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T h i s Te a c h i n g G u i d e w a s collaboratively developed and reviewed by educators from public and private schools, colleges, and universities. We encourage teachers and other education stakeholders to email their feedback, comments, and recommendations to the Commission on Higher Education, K to 12 Transition Program Management Unit - Senior High School Support Team at firstname.lastname@example.com. We value your feedback and recommendations. Development Team Team Leader: Joselito G. Florendo Writers: Reymond Patrick P. Monfero, Carlsberg S. This Teaching Guide by the Andres, Dani Rose C. Salazar, Christopher B. Commission on Higher Education is Honorario licensed under a Creative Technical Editor: Brad Neiel T. dela Cruz Commons Attribution- NonCommercial-ShareAlike 4.0 Copyreader: Daniel Day V. Aguillon International License. This meansPublished by the Commission on Higher Education, 2016
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as the original. Ma. Leana Paula B. Bato, Kevin Ross D. Nera, Allison A. Danao, Ayhen Loisse B. Dalena Printed in the Philippines by EC-TEC Commercial, No. 32 St. Louis Compound 7, Baesa, Quezon City, firstname.lastname@example.com of Contents
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The SHS for SHS Framework, which stands for "Saysay-Husay-Sarili for Senior High School," is at the core of this book. The lessons, which combine high-quality content with flexible elements to SHS for SHS accommodate diversity of teachers and environments, promote these three fundamental concepts: Framework SAYSAY: MEANING HUSAY: MASTERY SARILI: OWNERSHIP Why is this important? How will I deeply understand this? What can I do with this? Through this Teaching Guide, Given that developing mastery When teachers empower teachers will be able to facilitate goes beyond memorization, learners to take ownership of an understanding of the value teachers should also aim for their learning, they develop of the lessons, for each learner deep understanding of the independence and self- to fully engage in the content subject matter where they lead direction, learning about both on both the cognitive and learners to analyze and the subject matter and affective levels. synthesize knowledge. themselves. Earth Science is a Core Subject taken in the first semester of Grade 11. This learning area is About this
designed to provide a general background for the understanding of the Earth on a planetaryTeaching Guide scale. It presents the history of the Earth through geologic time. It discusses the Earth's structure and composition, the processes that occur beneath and on the Earth's surface, as well as issues, concerns, and problems pertaining to Earth's resources. Implementing this course at the senior high school level is subject to numerous challenges with mastery of content among educators tapped to facilitate learning and a lack of resources to deliver the necessary content and develop skills and attitudes in the learners, being foremost among these. In support of the SHS for SHS framework developed by CHED, these teaching guides were crafted and refined by biologists and biology educators in partnership with educators from focus groups all over the Philippines to provide opportunities to develop the following: Saysay through meaningful, updated, and context-specific content that highlights important points and common misconceptions so that learners can connect to their real-world experiences and future careers; Husay through diverse learning experiences that can be implemented in a resource-poor classroom or makeshift laboratory that tap cognitive, affective, and psychomotor domains are accompanied by field-tested teaching tips that aid in facilitating discovery and development of higher-order thinking skills; and Sarili through flexible and relevant content and performance standards allow learners the freedom to innovate, make their own decisions, and initiate activities to fully develop their academic and personal potential. These ready-to-use guides are helpful to educators new to either the content or biologists new to the experience of teaching Senior High School due to their enriched content presented as lesson plans or guides. Veteran educators may also add ideas from these guides to their repertoire. The Biology Team hopes that this resource may aid in easing the transition of the different stakeholders into the new curriculum as we move towards the constant improvement of Philippine education. This Teaching Guide is mapped and aligned to the DepEd SHS Curriculum, designed to be highly Parts of the
usable for teachers. It contains classroom activities and pedagogical notes, and is integrated withTeaching Guide innovative pedagogies. All of these elements are presented in the following parts: 1. Introduction • Highlight key concepts and identify the essential questions • Show the big picture • Connect and/or review prerequisite knowledge • Clearly communicate learning competencies and objectives • Motivate through applications and connections to real-life 2. Motivation • Give local examples and applications • Engage in a game or movement activity • Provide a hands-on/laboratory activity • Connect to a real-life problem 3. Instruction/Delivery • Give a demonstration/lecture/simulation/hands-on activity • Show step-by-step solutions to sample problems • Give applications of the theory • Connect to a real-life problem if applicable 4. Practice • Discuss worked-out examples • Provide easy-medium-hard questions • Give time for hands-on unguided classroom work and discovery • Use formative assessment to give feedback 5. Enrichment • Provide additional examples and applications • Introduce extensions or generalisations of concepts • Engage in reflection questions • Encourage analysis through higher order thinking prompts 6. Evaluation • Supply a diverse question bank for written work and exercises • Provide alternative formats for student work: written homework, journal, portfolio, group/individual projects, student-directed research project On DepEd Functional Skills and CHED College Readiness Standards
As Higher Education Institutions (HEIs) welcome the graduates of On the other hand, the Commission declared the Collegethe Senior High School program, it is of paramount importance to Readiness Standards that consist of the combination of knowledge,align Functional Skills set by DepEd with the College Readiness skills, and reflective thinking necessary to participate and succeed -Standards stated by CHED. without remediation - in entry-level undergraduate courses inThe DepEd articulated a set of 21st century skills that should be college.embedded in the SHS curriculum across various subjects and tracks. The alignment of both standards, shown below, is also presented inThese skills are desired outcomes that K to 12 graduates should this Teaching Guide - prepares Senior High School graduates to thepossess in order to proceed to either higher education, revised college curriculum which will initially be implemented by AYemployment, entrepreneurship, or middle-level skills development. 2018-2019.
Produce all forms of texts (written, oral, visual, digital) based on:1. Solid grounding on Philippine experience and culture;2. An understanding of the self, community, and nation; Visual and information literacies, media literacy, critical thinking3. Application of critical and creative thinking and doing processes; and problem solving skills, creativity, initiative and self-direction4. Competency in formulating ideas/arguments logically, scientifically, and creatively; and5. Clear appreciation of one's responsibility as a citizen of a multicultural Philippines and a diverse world;
Interact meaningfully in a social setting and contribute to the fulfilment of individual and Media literacy, multicultural literacy, global awareness, collaboration and interpersonal skills, social and cross-culturalshared goals, respecting the fundamental humanity of all persons and the diversity of skills, leadership and responsibility, ethical, moral, and spiritualgroups and communities values K to 12 BASIC EDUCATION CURRICULUM SENIOR HIGH SCHOOL – ACCOUNTANCY, BUSINESS AND MANAGEMENT (ABM) SPECIALIZED SUBJECT
Course Description: The course deals with the preparation and analysis of financial statements of a service business and merchandising business using horizontal andvertical analyses and financial ratios. Knowledge and skills in the analysis of financial statements will aid the future entrepreneurs in making sound economic decisions.
1. Statement of The learners demonstrate an The learners shall be able to… The learners… ABM_FABM12-Ia-b- Financial understanding of… 1. identify the elements of the SFP and 1 Position (SFP) solve exercises and problems that describe each of them account titles under the assets, liabilities, require preparation of an SFP for 2. classify the elements of the SFP into and capital accounts of the Statement of a single proprietorship with proper ABM_FABM12-Ia-b-2 current and noncurrent items Financial Position, namely, cash, classification of accounts as receivables, inventories, prepaid current and noncurrent using the 3. prepare the SFP of a single ABM_FABM12-Ia-b-3 expenses, property, plant and report form and the account form proprietorship equipment, payables, accrued expenses, 4. prepare an SFP using the report form unearned income, long-term liabilities and the account form with proper and capital that will equip him / her in ABM_FABM12-Ia-b-4 classification of items as current and the preparation of the SFP using the noncurrent report form and account form2. Statement of the service income and operating solve exercises and problems that 1. identify the elements of the SCI and Comprehensive expenses of a service business as well as require preparation of SCI for a describe each of these items for a ABM_FABM12-Ic-d-5 Income (SCI) sales, contra sales, purchases, contra service business and a service business and a merchandising purchase accounts, cost of goods sold merchandising business business and general administrative and selling expenses of a merchandising business 2. prepare an SCI for a service business ABM_FABM12-Ic-d-6 that will equip him / her in the using the single-step approach preparation of the SCI for both service and merchandising businesses 3. prepare an SCI for a merchandising ABM_FABM12-Ic-d-7 business using the multistep approach
3. Statement of the forms of business organization, solve exercises and problems that Changes in namely, single proprietorship, require preparation of an SCE for 1. discuss the different forms of business ABM_FABM12-Ie-8 Equity (SCE) partnership, and corporation, and the a single proprietorship organization
K to 12 Senior High School ABM Specialized Subject – Fundamentals of Accountancy, Business and Management 2 May 2016 Page 1 of 6 K to 12 BASIC EDUCATION CURRICULUM SENIOR HIGH SCHOOL – ACCOUNTANCY, BUSINESS AND MANAGEMENT (ABM) SPECIALIZED SUBJECT
K to 12 Senior High School ABM Specialized Subject – Fundamentals of Accountancy, Business and Management 2 May 2016 Page 2 of 6 K to 12 BASIC EDUCATION CURRICULUM SENIOR HIGH SCHOOL – ACCOUNTANCY, BUSINESS AND MANAGEMENT (ABM) SPECIALIZED SUBJECT
Course Description: The course deals with the preparation of basic business forms and documents, including bank transactions and a simple bank reconciliationstatement. Integration of information technology in accounting will also be introduced. The students will prepare an accounting practice set that requires the application oflearning in the first three accounting courses.
1. Accounting Books – The learners demonstrate an The learners shall be able to… The learners… ABM_FABM12-IIa-b- Journal and Ledger understanding of… 1. differentiate the journal from the 1 prepare journal entries for basic general ledger debits and credits, journal entries to business transactions; solve 2. determine the normal balance of ABM_FABM12-IIa-b- record basic business transaction exercises and problems that require an account 2 and using t-accounts, and posting to using the t-account 3. prepare journal entries to record ABM_FABM12-IIa-b- general ledgers basic business transaction 3 4. determine balances of accounts ABM_FABM12-IIa-b- using the t-account 42. Basic Documents and the types of bank accounts, basic share samples of bank account 1. identify the types of bank Transactions related to transactions, and documents related forms and documents in class and accounts normally maintained by ABM_FABM12-IIc-5 Bank Deposits to bank deposits and withdrawals discuss their uses and importance a business 2. differentiate a savings account from a current or checking ABM_FABM12-IIc-6 account 3. prepare bank deposit and ABM_FABM12-IIc-7 withdrawal slips
K to 12 Senior High School ABM Specialized Subject – Fundamentals of Accountancy, Business and Management 2 May 2016 Page 4 of 6 K to 12 BASIC EDUCATION CURRICULUM SENIOR HIGH SCHOOL – ACCOUNTANCY, BUSINESS AND MANAGEMENT (ABM) SPECIALIZED SUBJECT
Sample: ABM_FABM12-Ia-b-2
Roman Numeral Quarter First Quarter I *Zero if no specific quarter
Lowercase Letter/s *Put a hyphen (-) in between letters to Week Weeks one to two a-b indicate more than a specific week - classify the elements of the Statement Arabic Number Competency of Financial Position into current and 2 noncurrent items
K to 12 Senior High School ABM Specialized Subject – Fundamentals of Accountancy, Business and Management 2 May 2016 Page 5 of 6 K to 12 BASIC EDUCATION CURRICULUM SENIOR HIGH SCHOOL – ACCOUNTANCY, BUSINESS AND MANAGEMENT (ABM) SPECIALIZED SUBJECT
Anastacio, Ma. Flordeliza. Fundamentals of Financial Management (with Industry Based Perspective).( Manila: Rex Book Store, 2011).
Gilbertson, Claudia. Fundamentals of Accounting. 8th ed. (Australia: Cengage Learning, 2010).
Padillo, Nicanor, Jr. Financial Statements Preparation, Analysis and Interpretation. (Manila: GIC Enterprises, 2011).
