepaid
Insurance
9. Notes Receivable Notes Receivable
10. Insurance Expenses Insurance
Expense
11. Tuition Fees Tuition Fees
12. Service Income Service Income

20 LU_Entrepreneurship _Module 13
Deepen

Name of the Company

Month, Year

GENERAL JOURNAL

Page ___

Balances

DATE PARTICULARS Folio Debit Credit

Month Day
June 3 Supplies P50,000.00
Cash P 50,000.00

To record the amount paid for

the office supplies purchased.

4 Equipment 32,000.00
Accounts Payable 32,000.00
To record the amount paid for
the purchased of equipment on
account.

5 Cash 250,000.00
Tuition Fees 250,000.00
To record the amount received
for the tuition fees.

6 Table and chairs 100,000.00

Cash 100,000.
To record the amount paid for
the purchased of tables and
chairs for cash.

10 Salaries and Wages 30,000.00

Cash 30,000.00
To record the expenses for the
salaries.

21 LU_Entrepreneurship _Module 13
Gauge

1. c
2. a
3. a
4. c
5. d
6. c
7. c
8. d
9. c
10. b

22 LU_Entrepreneurship _Module 13
References

Books

Ballada, Win Ballada, Susan. Basic Financial Accounting and Reporting Made
Easy. San Juan, Sampalok. Domdane Publishers 2019
Curriculum Guide shs Applied Track- Entrepreneurship
DepEd (2016). K to 12 Curriculum Guide. Entrepreneurship

Links

https://www.irs.gov/businesses/small-businesses-self-employed/what-kind-of-
records-should-i-keep

https://www.oasdom.com/5-reasons-keep-business-records/

https://www.wallstreetmojo.com/statement-of-changes-in-equity/

23 LU_Entrepreneurship _Module 13
 For inquiries or feedback, please write or call:

Department of Education – SDO La Union

Curriculum Implementation Division
Learning Resource Management Section
Flores St. Catbangen, San Fernando City La Union 2500
Telephone: (072) 607 - 8127
Telefax: (072) 205 - 0046
Email Address:
[email protected]
[email protected]

24 LU_Entrepreneurship _Module 13