Senior High School

Entrepreneurship
Quarter 2 – Module 5
Identifying Profit or loss to
Generate the Overall Report on the
Activity of the Business
 What I Need to Know
This module was designed and written with you in mind. It is here to
help you master the performance of bookkeeping tasks. The scope of this module
permits it to be used in many different learning situations. The language used
recognizes the diverse vocabulary level of students. The lessons are arranged to follow
the standard sequence of the course. But the order in which you read them can be
changed to correspond with the textbook you are now using.

After going through this module, you are expected to:

1. differentiate profit from loss;

2. prepare a simple income statement for a trading firm; 3. understand
the components of the income statement; and
4. identify ways on how to maximize income.

What I Know

Hello, how are you? I hope you are doing good. Before anything else, let’s have a
pre-test to check your prior knowledge about the topic. If you got a perfect score,
you can skip this lesson and proceed to the next module, but if you didn’t get a
perfect score, you don’t have to worry because this module will help and guide you
to understand the topic. Are you ready? Let’s start.

Choose the letter of the best answer. Write the chosen letter on a separate sheet of
paper.
1. Which is not an asset?
a. cash
b. inventory
c. loans payable
d. vehicle
2. The bookkeeping system used up to today is called ____________.
a. Single-bookkeeping
b. Debit-credit bookkeeping
c. Double-line bookkeeping
d. Double-entry bookkeeping
3. A current asset is defined as any asset which can reasonably be expected to be
sold, consumed, or exhausted through the normal operations of a business within
the current fiscal year or operating cycle. Which of the following is a current asset?
a. Land
b. Accounts receivable
c. Vehicle
d. Machinery
4. The accounting equation is defined as
a. Assets = Liabilities - Equity
b. Assets = Liabilities + Equity
c. Assets + Liabilities = Equity
d. Assets + Liabilities – Equity
5. Anita sold ten shoes in account for P8,000. Which s is aof the following is
incorrect?
a. Accounts receivable increase by P8,000
b. No effect on cash
c. No effect on liabilities
d. Inventory decrease by P8,000
6. Which type of entry decreases total assets?
a. Deposit of cash on hand to bank account
b. Obtained loan from creditor
c. Purchase of supplies in account
d. Payment of accounts payable
7. Recording of depreciation expense causes a decrease in all of the following except:

a. Assets
b. Liabilities
c. Owner’s equity
d. Property, plant and equipment
8. Which of the following does not have a negative effect on the owner’s capital?
a. Salaries expense
b. Depreciation
c. Payment of
liabilities
d. Drawings
9. Who is the Father of Modern Accounting?
a. Luca Pacioli
b. Luca Paccioli
c. Luca Paciolli
d. Luca Pacioii
10. Who will check the work of a bookkeeper?
a. Administrator
b. Manager
c. Sales representative
d. Business owner
11. These are all other assets which are not current and they do not need to have at
least 12 months before they expect to realized.
a. Noncurrent assets
b. Leasehold or lease right
c. Dividends receivable
d. Marketable securities
12. A complete journal entry will always have both
a. Asset and liabilty
b. Revenue and expenses
c. Debit and credit
d. Revenue and liability
13. Which of the following is an example of revenue?
a. Insurance
b. Sales
c. Utility
d. Salaries
14. The following are under cash except
a. Bank deposits
b. Building
c. Checks
d. Savings deposits 15. Which statement is true?
a. The normal balance of capital is debit
b. Liability accounts are increased by debits
c. Revenue accounts are increased by credits
d. Expense accounts are increased by credits
 Lesson Identifying Profit or Loss to Generate

2 the Overall Report on the Activity of

the Business

Hello! Good morning. I hope you have a good day.

In our previous lesson, we learned the tasks of a bookkeeper. Before going to the next
topic of Identifying Profit or Loss to Generate the Overall Report on the Activity of the
Business, let’s have a review first.