Pefianco, Erlinda C. The Accounting Process: Principles and Problems. (Makati: Goodwill Trading, 1996).
K to 12 Senior High School ABM Specialized Subject – Fundamentals of Accountancy, Business and Management 2 May 2016 Page 6 of 6Fundamentals+of+Accountancy,+Business,+and+Management+2 360 MINS
B. Present terms At the end of this topic, I should be able to define the following terms: 1. Statement of Financial Position/Permanent Accounts 2. Assets 3. Contra Assets 4. Accrued Income 5. Prepaid Assets 6. Liabilities 7. Contra Liability 8. Accrued Expense 9. Unearned Income 10. Equity 11. Report Form 12. Account Form
1. Ask the learners if they can still remember the following terms: a. Accounting Equation b. Assets c. Liabilities d. Equity e. Single/sole Proprietorship Business
22. Write learners' answers on the board as they cite them even if there are wrong answers and differentiate them one by one
3. Ask the learners to give specific account titles for each of the terms above and give examples of single/sole proprietorship businesses and merchandising businesses. Teacher can refer to topics discussed in ABM 1 – The Accounting Equation, Types of Major Accounts, Business Transactions and Their Analysis as Applied to the Accounting Cycle of a Service Business a. Accounting Equation– Assets=Liabilities+Equity b. Assets – Cash, Accounts Receivable c. Liabilities – Accounts Payable, Loan Payable Teacher Tips: d. Equity – Capital Assets are increased when debited while e. Single/sole proprietorship business –as long as there is one owner liabilities and equity are increased when credited. They are decreased when there4. Ask the learners to identify the normal balance of asset (debit), liabilities (credit) and equity (credit). are entries on the other side (credit for assets and debit for liabilities) Review on how these accounts are increased/decreased.
3INSTRUCTION/DELIVERY (140 MINS) Teacher Tips: Teachers can visit youtube.com and view1. Define the term Statement of Financial Position and introduce the term Permanent Accounts the this link: https://www.youtube.com/ watch?v=mhmaHayMha8 STATEMENT OF FINANCIAL POSITION – Also known as the balance sheet. This statement for reference.
includes the amounts of the company's total assets, liabilities, and owner's equity which in totality provides the condition of the company on a specific date. (Haddock, Price, & Farina, 2012)
PERMANENT ACCOUNTS – As the name suggests, these accounts are permanent in a sense that their balances remain intact from one accounting period to another. (Haddock, Price, & Farina, 2012) Examples of permanent account include Cash, Accounts Receivable, Accounts Payable, Loans Payable and Capital among others. Basically, assets, liabilities and equity accounts are permanent accounts. They are called permanent accounts because the accounts are retained permanently in the SFP until their balances become zero. This is in contrast with temporary accounts which are found in the Statement of Comprehensive Income (SCI). Temporary accounts unlike permanent accounts will have zero balances at the end of the accounting period.
CONTRA ASSETS – Contra assets are those accounts that are presented under the assets portion of the SFP but are reductions to the company's assets. These include Allowance for Doubtful Accounts and Accumulated Depreciation. Allowance for Doubtful Accounts is a contra asset to Accounts Receivable. This represents the estimated amount that the company may not be able to collect from delinquent customers. Accumulated Depreciation is a contra asset to the company's Property, Plant and Equipment. This account represents the total amount of depreciation booked against the fixed assets of the company.
2. Provide a sample SFP to the learners (powerpoint or acetate or hard copy) as an overview. Teacher can use the sample below or find a new one.
4 LEARNING IS FUN COMPANY Teacher Tips: STATEMENT OF FINANCIAL POSITION AS OF DECEMBER 31, 2016 The teacher can explain the use of "as of" by telling learners that amounts in the SFPAssets are permanent meaning that the amounts are cumulative from the beginning of theCurrent Assets life of the company.
Inventory 200,00
Noncurrent Assets
5Liabilities and Owner's Equity
Current Liabilities
Noncurrent Liabilities
Report Form – A form of the SFP that shows asset accounts first and then liabilities and owner's equity accounts after. (Haddock, Price, & Farina, 2012)The balance sheet shown earlier is in report form.
Account Form – A form of the SFP that shows assets on the left side and liabilities and owner's equity on the right side just like the debit and credit balances of an account. (Haddock, Price, & Farina, 2012) a. Emphasize that the two are only formats and will yield the same amount of total assets, liabilities and equity b. Emphasize that assets should always be equal to liabilities and equity
64. Group accounts under Current Assets, Noncurrent Assets, Current Liabilities, Noncurrent Liabilities Teacher Tips: and Owner's Equity The teacher can explain the use of "as of" by telling learners that amounts in the SFP Current Assets – Assets that can be realized (collected, sold, used up) one year after year-end are permanent meaning that the amounts date. Examples include Cash, Accounts Receivable, Merchandise Inventory, Prepaid Expense, etc. are cumulative from the beginning of the life of the company.
Current Liabilities – Liabilities that fall due (paid, recognized as revenue) within one year after year- end date. Examples include Notes Payable, Accounts Payable, Accrued Expenses (example: Utilities Payable), Unearned Income, etc.
Current Assets are arranged based on which asset can be realized first (liquidity). Current assets and current liabilities are also called short term assets and shot term liabilities.
Noncurrent Assets – Assets that cannot be realized (collected, sold, used up) one year after year- end date. Examples include Property, Plant and Equipment (equipment, furniture, building, land), Long Term investments,Intangible Assets etc.
Noncurrent Liabilities – Liabilities that do not fall due (paid, recognized as revenue) within one year after year-end date. Examples include Loans Payable, Mortgage Payable, etc.
Noncurrent assets and noncurrent liabilities are also called long term assets and long term liabilities.
7 LEARNING IS FUN COMPANY HEADING Teacher Tips: STATEMENT OF FINANCIAL POSITION AS OF DECEMBER 31, 2016 Book definition can be used but it is better to provide them a keyword or explain toAssets learners that the terms usually denote the meaning already like "Prepaid Expenses" –Current Assets CURRENT ASSETS expenses that were paid in advance which is different from "Unearned Income" – incomeCash Php 100,000.00 that is not yet earned by the company. Teacher can also use local phrases such asAccounts Receivable Php 500,000.00 bayad muna bago gamit (Prepaid Expense on the point of view of the one requestingLess: Allowance for Doubtful Accounts (50,000.00) 450,000 for the service while Unearned Income onAccrued Income 300,000 the point of view of the one rendering the service).Inventory 200,00 Teacher should not only differentiatePrepaid Expenses 50,000 Current Assets with Noncurrent Assets and Current Liabilities with Noncurrent LiabilitiesTotal Current Assets Php 1,100,000.00 but also Current Assets with Current Liabilities and Noncurrent Assets withNoncurrent Assets Noncurrent Liabilities.
Long Term Investments Php 1,250,000.00 Some learners might be confused between contra assets and liabilities.Intangible Assets 500,000.00
Property, Plant and Equipment Rules on single/sole rule and double rule: NON CURRENT ASSETS When there is an operation (addition,Cost Php 1,000,000.00 subtraction), single/sole rule. Total assets is double ruled and total liabilities and equityLess: Accumulated Depreciation (300,000.00) 700,000.00 is double ruled because they represent the end of a part of the financial statementTotal Noncurrent Assets Php 1,450,000.00
8Liabilities and Owner's Equity CURRENT LIABILITIESCurrent Liabilities
a. Heading i. Name of the Company ii. Name of the Statement iii. Date of preparation (emphasis on the wording – "as of")
10Liabilities and Owner's Equity CURRENT LIABILITIESCurrent Liabilities
115. For each account, the group where the account should be classified into should stand while the other groups should stay seated. For every member who was not able to stand when the group is required to or for every member who stood when the group is not required to, a point will be deducted from the group.6. Each group should reflect on the mistakes after the activity.7. Teacher can give accounts that maybe very specific to due dates to make students think (example: loans receivable that is due within 1 year after year-end)
At least 5 Medium questions can focus on the computation of the total assets and total liabilities andequity assuming that individual accounts are given and the learner will have to identify each account aseither asset, liability or equity to compute for the missing amount. Identification of current andnoncurrent items can also be part of Medium questions.
At least 5 Difficult questions can focus on the computation of individual accounts provided that the SFPis given as a whole.
Teacher can ask the class to go back to their groups and give account titles with amounts for thegroups to prepare the SFP. The groups can discuss the results of their group discussions after.
Another activity can be focused on the school. Let students group themselves and identify the differentassets and liability accounts of the school. From the accounts identified, the groups can prepare thehypothetical statement of financial position for the school.
12Sample questions:
Easy:1. Learning is Fun Company had current assets amounting to Php 100,000. Noncurrent assets for the year totaled Php 76,000. How much is the company's total assets? Answer: P176,000.
2. Happy Selling Company's total liabilities amounted Php 10,000. Total equity had an ending balance of Php 20,000. How much is total assets? Answer: P30,000.
Medium:1. Happy Selling's had the following accounts at year end: Cash-250,000, Accounts Payable-70,000, Prepaid Expense-15,000. Compute for the company's current assets. Answer: P265,000.
2. Happy Selling's Accounts Receivable amounted to Php 500,000. Prepaid Expense and Unearned Income totaled Php 30,000 and Php 10,000 respectively. Cash balance amounted to Php 100,000 while Accounts Payable and Inventory totaled to Php 20,000 and Php 10,000 respectively. How much is the company's current assets? Current liabilities? Answer: P640,000 and P30,000
Difficult1. Company's Total Liabilities and Equity amounted to Php 285,000. Total noncurrent assets ended at Php 85,000. Cash totaled Php50,000. Inventory amounted to Php100,000. Assuming the company had no other assets, how much is Accounts Receivable? Answer: P50,000.
2. Total assets amounted to Php575,000. Total equity amounted to Php 250,000. Accounts Payable amounted to Php 50,000 while Unearned Income totaled Php 85,000. Assuming there are no other current liabilities, compute for the company's noncurrent liabilities. Answer: P190,000
13 Teacher Tips: Teachers should be able to appreciate theENRICHMENT (30 MINS) use of the SFP personally to be able to impart the same appreciation to the1. Teacher can discuss how a company can have a lot of assets but still have very low equity. learners. The teacher can prepare his/her own SFP. When the company has a lot of assets (example: cash, accounts receivable, prepaid expenses), owners may sometimes think that the company is doing well. There are instances that owners forget that they might also have a lot of liabilities which may result to their equities having a very small balance. With the preparation of the SFP, the owner can easily see the assets, liabilities and equity balances of his/her company which will show exactly the financial position of the company as of a given point in time.
14EVALUATION (30 MINS) Teacher Tips: Teacher can use the format of the practice2 quizzes questions and change values but it is better1. Quiz on the basic info about SFP and the two formats format. This should include theory questions, to prepare new questions using same problem solving questions and preparation of SFP for a single/sole proprietorship business. concept. Some questions need not be straight forward.2. Quiz on the computation of the different parts of the SFP. This should include computations for missing amounts and identifying current and noncurrent items of the SFP.
Sample questions:
Aside from the ones provided in the practice section, the teacher can make use of the following samplequestions:
1. If assets are Php17,000 and owner's equity is Php10,000, liabilities are ___________________. Answer: Php 7,000 (Topic: Assets = Liabilities + Owner's Equity)
2. At the end of the first month of operations for Juana's Delivery Service, the business had the following accounts: Accounts Receivable, Php1,200; Prepaid Insurance, Php500; Equipment, Php36,200 and Cash, Php40,650. On the same date, Juana owed the following creditors: Nena's Supply Company, Php12,000; Maria's Equipment, Php9,500.The current assets for the Juana's Delivery Service are _________. Answer:Php42,350 (Topic: Identifying current assets)
3. At the end of the first month of operations for Juana's Delivery Service, the business had the following accounts: Accounts Receivable, Php1,200; Prepaid Insurance, Php500; Equipment, Php36,200 and Cash, Php40,650. On the same date, Juana owed the following creditors: Nena's Supply Company, Php12,000 (due in 6 months); Maria's Equipment, Php9,500 (due after 2 years).Current liabilities are _________. Answer: Php12,000 (Topic: Identifying current liabilities)
4. If during the year total assets increase by Php75,000 and total liabilities decrease by Php16,000, by how much did owner's equity increase/decrease? Answer: Increase by Php 91,000 (Topic: Effect of changes in one account to the other accounts in
15 the statement)
5. Prepare a Statement of Financial Position using the following accounts (one in report form and one in account form): Cash – 5,000 Loans Payable – 77,500 Accounts Receivable – 2,600 Supplies – 2,300 Equipment – 17,000 Owner's equity – 40,000 Accounts Payable – 22,400 Building – 113,000Learners can use any business name and the end of the current year for the heading.Suggested Answer: (Topic: Preparation of the statement)
Equipment 17,000.00
Prepare a Statement of Financial Position for the company (one in report form and one in account form) – This can be given as a group workwhich can be taken home to be prepared using a spreadsheet program.
Furniture P 100,000.00
(1) Haddock, M., Price, J., & Farina, M. (2012). College Accounting: A Contemporary Approach, Second Edition. New York: McGraw-Hill/Irwin.(2) Valencia, E. G., &Roxas, G. F. (2010). Basic Accounting (3rd ed.). Mandaluyong City, Philippines: Valencia Educational Supply.
18Fundamentals+of+Accountancy,+Business,+and+Management+2 360 MINS
Specific Learning Outcomes Materials Chalk and blackboard or LCD with laptopAt the end of the topic, learners should be able to: (powerpoint) or acetates1. reflect on the importance of preparing the SCI. Resources See appendix2. reflect on the difference of the two formats (single-step and multi-step)3. reflect on the use of contra revenue and contra purchases4. reflect on the classification of expenses between (general and administrative and selling expense)
19INTRODUCTION (5 MINS) Teacher Tip: Learners might not be able to rememberA. Communicate learning objectives the terms especially accruals due to time At the end of the topic, I should be able to gap between Grade 11 (ABM 1) and Grade 1. Identify the elements of the SCI and describe each of these items for a service business and a 12 (ABM 2). Be ready to define terms and give examples to make learners remember. merchandising business 2. Prepare an SCI for a service business using the single-step approach 3. Prepare an SCI for a merchandising business using the multi-step approach
B. Present terms At the end of this topic, I should be able to define the following terms: 1. Statement of Comprehensive Income 2. Temporary Accounts 3. Contra Purchases 4. Cost of Goods Sold 5. General and Administrative Expenses 6. Selling Expenses 7. Single-Step 8. Multi-Step
1. Ask the learners if they can still remember the following terms: a. Accrual b. Revenues c. Expenses d. Service business e. Merchandising business
2. Write learners' answers on the board as they cite them even if there are wrong answers and differentiate them one by one
203. Ask the learners to give specific account titles for each of the terms above and give examples of service businesses and merchandising businesses a. Accrual – accrued income, accrued expense b. Revenues – service income, sales c. Expenses – salaries expense, depreciation expense d. Service business – school, repair shop e. Merchandising business – sari-sari store, vegetable vendor
1. Define the term Statement of Comprehensive Income and introduce the term Temporary Accounts Teacher Tips: Teachers can visit youtube.com and view the this link: https://www.youtube.com/ STATEMENT OF COMPREHENSIVE INCOME – Also known as the income statement. Contains watch?v=mhmaHayMha8 the results of the company's operations for a specific period of time which is called net income if it for reference.
21 is a net positive result while a net loss if it is a net negative result. This can be prepared for a month, Teacher Tips: a quarter or a year. (Haddock, Price, & Farina, 2012) Teachers can visit youtube.com and view the this link: https://www.youtube.com/ TEMPORARY ACCOUNTS – Also known as nominal accounts are the accounts found under the watch?v=mhmaHayMha8 SCI. They are called such because at the end of the accounting period, balances under these for reference. accounts are transferred to the capital account, thus having only temporary amounts and resulting to zero beginning balances at the beginning of the following year.(Haddock, Price, & Farina, Teacher Tips: 2012)Examples of temporary accounts include revenues, sales, utilities expense, supplies expense, The teacher can ask the learners to track their allowances and expenses for the whole salaries expense, depreciation expense, interest expense among others. term and submit their personal income statement as the final output.2. Provide a sample SCI to the learners (powerpoint or acetate or hard copy) as an overview. Teacher can use the sample below or find a new one.
223. Differentiate the single-step and multi-step format of the SCI
Single-step – Called single-step because all revenues are listed down in one section while all expenses are listed in another. Net income is computed using a "single-step" which is Total Revenues minus Total Expenses. (Haddock, Price, & Farina, 2012)
Multi-step – Called multi-step because there are several steps needed in order to arrive at the company's net income. (Haddock, Price, & Farina, 2012) a. Emphasize that the two are only formats and will yield the same amount of net income/loss b. Discuss that single-step SCI is more commonly used by service companies while multi-step format is more commonly used by merchandising companies
4. Difference of the Statement of Comprehensive Income of a Service Company and of a Merchandising Company
The main difference of the Statements of the two types of business lies on how they generate their revenue. A service company provides services in order to generate revenue and the main cost associated with their service is the cost of labor which is presented under the account Salaries Expense. On the other hand, a merchandising company sells goods to customers and the main cost associated with the activity is the cost of the merchandise which is presented under the line item Cost of Goods Sold. In presenting these items on the Statement of Comprehensive Income, a service company will separate all revenues and expenses (as seen in the single-step format) while a merchandising company will present total sales and cost of goods sold on the first part of the statement which will net to the company's gross profit before presenting the other expenses which are classified as either administrative expenses or selling expenses (as seen in the multi-step format).
235. Point out the different parts of the Statement of Comprehensive Income Teacher Tips: The teacher can explain the use of "for the" by telling learners that amounts in the SCI LEARNING IS FUN COMPANY are temporary meaning that each period STATEMENT OF FINANCIAL POSITION HEADING (month, quarter, year) amounts go back to AS OF DECEMBER 31, 2016 being zero to start all over.
a. Heading i. Name of the Company ii. Name of the Statement iii. Date of preparation (emphasis on the wording – "for the")
26iii. Sales less Sales returns and Sales discount is Net Sales Teacher Tips:iv. Third part is Cost of Goods Sold – This account represents the actual cost of merchandise Book definition can be used but it is better that the company was able to sell during the year. (Haddock, Price, & Farina, 2012) to provide them a keyword or explain to learners that the terms usually denote the iv.i. Beginning inventory – This is the amount of inventory at the beginning of the accounting meaning already like "Cost of Goods Sold" period. This is also the amount of ending inventory from the previous period. – cost of the goods that were sold which is iv.ii.Net Cost of Purchases = Purchases + Freight In different from cost of goods purchased. iv.ii.i.Net Purchases = Purchases – (Purchase discount and purchase returns) Teacher can also use native words such as benta (Sales), puhunan sa benta (Cost of iv.ii.i.i.Purchases – amount of goods bought during the current accounting period. Goods Sold). iv.ii.i.ii.Contra Purchases –An account that is credited being "contrary" to the normal balance of Purchases account. Teacher should differentiate "Net Cost of iv.ii.i.ii.i.Purchase discount – Account used to record early payments by the Purchases" which contain the Freight In with "Net Purchases" which does not yet include company to the suppliers of merchandise. (Haddock, Price, & Farina, 2012) Freight In This is how buyers see a sales discount given to them by a supplier. iv.ii.i.ii.ii.Purchase returns – Account used to record merchandise returned by the company to their suppliers. (Haddock, Price, & Farina,2012) This is how buyers see a sales return recorded by their supplier iv.ii.ii.Freight In – This account is used to record transportation costs of merchandise purchased by the company. (Haddock, Price, & Farina, 2012) Called freight in because this is recorded when goods are transported into the company. iv.iii.Add Beginning inventory and Net cost of Purchases to get Cost of Goods Available for Sale Teacher Tips: iv.iv.Ending inventory – amount if inventory presented in the Statement of Financial Position. Teacher should take note of the difference Total cost of inventory unsold at the end of the accounting cycle. of expenses that appear in both the generalv. Sales less Cost of Goods Sold is Gross Profit and administrative expenses and the selling expenses (examples include salaries,vi. Fourth Part is General and Administrative Expenses –These expenses are not directly depreciation, etc.) related to the merchandising function of the company but are necessary for the business to operate effectively. (Haddock, Price, & Farina, 2012) Some learners might be confused betweenvii. Fifth Part is Selling Expenses – These expenses are those that are directly related to the reduction to sales and selling expenses as they are both related to the selling of main purpose of a merchandising business: the sale and delivery of merchandise. This does goods. not include cost of goods sold and contra revenue accounts. (Haddock, Price, & Farina, 2012) Example of general and administrativeviii. Gross Profit less General and Administrative Expenses less Selling Expenses is Net Income expenses include utilities for home office, salaries of admin personnel for a positive result while Net Loss for a negative result Examples of selling expenses include sales 27 commissions, delivery expenses, advertising expenseSimpler SCI:
Selling Expenses
29 2. Each group can be asked to identify a business establishment in their area (example: sari-sari store, canteen, laundry shop) 3. The other groups should be able to identify the different accounts that the businesses can use in preparing their Statement of Comprehensive Income 4. Teacher should point out whether the learners answers are correct or not (example: a laundry shop does not have sales, sales returns and discounts because it is a service company) 5. Teacher can provide hypothetical amounts and ask learners to actually prepare the statements of their chosen companies.
At least 5 Medium questions can focus on the computation of net sales, net purchases, net cost ofpurchases, cost of goods available for sale and Cost of Goods Sold.
At least 5 Difficult questions can focus on computation of elements within the Cost of Goods Soldwherein the Cost of Goods Sold is given or the net income is given.
Teacher can ask the class to go back to their groups and give account titles with amounts for thegroups to prepare the SCI. The groups can discuss the results of their group discussions after.
Easy:1. Learning is Fun Company generated revenues amounting to Php 100,000. Expenses for the year totaled Php 76,000. How much is the company's net income for the year? Answer: P24,000.
302. Happy Selling Company's salaries to sales agents amounted to Php 10,000. Salaries of accountants amounted to Php 20,000. No other expenses were incurred. How much is the company's general and administrative expense? Answer: P20,000.
Medium:1. Happy Selling's beginning inventory amounted to 250,000. Net purchases amounted to 70,000. Freight In totaled 15,000. Compute for the company's cost of goods available for sale. Answer: P335,000.
2. Happy Selling's Sales amounted to Php 500,000. Sales returns and sales discounts amounted to Php 30,000 and Php 10,000 respectively. Purchases of the company totaled Php 100,000 while purchase returns and purchase discounts amounted to Php 20,000 and Php 10,000 respectively. How much is the company's Net Sales? Net Purchases? Answer: Net sales - P460,000; Net Purchases - P70,000
Difficult1. Company's Cost of Goods Sold amounted to Php 285,000. Net cost of purchases totaled Php 85,000. Beginning inventory amounted to Php 250,000. Sales amounted to Php 500,000. Compute for the company's Ending Inventory. Answer: P50,000.
2. Gross profit of Happy Selling amounted to Php 175,000. Beginning Inventory totaled Php 250,000. Ending Inventory amounted to Php 50,000 while Net Cost of Purchases totaled Php 85,000. Compute for Happy's Net Sales. Answer: P460,000
31 income, low cash balance. b. Company can still have net loss with a lot of cash revenues due to depreciation and accrued expense - We always see a lot of people buying from Jollibee/Mcdo using cash but a new branch can still have net loss due to the depreciation expense of its building/equipment.