What’s In

Let’s have a simple activity. Choose the letter of the best answer.
1. Debited account when you receive money as payment as payment from
customers.
a. Accounts Payable
b. Accounts Receivable
c. Inventory
d. Cash
2. Which is an equity account?
a. Loan payable
b. Inventory
c. Petty cash
d. Owner’s drawings
3. Which is a liability account?
a. Loan payable
b. Inventory
c. Petty cash
d. Owner’s Equity
Now, you already know the importance of the performing key bookkeeping tasks. It
is one of the basics of business implementation. We will now proceed to our lesson
Identifying Profit or Loss to Generate the Overall Report on the Activity of the
Business. But wait, why do we need to study Performing key Bookkeeping Tasks
Identifying Profit or Loss to Generate the Overall Report on the Activity of the Business?
You will discover the answers in our discussion.

Remember, one of the four exits in SHS is the entrepreneurship (negosyo), that’s
why, you should be knowledgeable and be equipped if ever you want to start a
business. Let’s now begin our journey in learning this subject by having a simple
activity. Brace yourself and be ready to enter the world of business.
 Notes to the Teacher
The teacher must consider the prerequisite skills needed in
the development of the competency including the schema or
background knowledge which may reinforce learning. This
module will help the learners bridge the gap of learning to
attain the mastery of the lesson in its spiral progression.

What’s New
Welcome to the world of the Entrepreneurs! This activity will serve as motivation
before we discuss the lesson Identifying Profit or Loss to Generate the Overall Report on
the Activity of the Business.

Activity: Is it a Profit or Loss?

There is a white sand beach you plan to visit next summer. You want to save money
for the trip but your allowance is just enough to cover your expenses in school. To
earn, you thought of reselling some items for a profit.

You bought a bag for P800.00. You spent P50.00 for transportation in going to the
store to buy it. For the following independent cases, determine whether you earn a
profit or incurred a loss. Determine how much your profit or loss was.
Scenario #1: You sold the bag to your friend for P1,000.00.
Scenario #2: You sold the bag to your friend for P700.00.

What is It
Now that you are done with the activity, this is the discussion part.

Good start in finding ways to earn! Now, let’s dig deeper on the fundamentals of profit
and loss.

What is Profit and Loss?

A person engages in business primarily for profit or return on investments. Profit is

the difference between the amount invested and the monetary gain from the
investment.

There are cases when losses are increased in business instead of realizing the desired
profit. LOSS is the deduction in the value of investments.
The Income Statement is the financial statement that shows if a business is earning
a profit or incurring a loss.

In interpreting the income statement, you should be aware of the following terms and
formulas:

GROSS means the total amount without any deductions.

NET is the remaining amount after the deductions.

NET SALES are obtained when refunds are deducted from the gross sales.

RETURNS, ALLOWANCES, and DISCOUNTS are payments made to customers for

returned merchandise, defective goods and for pricing adjustments.

Gross profit = Net Sales – Cost of goods sold

Net Sales = Gross sales – Refund and allowances

Net Profit = Gross profit – Operating expenses

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

The Inventory is an itemized list of goods at hand.

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

The Net Profit is the amount obtained when all the selling expenses are deducted from
gross profit.

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

Formulas:

Available Goods = Beginning Inventory + Purchases

Cost of Goods Sold = Available Goods – Ending Inventory

There are cases when losses are increased in business instead of realizing the desired
profit. LOSS is the deduction in the value of investments.
To understand more of these formulas, let’s apply them in these examples:

1. On May 1, the merchandise inventory of Kesten Tires and Battery Supply was
P165,256.13 and its purchases after that date amounted to P110,901.45. On July 31,
the store inventory was P98,542.63. How much goods were sold?

Solution:

Beginning Inventory P 165,256.13

Add Purchase P 110,901.45
Goods for Sale P 276,157.58
Less Ending Inventory P 98,542.63
Cost of Goods Sold P 177,614.95
2. The total sales of Kristin Angel Department Store during the month of
December were P5,976.12. The cost of goods during the month was P2,324,080.25.
The expenses were as follows: salaries and wages P170,910.83; rent P350,000; light
and water bills P418,265.34; miscellaneous expenses P120,450.25; and some of the
merchandise amount to P1,480,980. Find the (a) gross profit (b) operating expenses,
and (c) net profit for the month of December.