32Aside from the ones provided in the practice section, the teacher can make use of the following sample questions:
1. At the end of the first month of operations for Juan's Service Company, the business had the following accounts: Cash, Php19,000; Prepaid Rent, Php500; Equipment, Php5,000 and Accounts Payable Php2,000. By the end of the month, Jackson's had earned Php20,000 of Revenues, Php1,000 of Utilities Expenses and Php1,500 of Salaries Expenses. Calculate the net income to be reported by the company for this first month. Answer: Php 17,500 (Topic: Calculation of net income)
2. During October, a sari-sari store had the following transactions involving revenue and expenses. Did the firm earn a net income or incur a net loss for the period? What was the amount? Paid Php1,200 for rent Provided services for Php2,750 in cash Paid Php250 for telephone service Provided services for Php1,900 on credit Paid salaries of Php1,675 to employees Paid Php350 for office cleaning service Answer: Net income P 1,175 (Topic: Calculation of Net Income)
Revenues P 20,000
Sales P 20,000
h. Advertising Selling
i. Cost of merchandise sold during the year N/A (Cost of goods sold)
35Fundamentals+of+Accountancy,+Business,+and+Management+2 180 MINS
36INTRODUCTION (5 MINS) Teacher Tips: Learners might not be able to rememberA. Communicate learning objectives the terms especially accruals due to time At the end of the topic, I should be able to gap between Grade 11 (ABM 1) and Grade 1. Identify the elements of the SCI and describe each of these items for a service business and a 12 (ABM 2). Be ready to define terms and give examples to make learners remember. merchandising business 2. Prepare an SCI for a service business using the single-step approach 3. Prepare an SCI for a merchandising business using the multi-step approach
B. Present terms At the end of this topic, I should be able to define the following terms: 1. Statement of Changes in Equity4. Initial Investment 1. Additional Investment 2. Withdrawal or Distribution of Income 3. Capital 4. Drawing
1. Ask the learners if they can still remember the following terms: a. Revenues b. Expenses c. Income d. Assets e. Liabilities f. Equity
3. Ask the learners to give specific account titles for each of the terms above and give examples of
37 service businesses and merchandising businesses a. Revenues – service income, sales b. Expenses – salaries expense, depreciation expense c. Income – revenues less expenses (amount found at the bottom of the SCI) d. Assets – inventories, prepaid expenses, property, plant and equipment e. Liabilities – accounts payable, unearned income, long-term debt,
38 SINGLE/SOLE PROPRIETORSHIP –An entity whose assets, liabilities, income and expenses are centered or owned by only one person (Haddock, Price, & Farina, 2012).
PARTNERSHIP – An entity whose assets, liabilities, income and expenses are centered or owned by two or more persons (Haddock, Price, & Farina, 2012).
CORPORATION – An entity whose assets, liabilities, income and expenses are centered or owned by itself being a legally separate entity from its owners. Owners are called shareholders or stockholders of the company(Haddock, Price, & Farina, 2012).
2. Provide a sample SCE to the learners (powerpoint or acetate or hard copy) as an overview. Teacher can use the sample below or find a new one.
Sub-total P175,000
3. Differentiate the initial investment from the additional investments and define withdrawals
Initial Investment – The very first investment of the owner to the company.
Additional Investment – Increases to owner's equity by adding investments by the owner(Haddock, Price, & Farina, 2012). 39 Withdrawals –Decreases to owner's equity by withdrawing assets by the owner (Haddock, Price, & Farina, 2012).
b. Increases to Equity i. Net income for the year ii. Additional investment
40 c. Decreases to Equity i. Net loss for the year ii. Withdrawals by the owner
The Statement of Changes in Partners' Equity is used by a partnerships instead of the Statement of Changes in Owner's Equity. The differences between the two are as follows: a. Title – instead of owner's, partners' is used to denote that this is a partnership b. There are two or more owners in a partnership thus, the changes in the capital account of each partner is presented c. The net income is divided between partners (not always equal. Based on the agreement. Example: 60:40, 40:60, etc.)
At least 5 Medium questions can focus on the differentiation between the items that increase equityand those that decrease equity.
Easy:1. Which form of business organization puts the least risk on its owners? Answer: Corporation
Average:1. Increases in owner's equity without additional investment Answer: Net income
2. Decreases to owner's equity apart from net effect of revenues and expenses. Answer: Withdrawal or Distribution of Income
Difficult1. Beginning owner's equity amounted to P 300,000. Net loss for the year totaled P 45,000. No additional investments and withdrawals for the period. Compute for total increase in equity for the year. Answer: Increase is zero but decrease is P 45,000.
2. Ending owner's equity amounted to P70,000. Additional investments during the year amounted to P30,000. Withdrawals totaled P50,000. Compute for the company's net income for the year assuming beginning equity is P10,000. Answer: P80,000
43loans, debts). This results to low levels or even negative amounts of equity over their properties.Teacher should be able to impart the importance of also taking note of how much equity do ownershave over the company assets or even over their own personal belongings.
3. Owner, Juan invested an initial capital amounting P50,000 in order to put up his janitorial services company. During the first year of operations (2016), the company had a loss of P25,000. Because of this, Juan invested additional capital amounting to P50,000 in 2017. In the second year (2017), the company had a net income of P100,000 and Juan withdrew P10,000 for personal use. Compute for the ending capital balance of Juan for the year 2017. Answer: P165,000 (Topic: Ending Balance in the Statement of Changes in Equity)
4. Owner Juana invested P100,000 to start her laundry business. During the first year of operations (2016), the company had a net income of P15,000. Juana invested additional P100,000 to grow the business. In 2017, the business earned P50,000. As of December 31, 2017, Juana's capital balance is P200,000. How much is Juana's withdrawal? Suggested Answer: P65,000 (Topic: Amounts in the Statement of Changes in Equity)
445. In the Statement of Changes in Equity, the company had decreases in capital wherein income is distributed to owners. Identify the kind of business. Suggested Answer: Corporation (Topic: Kinds of Business according to Ownership)
6. The following balances were retrieved from the records of Juan's Janitorial Services for the year ended December 31, 2016: Capital, January 1, 2016 P 500,000 Withdrawals 100,000 Additional Investments 50,000 Net Loss 45,000 Prepare the Statement of Changes in Equity Suggested Answer: (Topic: Topic: Preparation of the Statement of Changes in Owner's Equity)
Sub-total P 550,000
45Fundamentals+of+Accountancy,+Business,+and+Management+2 180 MINS
B. Present terms At the end of this topic, I should be able to define the following terms: 1. Cash Flow Statement 2. Direct Approach 3. Indirect Approach 4. Operating Activities 5. Investing Activities 6. Financing Activities
1. Ask the learners if they can still remember the following terms: a. Accrual b. Depreciation
3. Ask the learners to give specific account titles for each of the terms above and give examples of service businesses and merchandising businesses a. Accrual – accrued income, accrued expense b. Depreciation – equipment, furniture, building
Importance: The CFS provides the net change in the cash balance of a company for a period. This helps owners see if their revenues are actually translated to cash collections or if they have enough cash inflows in order to pay any maturing liabilities.
2. Provide a sample CFS to the learners (powerpoint or acetate or hard copy) as an overview. Teacher can use the sample below or find a new one.
Therefore: Collections (receipts from customers) = Beginning Accounts Receivable + Net Sales or Net Revenue –Ending Accounts Receivable
49 Accounts Receivable T-Account
Dr Cr
Ending Balance
Ending Accounts Payable and Ending Accrued Salaries Expense = Beginning Accounts Payable + Teacher Tips: Beginning Accrued Salaries Expense + Net Purchases + Salaries Expense - Payments The teacher can explain the use of "for the" by telling learners that amounts in the CFS Therefore: Payments = Beginning Accounts Payable + Beginning Accrued Salaries Expense + Net are those changes for the year only. Purchases + Salaries Expense – Payments
Ending Balance
Direct – The operating cash flow section of the CFS under the direct method would show each major class of gross cash receipts and gross cash payments (Deloitte Global Services Limited, 2015).
Indirect – The operating cash flow section of the CFS under the indirect method will reconcile the net income/loss of the company with the total cash flows generated/used in operating activities by adjusting the net income/loss for effects of non-cash transactions (Deloitte Global Services Limited, 2015).
Emphasize that the two are only approaches and will yield the same amount of cash flow from 50 operating activities. Note that the Investing and Financing sections of the CFS are the same under the two approaches.
Operating Activities – Activities that are directly related to the main revenue-producing activities of the company such as cash from customers and cash paid to suppliers/employees (Deloitte Global Services Limited, 2015).
Investing Activities – Cash transactions related to purchase or sale of non-current assets (Deloitte Global Services Limited, 2015).
Net change in cash or net cash flow (increase/decrease) – The net amount of change in cash whether it is an increase or decrease for the current period. The total change brought by operating, investing and financing activities.
Beginning Cash Balance – The balance of the cash account at the beginning of the accounting period.
Ending Cash Balance – The balance of the cash account at the end of the accounting period computed using the beginning balance plus the net change in cash for the current period.
51 Cash flows from Financing Activities FINANCING ACTIVITIES Long term loan from a bank P 300,000
At least 5 Medium questions can focus on the difference between Direct and Indirect Approach andcomputation of each part of the CFS (operating, investing, financing).
At least 5 Difficult questions can focus on computation of net change in cash for the year andpreparation of the CFS.
Easy:1. Gain on sale of property and equipment is part of what activity in the CFS? Answer: noncash transaction but part of operating activity if indirect
542. Changes in long term liabilities is part of what activity in the CFS? Answer: financing
Average:1. Net income is part of which Approach in preparing the CFS? Answer: indirect
2. The company presented the following in order to aid the accountant in preparing the CFS: a. Net income: P200,000 b. Depreciation expense : P 25,000 c. Gain on sale of property and equipment: P100,000 d. Decrease in trade and other receivables: P 70,000 e. Purchase of property and equipment: P200,000 f. Payment of loan from bank: P150,000 Compute for the cash generated/used in financing activities. Answer: P150,000 net cash used in financing activities
Difficult:1. Based on the given above, compute for the net change in cash for the year. Answer:: (P155,000) net change in cash
2. If ending balance of cash account is P700,000, prepare the CFS for the year. Suggested Answer:
Add back:
Teacher Tips:ENRICHMENT (30 MINS) Teacher should be able to shuffle the given and the missing item to promote critical1. Teacher can discuss how a company can earn a lot, have numerous assets and yet have very small thinking among the learners. equities. Company can still have a high level of cash balance with net loss due to non-cash expenses such as depreciation and accrual of expenses
56 transaction can occur. b. Discuss the importance of the approach: b.i. Direct approach provides information regarding the actual cash transactions generated/used in operations b.ii.Indirect approach provides information regarding non-cash transactions during the year and shows the difference between the net income/loss of the company and the cash generated/ used in operations c. Discuss that knowing the cash flow of the company or the cash flow of their personal lives can help the learners reduce unnecessary outflows and increase inflows to make sure that at the end of each period, the company or the learner can have a net increase in cash.
1. Identify which of the following transactions fall under operating, investing and financing activities: a. Cash received from customers b. Cash paid to suppliers c. Cash paid to employees d. Cash paid to purchase equipment (company does not sell equipment) e. Cash received from sale of furniture (company's main line of business is not related to furniture) f. Depreciation expense g. Sale of goods on credit h. Purchase of goods on credit i. Cash received from getting a loan from a bank j. Cash paid to owners Suggested Answer: (Topic: Classifying cash transactions)
57 a. Cash received from customers - Operating b. Cash paid to suppliers - Operating c. Cash paid to employees - Operating d. Cash paid to purchase equipment (company does not sell equipment) - Investing e. Cash received from sale of furniture (company's main line of business is not related to furniture) - Investing f. Depreciation expense - Non-cash g. Sale of goods on credit - Non-cash h. Purchase of goods on credit - Non-cash i. Cash received from getting a loan from a bank = Financing j. Cash paid to owners - Financing
2. Juana's sari-sari store had the following transactions during the year: a. Purchase of goods. Paid cash. 100,000 b. Sale of goods. Received cash. 150,000 c. Paid utilities 30,000 d. Paid rent 10,000 e. Sold equipment for cash 100,000 f. Owner withdraws investment 10,000 Compute for the net cash flow generated by/used in operating activities Suggested Answer:P10,000 generated by operating activities (Topic: Operating Activities)
3. Using the given above, compute for the net cash flow generated by/used in investing activities.Suggested Answer: P100,000 generated by investing activities (Topic: Investing Activities)
4. Using the given above, compute for the net cash flow generated by/used in financing activities.Suggested Answer: P10,000 used in financing activities (Topic: Investing Activities)
6. Prepare the Cash Flow Statement of Teresa's Delivery Services using the following:
60Fundamentals+of+Accountancy,+Business,+and+Management+2 240 MINS
• Open the 2014 JFC Annual Report to the SFP at page 41. To illustrate the information that are readily available from the face of the SFP, you may ask a question similar to the following questions: - How much is JFC's total assets as of December 31, 2014? (Answer ₱54,118,679,600) - How much of JFC's liabilities are due to be paid on or before December 31, 2015? (Answer ₱19,090,920,318)
• Turn your attention to the SCI at page 42. You may again ask a question similar to the following Teacher Tips: questions: These questions are not answerable based solely on looking on the face of the financial - Determine the amount of JFC's 2014 advertising expenses? (Answer: ₱1,852,967,633) statements. - How much revenue did JFC earn in 2014 from royalties and franchise fee?
62 (Answer: ₱4,461,460,490)
• Ask the learners the following questions but instruct them that they are not allowed to compute. Write the questions on the board or flash them on a screen if you are using an overhead projector. They should look for the answers to the questions only on the face of the SFP and SCI: - What is the asset growth in 2014? - Is the asset composition in 2013 the same as that in 2014? - Compare the financing mix (portion of assets financed by debt and equity, respectively) of JFC in 2014 and 2013 and determine if there is a significant change. - Is the revenue growth in 2014 better than that in 2013? - Is the net income growth in 2014 better than that in 2013?
• The above questions are just examples of information that the owners or chief executive officer (CEO) of JFC needs to know in order to make business decisions. To prove this point, direct the students to go to page 6 to 9 of JFC's 2014 Annual Report for the CEO's Message to the Stockholders. Direct one of the learners to read the highlighted portion on page 8. The passage is reproduced below: "Our brands' healthy sales growth translated to strong profit growth for the Company. JFC's net income attributable to equity holders of the Parent reached Php5.4 billion in 2014, 14.8% higher than the amount generated in 2013. Earnings per share grew by 14.0% to Php5.08. Our Philippine business achieved a double digit profit growth rate while all foreign regions: the United States, China, the Middle East and Southeast Asia contributed profit to the JFC Group in 2014."
• Conclude from the above two exercises that not all information needed by the CEO are readily available on the face of the FS. End the introduction section by informing the learners that the topics in this session will allow them to derive meaningful information from the financial statements than just the amounts reported on the face of the FS.
Instruct the learners to imagine themselves as business owners. You may ask some of the learners to share with the class the businesses thatthey have in mind. After that, direct the class back to the questions posted on the board. Ask the learners if the answers to these questions aresignificant to them as owners of their imaginary businesses. Aside from the posted questions, ask the learners to identify more information thatthey want to know as business owners that are not readily available on the face of the FS. Lead them to consider growth (whether in assets,revenue or net income), asset components, financing mix and profitability (specifically the portion of revenue that will eventually go to theowner).
63INSTRUCTION/DELIVERY (120 MINS) Teacher Tips: This may help your learners to rememberDefining the following: and differentiate horizontal and vertical analysis.• Financial statement (FS) analysis is the process of evaluating risks, performance, financial health, • Project the comparative SFP of JFC. This is one where the 2014 SFP is presented and future prospects of a business by subjecting financial statement data to computational and side by side with the 2013 SFP. Refer to analytical techniques with the objective of making economic decisions (White et.al 1998).There are page 41 of JFC). three kinds of FS analysis techniques: • Horizontal analysis is performed when one - Horizontal analysis compares the 2014Total Assets to that of 2013. So the directional movement of the - Vertical analysis analysis is horizontal or between two - Financial ratios columns. (Note: Inform the learners that this lesson will focus on horizontal and vertical analysis. The financial • Vertical analysis is performed when one ratios will be discussed in the next lesson.) determines the percentage of cash in relation to the company's total assets. Notice that the direction of the analysis is• Horizontal analysis, also called trend analysis, is a technique for evaluating a series of financial vertical. Cash and total assets are on the statement data over a period of time with the purpose of determining the increase or decrease that same column. Hence, the direction of the has taken place (Weygandtet.al 2013). This will reveal the behavior of the account over time. Is it analysis is vertical. • While only the simple year-on-year (Y-o-Y) increasing, decreasing or not moving? What is the magnitude of the change? Also, what is the growth is covered in this lesson, the relative change in the balances of the account over time? compounded annual growth rate (CAGR) - Horizontal analysis uses financial statements of two or more periods. may also be used. The teacher may teach - All line items on the FS may be subjected to horizontal analysis. CAGR if he or she believes the learners can handle this more advanced topic. The - Only the simple year-on-year (Y-o-Y)grow this covered in this lesson. CAGR formula is as follows: - Changes can be expressed in monetary value (peso) and percentages computed by using the following formulas: (Balance, Earliest Year) x • Peso change=Balance of Current Year-Balance of Prior Year (1 + g) Number of years covered = Balance, Last Year • Percentage change= (Balance of Current Year-Balance of Prior Year)/(Balance of Prior Year) • Example: Balance, Last Year ( Balance, Earliest Year )Number of years covered - 1 = g
• Vertical anaylsis, also called common-size analysis, is a technique that expresses each financial statement item as a percentage of a base amount (Weygandt et.al. 2013). - For the SFP, the base amount is Total Assets. • Balance of Account / Total Assets. • From the common-size SFP, the analyst can infer the composition of assets and the company's financing mix. • Example:
% of assets
✓ The above may be evaluated as follows: The largest component of asset is Equipment at 39.3%. Cash is the smallest component at 14%. On the other hand, 50% of assets are financed by debt and the other half is financed by equity.
- The use of common-size financial statements allows the comparison of two companies of different sizes. This is because the SFP and SCI comparative information are standardized as a percentage of assets and sales, respectively.
2014 2013
C&F Store Statement of Comprehensive Income For the period ending December 31
2014 2015
67Answer to Practice Exercise:
Teacher Tips:ENRICHMENT (30 MINS) This is an optional activity. To enhance the learners 21st century skills, the learners may use MS Excel to perform the horizontal andUsing any spreadsheet application, i.e. MS Excel, create a worksheet model for horizontal and vertical vertical analysis. The teacher may assignanalysis. this as an individual or group project.• Use the downloaded audited financial statement (2014JFC audited SFP and SCI) from the
68 Introduction section to test the worksheet model.• From the worksheet model above, require the learners to answer the questions posted earlier in the Introduction section:• What is the asset growth in 2014?• Is the asset composition in 2014 the same as that in2013?• Compare the financing mix (portion of assets financed by debt and equity, respectively) of JFC in 2014 and 2013 and determine if there is a significant change.• Is the revenue growth in 2014 better than that in 2013?• Is the net income growth in 2014 better than that in 2013?
• Choose from the additional exercises below to assign as homework exercises for the learners to practice at home as preparation for the quiz. Discuss the answers to the assignment in the next session.• Give a short quiz to evaluate the learners' understanding of the lesson. You may choose from the additional exercises below or prepare your own questions.
Cash and Cash Equivalents 12,250 10,470 Total Assets 128,980 113,110
Total Curent Assets 36,480 34,425 Mercedes Aldana, Capital 68,840 51,815
Other Assets 92,500 78,685 Total Liabilities and Equity 128,980 113,110
69 2014
Sales 104,705
6. If current assets are ₱270,000 and total assets are ₱810,000, what percentage of total assets are current assets? a. 3.5 percent b. 30 percent c. 25 percent d. 33 percent(Answer: D)
7. Comparing the amount of a balance sheet item in one year to the amount for the same item in a prior year is called a. common-size analysis. b. vertical analysis. c. horizontal analysis. d. ratio analysis.(Answer: C)
8. A firm has liabilities of ₱30,000 and owner's capital of ₱90,000. The percentage oftotal liabilities to total assets is a. 25 percent. b. 20 percent. c. 50 percent. 71 d. 75 percent.(Answer: A)
9. A firm had owner's capital of ₱150,000 in 2013 and ₱187,500 in 2013. The increase in owner's capital from 2013 to 2014 is a. 12.5 percent. b. 20 percent. c. 25 percent. d. 125 percent.(Answer: C)
10. If long-term liabilities are ₱300,000 and total assets are ₱2,100,000, what percentage of total assets are long-term liabilities? a. 7 percent b. 16.7 percent c. 12.5 percent d. 14.3 percent(Answer: D)
II. Problems:
2014 2015
Requirements: a. Prepare a common-size Statement of Comprehensive Income for 2014 and 2013 for Abakada Trading Company. 72 b. Prepare a horizontal analysis for Abakada Trading Company.
2014 2015
1,282,500 1,392,750
Requirements: a. Prepare a common-size Statement of Financial Position for 2014 and 2013 for Ilang-Ilang Trading Company. b. Prepare a horizontal analysis for Ilang-Ilang Trading Company.
3. Provided below are the financial statements of FGHI Company Ltd. Your task is to compare the profit performance and financial position of FGHI Company Ltd. with the average of the industry. Prepare the common size financial statements and compare your results with the industry average.
73 Industry Average
600,000.00 100.0%
Sales 104,705
751. Abakada Trading Company
762. FGHI Company Ltd.
77Fundamentals+of+Accountancy,+Business,+and+Management+2 320 MINS
78INTRODUCTION (10 MINS) Teacher Tips: If learners do not have internet facilities,1. Require the learners to bring the audited financial statements that were used in the previous you may choose one of the following sessions. The 2014 Annual Report of Jollibee Foods Corporation (JFC) will be used in the options: succeeding example. (http://www.jollibee.com.ph/wp-content/uploads/2014_Annual_Report.pdf) (1) Download the JFC 2014Annual Report. Give the print-out to the learners to photocopy.2. Review the previous sessions' lesson. Using the Annual Report, answer the following questions that (2) Instead of requiring the learners to were posted in the previous sessions: photocopy the Annual Report, distribute - What is the asset growth in 2014? (Answer: 21.93%) softcopy to learners via USB or project the pdf documents in class. - Is the asset composition in 2013 the same as that in 2014? Based on the following computation, (3) Ask the learners to look for the JFC there is a slight difference in asset composition. 2014 Annual Report from the school library. 2014 % 2013 % (4) Finally, use whatever audited financial Current Assets 24,021,391,454 44% 18,384,176,985 40% statements are available from the school library. Noncurrent Assets 30,097,288,146 56% 27,642,457,128 60%
- Compare the financing mix (portion of assets financed by debt and equity, respectively) of JFC in 2013 and 2012. There is no significant change in the financing mix of JFC.
2014 % 2013 %
- Is the net income growth in 2012 better than that in 2013?(Answer: No. In 2013, the one year growth was 27.23% compared with only 16.22% in 2014)
3. Direct the learners to page 38 Selected Financial Data. Inform the learners that they will understand these measures from this lesson.
79 2014 2013 2012
4. End the introduction section by informing the learners that the topics in this session will allow them to derive meaningful information from the relationship of accounts in the financial statements.
• Recall the businesses that the learners have thought off in the previous session (Financial Analysis 1). Call some of the learners to share the businesses they have imagined. Ask them if the following matters are important in their imagined businesses: - How fast can they sell their inventory? - How many days does it take to collect receivables from customers? - How much revenue is generated for each peso of asset invested in the business?• Inform your learners that the answers to these questions may be derived from the financial statements. In this section, they will learn about ratio analysis.