Solution:

Gross Sales P 5,976,418.12

Less Sales Returns P 1,480,980.00
Net Sales P 4,495,438.12
Less Cost of Goods Sold P 2,324,080.25
Gross Profit P 2,171,357.87 (a)
Less Operating Expenses
Salaries and wages P 170,910.83
Rent P 350,000.00
Light and wages P 418,265.34
Miscellaneous expenses P 120,450.25
Total Expense P 1,059,626.42 (b)
Net Profit P1,111,731.45 (c)
3. Paul Jackson’s report from sales of car accessories and spare parts for the month of
April was P 168,234.50, cost of goods sold P 118,097.12, sales returned P 5,596,
salaries P8,960.35, rental P15,000, light and water bills P14,950.20, and
miscellaneous expenses P12,680.36. Find (a) gross profit and (b) net profit or loss.

Solution:

Net sales P 168,234.50

Less Cost of Goods Sold P 118,097.12
Gross Profit P 50,137.38
Less Operating Expenses
Sales returns P 5,596.00
Salaries P 8,960.35 Rental P 15,000.00
Light and water P 14,950.20
Miscellaneous P 12,680.36
Total Expenses P 57,776.91
Loss (P 7,049.50)
To generate the report of a business activity, this format for the income statement is
used:

XYZ Company

Income Statement

For the year ended December 31, 20x1

Gross Sales A

Sales returns and allowances B

 Sales discounts C

Net Sales D=A-B-C

Cost of Goods Sold E

Gross Profit F=D-E

Operating Expenses:

General and administrative expense G

Selling expense H I=G+H

Income from Operations J=F-I

Interest income K

Interest expense L

Net income J+K-L

What’s More
Did you enjoy the mini-lesson of the module? To better understand it,
let’s have another activity. Enjoy!

Activity 1. Fill in the boxes

Complete the words described below:

1. Itemized list of goods at hand

2. Beginning inventory + Purchases

3. Obtained when refunds are deducted from the gross sales

4. Cost of Goods Sold = Available Goods – ________________

5. Means the total amount without any deductions

6. The deduction in the value of investments

7. This is the amount obtained when all the selling expenses are deducted from gross
profit.

8. This is the financial statement that shows if a business is earning a profit or

incurring a loss.
9. This is the different between the amount earned and the amount spent in buying,
operating or producing something.

10. Are the expenses incurred during the selling of the product such as wages or
salaries.

What I Have Learned

How’s the activity? Did you enjoy it? I hope so. This part is the
generalization which contains the summary of what you learned. I want you to
accomplish the activity and be honest.

Fill in the spaces with appropriate answers based from the discussion about
performing bookkeeping tasks.

KEY POINTS

1. __________ is the difference between the amount invested and the monetary gain
from the investment.
2. The ______________________________ are the expenses incurred during the selling
of the product such as wages or salaries, water and electric bills, rental,
transportation, and commissions.
3. The financial statement that shows if a business is earning a profit or incurring
a loss is called the __________________________.
4. ______________________ = Available Goods – Ending Inventory
5. _______________________________________________ are payments made to
customers for returned merchandise, defective goods and for pricing
adjustments.
6. Net Sales = Gross sales – _________________________
7. The Cost of Goods Sold or _____________________ refers to the actual amount
paid for articles bought including the buying expenses.
8. Net sales are obtained when refunds are deducted from the _____________.
9. _______________ means the total amount without any deductions
10. Available Goods = Beginning Inventory + __________________

What I Can Do

Now it’s your time to shine! It’s time to apply all the inputs that you learned from this
module. It’s application time!

Activity: Profitability Analysis

Since you are doing well in your study for identifying profit in a business, practice your
skill and solve these problems!
Part 1: Starting the business
The Happy Toddlers is a preparatory school for children three to five years old.
Students are enrolled for a school year. Operations started on June 1. Parents can pay
the full tuition fee of P70,000 each at the start of the every semester (June 1 and
November 1.) Of the 150 students enrolled, 80 are paid in full at the start of the year.
The remaining students are on installment basis. One school year runs from June 1 to
March 31.
Required:
Determine the tuition fee revenue for the period December 31. This is the first year of
Happy Toddlers operations.
Part 2: Determining the business expenses
The Happy Toddlers (THT) is a preparatory school for children three to five years old.
There are ten teachers employed by THT: five senior teachers with a salary of P30,000
a month and five junior teachers at P18,000 a month. There are also four
administrators with average monthly salary of P35,000. Annual depreciation for
furniture and fixtures amounted to P100,000. Utilities starting operation totals
P200,000.