2. Profitability ratios measure the ability of the company to generate income from the use of its assets and invested capital as well as control its cost. The following are the commonly used profitability ratios: - Gross profit ratio reports the peso value of the gross profit earned for every peso of sales. We can infer the average pricing policy from the gross profit margin. - Operating income ratio expresses operating income as a percentage of sales. It measures the percentage of profit earned from each peso of sales in the company's core business operations (Horngren et.al. 2013). A company with a high operating income ratio may imply a lean operation and have low operating expenses. Maximizing operating income depends on keeping operating costs as low as possible (Horngren et.al. 2013). - Net profit ratio relates the peso value of the net income earned to every peso of sales. This shows how much profit will go to the owner for every peso of sales made. - Return on asset(ROA) measures the peso value of income generated by employing the company's assets. It is viewed as an interest rate or a form of yield on asset investment. The numerator of ROA is net income. However, net income is profit for the shareholders. On the other hand, asset is allocated to both creditors and shareholders. Some analyst prefers to use earnings before interest and taxes instead of net income. There are also two acceptable denominators for ROA – ending balance of total assets or average of total assets. Average assets is computed as beginning balance + ending balance divided by 2. - Return on equity(ROE) measures the return (net income) generated by the owner's capital invested in the business. Similar to ROA, the denominator of ROE may also be total equity or average equity.
Accounts Receivable 400,000 Notes Payable 400,000 Cost of Goods Sold 400,000.00
Equipment 550,000 Total Liabilities and equity P 1,400,000 Operating Expenses 200,000.00
3. Operational efficiency ratio measures the ability of the company to utilize its assets. Operational efficiency is measured based on the company's ability to generate sales from the utilization of its assets, as a whole or individually. The turnover ratios are primarily used to measure operational efficiency. - Asset turnover measures the peso value of sales generated for every peso of the company's assets. The higher the turnover rate, the more efficient the company is in using its assets. - Fixed asset turnover is indicator of the efficiency of fixed assets in generating sales. - Inventory turnover is measured based on cost of goods sold and not sales. As such both the numerator and denominator of this ratio are measured at cost. It is an indicator of how fast the company can sell inventory.An alternative to inventory turnover is "days in inventory". This measures the number of days from acquisition to sale. - Accounts receivables turnover the measures the number of times the company was able to collect on its average accounts receivable during the year. An alternative to accounts receivable turnover is "days in accounts receivable". This measures the company's collection period which is the number of days from sale to collection.
82 Name of Ratio Formula Sample Computation Teacher Tips: Observe that turnover ratios are expressed Net Sales 900,000 as "number of times". For example, asset Asset Turnover = 0.64x turnover in the example is 0.64x which Average Asset 1,400,00 reads as "zero point sixty-four times". This means that sales generated was 0.64 times Net Sales 900,000 of average assets. Fixed Asset Turnover = 1.64x Average fixed Asset 550,000
365 365 Days in Inventory = 101.39 Inventory Turnover 3.60
365 365 Days in Accounts Receivable = 162.22 Accounts Receivable Turnover 2.25
4. Financial Health Ratios look into the company's solvency and liquidity ratios. Solvency refers to the company's capacity to pay their long term liabilities. On the other hand, liquidity ratio intends to measure the company's ability to pay debts that are coming due (short term debt). - Debt ratio indicates the percentage of the company's assets that are financed by debt. A high debt to asset ratio implies a high level of debt. - Equity ratio indicates the percentage of the company's assets that are financed by capital. A high equity to asset ratio implies a high level of capital. - Debt to equity ratio indicates the company's reliance to debt or liability as a source of financing relative to equity. A high ratio suggests a high level of debt that may result in high interest expense. - Interest coverage ratio measures the company's ability to cover the interest expense on its liability 83 with its operating income. Creditors prefer a high coverage ratio to give them protection that interest due to them can be paid.- Current ratio is used to evaluate the company's liquidity. It seeks to measure whether there are sufficient current assets to pay for current liabilities. Creditors normally prefer a current ratio of 2.- Quick ratio is a stricter measure of liquidity. It does not consider all the current assets, only those that are easier to liquidate such as cash and accounts receivable that are referred to as quick assets.
Solvency Measures
This practice exercise is a continuation of the C&F Store Exercise from Financial Statement Analysis 1.
Profitability ratio
ROA (NI/Total Assets) 21% Asset Turnover 0.92 Debt to equity 1.14
ROA (NI/Average Assets) 21% Fixed Asset Turnover 1.55 Debt ratio 0.53
ROA (EBIT/Total Assets) 25% Inventory Turnover 4.66 Equity ratio 0.47
ROA (EBIT/Average Assets) 26% Days in Inventory 78.29 Interest Coverage 5.60
(Formulas used to compute the ratios are given in the Instruction / Delivery section above)
• Choose from the additional exercises below to assign as homework exercises for the learners to practice at home as preparation for the quiz. Discuss the answers to the assignment in the next session.• Give a short quiz to evaluate the learners' understanding of the lesson. You may choose from the additional exercises below or prepare your own questions. 86ADDITIONAL EXERCISES
(For numbers 1 to 5) The financial statements of Merdana Trading Ltd. are given below:
872. Merdana Trading Ltd.'s inventory turnover during 2014 was (amounts rounded) a. 6 times. b. 7 times c. 8 times. d. Not determinable from the data given.(Answer: A)
3. During 2014, Merdana Trading Ltd.'s days' sales in receivables ratio was (amounts rounded) a. 34 days b. 30 days c. 32 days d. 28 days(Answer: B)
4. Which measure expresses Merdana Trading Ltd.'s times-interest-earned ratio? (amounts rounded) a. 54.7% b. 20 times c. 34 times d. 32 times(Answer: B)
2014 2013
89Statement of Financial PositionFor the Year-ended December 31
2014 2013
Requirements: a. Compute for the company's profitability and operating efficiency ratios for 2014. b. Compute for the financial health ratios of the company in 2014 and 2013.
Fill in the missing data in Alice's Cupcake's Statement of Comprehensive Income using the following ratios: a. Inventory turnover is 3.50. Beginning inventory was ₱4,250 and ending inventory was ₱4,050. b. Net profit margin is 11%.
90The incomplete Statement of Financial Position of Alice's Cupcakes is given below:
Interest expense b
Net Income d
Use the following ratio to complete Grandma's Cooking Company's balance sheet: a. Current ratio is 0.80. b. Acid-test ratio is 0.40.
Daily sales in receivable 29.84 A/B Gross profit rate 66% A/B
924. Times interest earned ratio
II. Problems
Net profit margin 30.88% Operating Efficiency Ratios Financial Health Ratios 2014 2013
NI/Total Assets 17.55% Fixed Asset Turnover 1.67 Debt to equity 1.053488372 0.861818182
EBIT/Total Assets 18.12% Inventory Turnover 3.76 Debt ratio 0.513023783 0.462890625
NI/Average Assets 22.22% Days in Inventory 97.03 Equity ratio 0.486976217 0.537109375
93Problem 2: Alice's Cupcakes
Cost of goods sold a 14,525.00 3.50 x (4,250 + 4,050)/2 [Inventory turnover x Average Inventory]
Interest expense b 1,055.00 Net Sales - CGS - Selling and Admin - Other Expenses - IBT
Income tax expense c 2,132.00 5,300 - 3,168 [Income before taxes - Net income]
Net Income d 3,168.00 28,800 x 11% [Net Sales x Net Profit Margin]
Cash 375.00
Receivables a 3,425.00 (9,500 x 0.40) - 375 [(Acid test ratio X Total Current Liabilities) - Cash]
Inventories 3,625.00
Total Current Assets c 7,600.00 9,500 x 0.80 [Current Ratio x Total Current Liabilities]
94Total current liabilities 9,500.00
Long term note payable e 7,975.00 Total liabilities and equity - Capital - Other LT Liabs - CL
95Fundamentals+of+Accountancy,+Business+and+Management+2 360 MINS
The learners shall be able to prepare journal entries for basic business Practice Solve short problems involving journal 90transactions; solve exercises and problems that require using the t-account. entries, posting to T-account and preparation of trial balanceLearning Competencies Evaluation Short Quiz 40The learners shall be able to Materials1. Differentiate the journal from the general ledger (ABM_FABM12-IIa-b-1) • 2-column worksheet2. Determine the normal balance of an account (ABM_FABM12-IIa-b-2) • 3-column worksheet3. Prepare journal entries to record basic business transaction • bond papers (ABM_FABM12-IIa-b-3) Resources (1) Valencia, et. al. Basic Accounting 3rd4. Determine balances of accounts using the t-account. (ABM_FABM12-IIa- edition 2009-2010, Valencia Educational b-4) Supply, 2009. (2) Weygandt, J. et. al. Accounting Principles 2010 edition. John Wiley andSpecific Learning Outcomes Sons.At the end of this lesson, the learners will be able to:1. Learn the use of journal and general ledger.2. Prepare journal entries to record business transactions3. Post the transaction in the general ledger4. Determine the normal balances of the accounts using the t-account
Ask the learners what is a journal and why it is called the book of original entry. Teacher Tips: The journal is a chronological record (day-by-day) of business transactions. It is called the book Recall the discussion in ABM 1 Chapter 9 of original because it is the accounting record in which financial transactions are first recorded. (Books of Accounts)
Ask the learners what is a general ledger and why it is called as the book of final entry. The ledger refers to the accounting book in which the accounts and their related amounts as recorded in the journal are posted to periodically. The ledger is also called the "book of final entry" because all the balances in the ledger are used in the preparation of financial statements. This is also referred to as the T-Account because the basic form of a ledger is like the letter "T".
97INSTRUCTION/DELIVERY (120 MINS) Teacher Tips: The General and special journals were1. The General Journal and Special Journal introduced and discussed in ABM1 Chapter Many businesses maintain several types of journals. The nature of the business operations and the 9 (Books of Accounts) volume of transactions determine the type and number of journals needed. The simplest type of In order for the learners to understand the journal is called the general journal. The process of recording a transaction is called journalizing the recording process, it is advised that the transactions. This type of journal is unique among journals because it may be used to record any rules of debit and credit should be type of business transactions. Recording all transactions in the general journal is not cost effective emphasized always in the discussion. and time consuming. To speed up and simplify the recording process, most businesses make use of The rules of debit and credit are discussed special journals. Each special journal is designed to record a particular type of transaction efficiently in ABM1 Chapter 10 (Business Transactions and quickly. Examples of special journals and their use are the following: and Their Analysis as Applied to the Accounting Cycle of a Service Business. a. Cash Receipts Journal – is used to record all cash that had been received. For the format and examples of these b. Cash Disbursements Journal – is used to record all transactions involving cash payments. special journals, please refer to c. Sales Journal (Sales on Account Journal) – is used to record all sales on credit (on account) ABM1_Chapter 9 (Books of Accounts)
Purchase Journal (Purchase on Account Journal) – is used to record all purchases of inventory on credit (or on account)
A general ledger is often called a T-Account because of its resemblance to the letter T. A T-Account is a simplified form of general ledger. Asample of a T-account is shown below:
Recall the sample chart of accounts shown in ABM1 Chapter 8 (Types of Major Accounts). A T-Account for each of the account titles listed onthe said chart is prepared to determine the balance at the end of the period of each account.
1000 Cash
1300 Inventory
1500 Supplies
1750 Building
1800 Land
4100 Sales INCOME 4101 Sales Returns and Allowances
5100 Purchases
5103 Freight In
102When an account that normally has a credit balance actually has a debit balance, it may mean that an error have occurred or that an unusualsituation may exist. For example the accounts receivable account normally have a debit balance, if at the end of the period the actual balance ison the credit side, it may mean that there was overpayment of the customer or an error in the recording processed has occurred.
To illustrate the determination of balances in the T-Account, let us take the following series of transaction for the month of February 2016:
On February 1, 2016, the following beginning balances were correctly determined from previous accounting period of Vicente Repair Shop:
Feb 2 Rendered service to X Company for Php15,000 and received cash payment on same date
Feb 5 Collected accounts receivable from Y Company amounting to Php 30,000. The amount was included in the beginning balance as of February 1, 2016 stated above.
Feb 18 Paid accounts payable to Marine Company amounting to P5,000. The amount was included in the beginning balance as of February 1, 2016 stated above
Cash 3,500
Cash 7,000
Cash 5,000
Recall the accounting cycle that after journalizing, the transactions are then posted to the General Ledger. However, instead of using a threecolumn general ledger format, we will be using the "T- accounts". The T-accounts for the transactions journalized above are shown below:
2/23 23,000
Total 56,000
After posting to the ledger or to the T-account, the trial balance for the above transactions is:
Cash 77,500
105 Account Title & Explanation Debit Credit
Take note that the total debit and credit balances should always be equal.
The entries prepared above involves one debit and one credit account, however there are instances wherein more than one account aredebited to credited. These are called compound journal entries.
To illustrate:Ariel Garden Supply Store acquire a land for P800,000. Ariel paid P300,000 cash and issued a promissory note for the balance.
Apr 1 Nels Ferrer deposited Php500,000 cash in a bank account in the name of the business.
Apr 1 Purchased for Php250,000 a transportation equipment to be use in the business. Nels paid 50% as down payment while the balance will be paid on May 15, 2016
Apr 8 Earned trucking income from Jesper, Php 30,000 on account. Jesper will pay on May 8, 2016
Apr 15 Rented the vehicle to Joshua for Php35,000, Joshua paid Php20,000 on that date and the balance on April 20
Apr 29 Earned and collected trucking income from Jay, Php 18,000
Instructions: a. Journalize the above transactions b. Post to ledger using the T-account format c. Prepare the unadjusted trial balance, as of April 30, 2016
Cash 125,000
Cash 5,000
Cash 10,000
Cash 2,000
Cash 2,300 108 Date Account Title & Explanation Ref Debit Credit
18,000 2,300
561,000 144,300
Cash 416,700
110Practice Set No. 2 (Dayana Merchandising)Dayana Company had the following transactions during December:a. Sold merchandise on credit for Php5,000, terms 3/10, n/30. The items sold had a cost of Php3,500.b. Purchased merchandise for cash, Php720.c. Purchased merchandise on credit for Php2,600, terms 1/20, n/30.d. Issued a credit memorandum for Php300 to a customer who returned merchandise purchased November 29. The returned items had a cost of Php210.e. Received payment for merchandise sold December 1.f. Received a credit memorandum for the return of faulty merchandise purchased on December 4 for Php600.g. Paid freight charges of Php200 for merchandise ordered last month. (FOB shipping point).h. Paid for the merchandise purchased December 4 less the portion that was returned.i. Sold merchandise on credit for Php7,000, terms 2/10, n/30. The items had a cost of Php4,900.j. Received payment for merchandise sold on December 24.
Required: Prepare the general journal entries to record these transactions using a perpetual inventory system. (Record all purchases initially atthe gross invoice amount.)
Solution Accounts Receivable 5,000
Sales 5,000
Cash 4,850
Cash 200
Cash 1,980
Sales 7,000
Cash 6,860
Quiz No. 1. State whether the following T-accounts have normal balance or not.
6,000 2,000
Answer: Normal
Answer: Normal
Answer: Normal 113Quiz No. 2. Prepare the journal entry to record the following independent transactions:
1. Siopao Queen paid its P1,390 electric bill for the month.Answer:Utilities Expense 1,390Cash 1,390
2. Friendly Store sold for cash, P4,5000 worth of merchandise. The cost of goods sold is P2,300. The Teacher Tips: company uses perpetual inventory system. Recall discussion on periodic and perpetual inventory system in ABM1 Chapter 12Answer:Cash 4,500Sales 4,500
3. Waldo Merchandising purchased on account P23,000 goods for resale from Melody Inc. The company uses periodic inventory system.Answer:Purchases 23,0000Accounts Payable 23,000
4. Butch Auto Repair purchased a building for his business at a cost of P500,000. Butch paid P300,000 and for the balance he issued a promissory note payable 60 days after.Answer:Building 500,000Cash 300,000Note Payable 200,000
5. Seth Laundry Company paid advertising contract for one month, P2,000.Answer:Advertising Expense 2,000Cash 2,000
114Fundamentals+of+Accountancy,+Business,+and+Management+2 180 MINS
1. Ask the learners if they have any bank account. Ask any learner the purpose of his/her account or why he/she chose a certain bank. Possible Answers: • Safety purposes • Forced to Save • Gift from parents
2. Ask the learners to enumerate the banks existing in their respective communities.
1. Discuss the types of bank accounts normally maintained by a business and differentiate
Business usually maintain two types of account: (1) savings account , and (2) checking or current account
A. Savings Accounts • These are intended to provide an incentive for the depositor to save money. • The depositor can make deposits and withdrawals using the form provided by the bank. • Banks usually pay an interest rate that is higher than a checking account or a current account. • Some savings accounts have a passbook, in which transactions are logged in a small booklet that the depositor keep • Some savings accounts charge a fee if the balance falls below a specified minimum 116 B. Checking or Current Accounts • Money held under a checking account can be withdrawn through issuance of a check • Banks usually allows numerous withdrawals and unlimited deposit under this type of account. • The interest rate for checking account is usually lower as compared to a savings account. • The account holder or depositor of a checking account is normally provided at the end of the month a bank statement showing all the deposits made, checks paid by the bank, and the balance of the account. • The depositor is given easy access to the funds as compared to a savings account.
The teacher may also introduce time deposit account (or a certificate of deposit account) which is a type of a savings account that is held for a fixed-term and can be withdrawn only after the lapse of the agreed period and by giving notice to the bank. The account may be withdrawn also anytime however the bank usually charges penalties. This type of account yield high interest.
Teacher Tips: Another type of savings account that is popularly used nowadays is an ATM (Automated Teller The teacher, before proceeding to the next Machine) account wherein withdrawals can be made through designated machines. This is a 24 topic may ask a learner to differentiate hour teller machine and the funds can be withdrawn anytime. The advantage of this account is that savings account from current account. even if the banks are closed, you can withdraw your funds.
In order to open a particular account, the bank will require individuals certain documents such as valid identification card and will ask you to fill-up the forms prepared by the bank. Upon approval of the application to open an account, the bank will give the depositor his account number
A withdrawal slip and deposit slip are written orders to the bank. These slips are used to take out money or to put in money to the depositors account.
Withdrawal Slip
Without a withdrawal slip, the bank will not allow you to get money from your account. The required information in the withdrawal slip are: • Account Name - the name of the depositor 117 • Account Number – the unique identifier given Sample of a Bank Withdrawal Slip by the bank for every account maintained • Date of the withdrawal • Type of account - savings or current • Currency • Amount to be withdrawn - the amount that the depositor wishes to withdraw from his account. The amounts in words and in figures are indicated. • Signature of the Depositor – this is the most important part in the withdrawal slip. The signature is a proof that the depositor is authorizing the bank to get money from his account. Usually, the bank compares the Teacher Tips: signature in the withdrawal slip against the The teacher may prepare a large copy of a signature in the bank records submitted during bank withdrawal slip and illustrate on the the opening of the account. board how it is prepared.
118Deposit Slip Sample of a Bank Deposit Slip
The bank provides deposit slip that the depositor will fill up every time the depositor will putin money to his account. The usually required information in a deposit slip are:• Account Name – this is the complete name of the depositor that is reflected in the records of the bank. If it has a pass book, the account name is indicated on first page inside the passbook.• Account Number – this is a unique identifier of the account maintained by the depositor.• Date of Deposit• Type of Account• Currency• Amount in words and in figures – the amount that the depositor wishes to put into his account. The amount to be deposited maybe in form of cash or check. If it is a cash deposit, the breakdown of the cash is usually listed in the deposit slip if it is a check deposit, the details of the checks are indicated in the deposit slip, for example: Issuing Bank, Address of the Issuing Bank, date of the check and the amount.
1193. Identify and prepare check (cheque)A check is a document that orders a bank to pay a specific amount of money from a person's account to the person in whose name the chequehas been issued. The person writing the cheque, the drawer, has a transaction banking account where his money is held. The drawer writes thevarious details including the monetary amount, date, and a payee on the cheque, and signs it, ordering his bank, known as the drawee, to paythat person or company the amount of money stated.Checks are a type of bill of exchange and were developed as a way to make paymentswithout the need to carry large amounts of money. The check number is usually indicated in the upper right portion of the check.
The following are the parties involved in a transaction that uses check as medium of exchange: • Drawer, the person or entity who makes the check • Payee, the recipient of the money • Drawee, the bank or other financial institution where the cheque can be presented for payment.
At the end of every month, the bank furnishes a statement to the depositor showing the movement of the account. It contain all thewithdrawals, deposits and balance of your account after every transaction. It may also indicate bank charges that were deducted by the bankautomatically. Also, interest earned by the account is likewise reflected.
120Sample of a Bank Statement
The date column indicate the date the transaction was made. The check number indicates the details of the check paid by the bank. Thetransaction code is normally a bank code for the transactions. The Debit column represents all charges or deduction made by the bank to youraccount. The Credit column represents the deposits or additions to your account that was made by the bank. The Balance column is therunning balance after considering the effect of the transaction to your account.
121As part of control, the bank statement received from the bank is compared with the accounting recordsof the business. This process is called bank reconciliation. Bank reconciliation will be discussed in thesucceeding chapters.
Together with the bank statements, the banks will include the copies of checks cleared or paid by thebank for that particular month.
1222. Stale CheckA cheque which a bank will not accept and exchange for money or payment because it was writtenmore than a certain number of months ago. In the Philippines a check becomes stale if it exceed 6months from the date of the check.
2. What is a check and who are the parties involved in the issuance of a check? Discuss the role of each party.A check is a document that orders a bank to pay a specific amount of money from a person's accountto the person in whose name the cheque has been issued. The person writing the cheque, the drawer,has a transaction banking account where his money is held. The drawer writes the various detailsincluding the monetary amount, date, and a payee on the cheque, and signs it, ordering his bank,known as the drawee, to pay that person or company the amount of money stated. The following arethe parties involved in a transaction that uses check as medium of exchange:• Drawer, the person or entity who makes the check• Payee, the recipient of the money• Drawee, the bank or other financial institution where the cheque can be presented for payment
123Fundamentals+of+Accountancy,+Business,+and+Management+2 180 MINS
1. Review the learners on the discussion made about the basic documents and transactions related to bank deposits • Ask the learners what is current account • Ask the learners who are the parties involved in the issuance of a check. • Ask the learners what is a bank statement. • Ask the learners what are the contents of a bank statement. • Ask the leaner the purpose of a bank statement.
2. Ask the learners "Upon receipt of a bank statement, what will the company do?" Teacher Tips: Possible Answers: Once the learners answer that the • File the statement statement is thrown away, discarded or ignored, correct them immediately and tell • Throw/Discard/Leave anywhere them that this is not the proper way. • Review • Check and compare with records
Introduce the topics for discussion and emphasize that upon receipt of the bank statement, the sameshould be reviewed. Compare it with your accounting records and file.
It is normal for a company's bank balance as per accounting records to differ from the balance as per bank statement. The difference between these figures is the reasons why companies prepare a bank reconciliation statement. Bank reconciliation statement is a report which compares the bank balance as per company's accounting records with the balance stated in the bank statement.
• Time lags that prevent one of the parties (company or the bank) from recording the transaction in the same period as the other party. Example: A bank statement that ends January 30, 2015 and then the company were able to collect cash of P20,000 at 5:00 PM. Bank usually closes at 3:00 PM because of this, the cash collected will not be reflected in the bank as deposit but it is however recorded in accounting records of the company.
• Preparation of bank reconciliation helps in the identification of errors in the accounting records of the company or the bank.
• Cash is the most vulnerable asset of an entity. Bank reconciliations provide the necessary control mechanism to help protect the valuable resource through uncovering irregularities such as unauthorized bank withdrawals. However, in order for the control process to work effectively, it is necessary to segregate the duties of persons responsible for accounting and authorizing of bank transactions and those responsible for preparing and monitoring bank reconciliation statements.
• If the bank balance appearing in the accounting records can be confirmed to be correct by comparing it with the bank statement balance, it provides added comfort that the bank transactions have been recorded correctly in the company records.
• Monthly preparation of bank reconciliation assists in the regular monitoring of cash flows of a business.