Required:
Examine and list down the expenses of THT as of December 31 by nature. Which type
of expense is the highest and lowest?
If the owner of THT consulted you on minimizing expenses and maximizing profit,
what would you recommend?
Congratulations! You are now ready for assessment!

Assessment

Before the presentation of the mini-lesson, you had your pre-test right? Now, this will
serve as your post-test. This will test you if you were able to understand the lesson well.
Good Luck!

Multiple Choice. Choose the letter of the best answer. Write the chosen letter on a
separate sheet of paper.

1. Which of the following is NOT true regarding the income statement?

a. It shows the net inflow of economic resources to the entity for a certain
period of time.
b. It shows the net inflow of economic resources to the entity as of a certain
point in time.
 c. If a net income is recorded during the period, revenues exceed expenses.
d. If a net loss is recorded during the period, expenses exceed revenues.

2. The amount obtained when all the selling expenses are deducted from gross profit is
called

a. Net profit
b. Gross profit
c. Net income
d. Operating income

3. The _______________ refers to the actual amount paid for articles bought including
the buying expenses.

a. Selling price
b. Buying price
c. Purchase price
d. Cost of purchases

4. In the income statement, revenues are

a. Usually presented below net income and expenses
b. Always presented below net income and expenses
c. Usually presented above net income and expenses
d. Always presented above net income and expenses

5. If a net income was recorded during the year, which of the following is always true?
a. Assets’ increase
b. Liabilities’ decrease
c. Owner’s capital increase
d. None of these

6. Which of the following could result due to a net loss in operations?

a. Decrease in assets
b. Increase in liabilities
c. Decrease in owner’s capital
d. All of the above
7. A decrease in equity means there was a net loss during the period.

a. Never true
b. Sometimes true
c. Always true
d. Rarely true

8. The _______________ is the financial statement that shows if a business is earning a

profit or incurring a loss.

a. Statement of financial position

b. Balance sheet
c. Statement of changes in equity
d. Income statement

9. Returns, ___________________, and discounts are payments made to customers for

returned merchandise, defective goods and for pricing adjustments.

a. Allowances
b. Rebates
c. Cash backs
 d. Special prices

10. ___________ is the difference between the amount invested and the monetary
gain from the investment.
a. Income
b. Profit
c. Expense
d. Loss
True or False. Read each sentences carefully and determine whether the statement is
correct or not. Write your answers on the space provided before the number.

______________ 11. Revenue result in increase in equity and therefore has a credit
normal balance.

______________12.Expenses decrease assets and therefore have credit normal balances.

______________13.Goods returned by customers are added to the Sales Revenue

account.

______________14.The major elements of the income statement are income and

expenses.
______________ 15. Cost of sales is computed as cost of goods available for sale less
ending inventory.

Additional Activities

Last but not the least, this part will serve as reinforcement on what have you learned
from the topic.

Problem #1: A computer store bought 15 laptops worth P20,500 each in Japan . They
paid P4,500 each for freight charges and 12% sales tax for every laptop sold in the
Philippines. Determine the gross profit if the computers were sold for P60,200.00 each.

Problem #2: On June 30, 2020, PSA Trading Co. has the following information:
revenue from sales is P98,760; sales return is P35,500; cost of goods sold is P8,490;
salaries cost P 14,600; rent is P8,000; light and water expenses are P7,550 and
miscellaneous expenses are P9,520.Generate an income statement and find: a.
Gross Profit
b. Net Profit or Loss

Problem #3: AMA cooperative store had the following activities for year ended 2021:
gross sales amounting to P94,653, the cost of goods sold was P48,923, the operating
expenses were, P8,723.15, and refunds for defective goods amounted to P26,497.15.
Generate an income statement and find:
a. Net Sales
b. Gross Profit
c. Net Profit