126 There three methods of preparing bank reconciliation statement, namely: a. Adjusted Method wherein the balances per bank and per book are separately determined. b. Book to Bank Method wherein the book balance is adjusted to agree with the bank balance. c. Bank to Book Method wherein the bank balance is adjusted to agree with book balance.
For the learners, the adjusted method will be used. The two remaining methods will be discussed in higher accounting subjects in case they wish to pursue an accounting degree. In practice anyway, the adjusted method is the commonly used method.
Collection xxxxx
Errors xxxxx
The key terms to be aware of when dealing with a bank reconciliation are:
• Deposits in transit are amounts already received and recorded by the company, but are not yet recorded by the bank.
127 For example, a retail store deposits its cash receipts of August 31 into the bank's night depository at 10:00 p.m. on August 31. The bank will process this deposit on the morning of September 1. As of August 31 (the bank statement date) this is a deposit in transit.
Because deposits in transit are already included in the company's Cash account, there is no need to adjust the company's records. However, deposits in transit are not yet on the bank statement. Therefore, they need to be listed on the bank reconciliation as an increase to the balance per bank in order to report the true amount of cash.
A deposit in transit is on the company's books, but it isn't on the bank statement.
• Outstanding checks are checks that have been written and recorded in the company's Cash account but have not yet cleared the bank account or presented to the bank by the payee.
Checks written during the last few days of the month plus a few older checks are likely to be among the outstanding checks.
Because all checks that have been written are immediately recorded in the company's Cash account, there is no need to adjust the company's records for the outstanding checks. However, the outstanding checks have not yet reached the bank and the bank statement. Therefore, outstanding checks are listed on the bank reconciliation as a decrease in the balance per bank.
Illustration of an Outstanding Check: On January 29, 2015, Juan issued a check to Maria amounting to P2,000. The checks was then recorded by Juan in his books as a deduction to his cash. It so happen that the bank was closed on that day and Maria was able to visit the bank and have it encashed on February 1, 2015 only. In the bank statement received by Juan from his bank ending January30,2015, the P2,000 check was not deducted however it was already deducted in the books of Juan on January 29, 2015. The P2,000 check is called an outstanding check.
Teacher Tips:• Bank errors are mistakes made by the bank. Bank errors could include the bank recording an The bank usually issue a credit memo to incorrect amount, entering an amount that does not belong on a company's bank statement, or inform the client of any additions made to omitting an amount from a company's bank statement. the account of the client.
Since the company did not make the error, the company's records are not changed.
• Bank service charges are fees deducted from the bank statement for the bank's processing of the checking account activity
Examples: - accepting deposits, - posting checks, - mailing the bank statement,
Other types of bank service charges include the fee charged when a company overdraws its checking account and the bank fee for processing a stop payment order on a company's check.
The bank might deduct these charges or fees on the bank statement without notifying the company. When that occurs, the company usually learns of the amounts only after receiving its bank statement.
Because the bank service charges have already been deducted on the bank statement, there is no adjustment to the balance per bank. However, the service charges will have to be entered as an adjustment to the company's books. The company's Cash account will need to be decreased by the amount of the service charges.
• NSF check is a check that was not honored by the bank of the person or company writing the check because that account did not have a sufficient balance. As a result, the check is returned without being honored or paid.
NSF is the acronym for not sufficient funds. When the NSF check comes back to the bank in which it was deposited, the bank will decrease the checking account of the company that had deposited the check. The amount charged will be the amount of the check plus a bank fee.
Because the NSF check and the related bank fee have already been deducted on the bank statement, there is no need to adjust the balance per the bank. However, if the company has not yet decreased its Cash account balance for the returned check and the bank fee, the company must decrease the balance per books in order to reconcile.
• Check printing charges occur when a company arranges for its bank to handle the reordering of its checks. The cost of the printed checks will automatically be deducted from the company's checking account. 129 Because the check printing charges have already been deducted on the bank statement, there is no adjustment to the balance per bank. However, the check printing charges need to be an adjustment on the company's books. They will be a deduction to the company's Cash account.
• Interest earned will appear on the bank statement when a bank gives a company interest on its account balances. The amount is added to the checking account balance and is automatically on the bank statement. Hence there is no need to adjust the balance per the bank statement. However, the amount of interest earned will increase the balance in the company's Cash account on its books.
• Notes Receivable are assets of a company. When notes come due, the company might ask its bank to collect the notes receivable. For this service the bank will charge a fee. The bank will increase the company's checking account for the amount it collected (principal and interest) and will decrease the account by the collection fee it charges. Since these amounts are already on the bank statement, the company must be certain that the amounts appear on the company's books in its Cash account.
• Errors in the company's Cash account result from the company entering an incorrect amount, entering a transaction that does not belong in the account, or omitting a transaction that should be in the account. Since the company made these errors, the correction of the error will be either an increase or a decrease to the balance in the Cash account on the company's books.
130Step 2. Adjusting the Balance per BooksThe second step of the bank reconciliation is to adjust the balance in the company's Cash account so that it is the true, adjusted, or correctedbalance. Examples of the items involved are shown in the following schedule:
Practice Set 1For the month of May 2016, Tope Company issued the following checks as recorded in its Cash Disbursement Journal:
131Check Date Check No Payee Amount
Teacher Tips:As per the bank statement received by Tope, the following checks were presented and paid by the Outstanding checks are checks issued to thebank: payee but not presented or paid by the bankCheck No Payee Amount
Answer: Check 1257 issued to May for P300 and Check 1528 issued to Nicole for P4,500
132Official Receipt Date Official Receipt No. Customer Amount
It is the policy of the company to deposit collection within the following day from the date of collection.
The bank statement for April 2016 revealed following deposits made:
Instruction: Compute for the deposit in transit or undeposited collection as of end of April 2016.Answer: P4,780
Practice Set 3.Identify whether the following independent transaction is a book or a bank reconciling. In addition, determine the amount of the error andstate whether the amount will be added or deducted in the preparation of the bank reconciliation(use adjusted method):1. Eagle Repairs received P1,500 from Jane. The bookkeeper recorded the amount as P500. Answer: Book. P1,000 will be added to the books.
1332. Nation Bank collected from the customer of Eagle the sum of P5,000 representing payment of the said customer to Eagle. No entry was made in the books of Eagle. Answer: Book. P5,000 will be added to the books.
3. The bank teller deducted CK 123 for P3,500 from the account of Eagle. The said check was issued by Egles Company a different depositor of the bank. Answer: Bank. P3,500 will be added to bank records. Hint: The teller had deducted the amount to the account of eagle which should not be, thus the amount is returned or added.
4. The bookkeeper of Eagle recorded Check No. 345 in the Cash Disbursement Journal as P5,205. The correct amount of the check was P5,250. Answer: Book. P45 will be deducted in the book records. The bookkeeper should have deducted P5,250 deductions to cash however he deducted P5,205 only, thus the difference should be deducted.
5. The deposits of Eagle earned interest of P100 for the month. Eagle does not have knowledge of interest earned until it receives the bank statement. Answer: Book. P100 is added to the book records. Interest income will increase the cash in bank of Eagle.
Practice Set 4Item 1 Teacher Tips: Follow the procedure as illustrated in theThe bank statement for August 2014 shows an ending balance of Php3,490. lecture/discussion.
Item 2On August 31 the bank statement shows charges of Php35 for the service charge for maintaining thechecking account.
Item 3On August 28 the bank statement shows a return item of Php100 plus a related bank fee of Php10. The 134return item is a customer's check that was returned because of insufficient funds.
Item 4The bank statement shows a charge of Php80 for check printing on August 20.
Item 5The bank statement shows that Php8 was added to the checking account on August 31 for interest earned by the company during the month ofAugust.
Item 6The bank statement shows that a note receivable of Php1,000 was collected by the bank on August 29 and was deposited into the company'saccount. On the same day, the bank withdrew Php40 from the company's account as a fee for collecting the note receivable.
Item 7The company's Cash account at the end of August shows a balance of Php967.
Item 8During the month of August the company wrote checks totaling more than Php50,000. As of August 31 Php3,021 of the checks written inAugust had not yet cleared the bank and Php200 of checks written in June had not yet cleared the bank.
Item 9The Php1,450 of cash received by the company on August 31 was recorded on the company's books as of August 31. However, the Php1,450of cash receipts was deposited at the bank on the morning of September 1.
Item 10On August 29 the company's Cash account shows cash sales of Php145. The bank statement shows the amount deposited was actually Php154.The company reviewed the transactions and found that Php154 was the correct amount.
135Given the above information, discuss each item whether it is a book reconciling or a bank reconciling item. After the discussion, prepare a bankreconciliation statement.
Subtotal 4,940
Subtotal 1,944
The bank statement for Juan Company shows a balance per bank of P15,907.45 on April 30,2015.
Errors: Juan wrote check no. 443 for P1,226.00 and the bank correctly paid that amount. However, he recorded the check as P1,262.00.
Bank memoranda: Debit– NSF check from Pedro P425.60 . Debit– Charge for printing company checks P30.00 Credit – Collection of note receivable for P1,000 plus interest earned of P50, less bank collection fee of P15.00.
Suggested Solution:
138Fundamentals+of+Accountancy,+Business,+and+Management+2 180 MINS
139INTRODUCTION (30 MINS) Teacher Tips: Discussion questions for the learners:• Require the learners to bring to class the prescribed accounting practice set workbook. A short • Contemplate the reason for having special sample is provided below. journals, in contrast to general ledger. The purpose of the special journals is to increase efficiency and prevent• Review the following topics: redundancy in recording transactions in • Journals – book of original entry the general journal. For example, a - Special journals business may have ten credit sales - General journals transactions in one day. Without a sales journal, this will require the recording of • Ledgers – books of accounts the following journal entries ten times in - General ledger one day. - Subsidiary ledger Dr. Accounts receivable Cr. Sales
• Review the different kinds of bank forms • Contemplate why the sales journal is used • Deposit slip to record only credit sales and not cash • Withdrawal slip sales. In the same vein, why is a purchase • Bank checks journal used to record only credit purchases and not cash purchases. This is because all cash transactions are• Completion of the accounting process: recorded in the cash receipts and cash • Adjusting and closing entries disbursement books. To record purchases • Preparing trial balance and worksheets and sales made in cash in the purchase and sales journals will mean double recording because these are already recorded in their respective cash books. It will result in inefficiency and complications.
140MOTIVATION (30 MINS) Teacher Tips: For the motivation phase, you may need the • Pick a well-known company, preferably a company with high-profile advertisements so learners following resources for visual effect: will be familiar with the company and its transactions. For example, Talk N' Text is a a. FS of your chosen company. In the telecommunication network company that provides mobile phone services. This company is example, this may be the FS of Talk N' Text or PLDT. within the umbrella of PLDT. This is a company that may be very familiar to the learners because b. Picture of the chosen company's they are users of the services that this company provides. product to be projected using an overhead projector (i.e. picture of • Ask the learners the following: prepaid card) orsample of actual product. - Examples of revenue transactions of the chosen company. In the case of Talk N' Text, learners c. Video of the chosen company's may give various answers such as prepaid loads, postpaid plans and internet data services. Ask video advertisement (i.e. Talk N' the learners to point to which accounts in the financial statements are affected by the Text Aldub commercial) or print transactions that they have identified. advertisement. - Examples of expenses of the chosen company. In the case of Talk N' Text,this may include TV and print ads, raw materials for the prepaid cards and the maintenance of the cellular network. - Based on the above responses from the learners, ask them to contemplate how the accountants knew when to record revenue and expense transactions? How do these information reach the company's accountant who records in the accounting books and prepares the financial statements?
of the purchase. This should be consistent with the information on the purchase order. The Price net of VAT x VAT rate = VAT purchase invoice and sales invoice are the same form. It is referred to as purchase invoice by the buyer because it documents its purchase transaction. On the other hand, the same form is referred Price net of VAT + VAT = Given Price to as sales invoice by the seller to document its sale transaction. - Official receipts – used to document cash transaction. The entity receiving the cash will prepare Pro-forma journal entries that includes VAT are as follows: the Official Receipts (OR). The entity paying will receive the OR as evidence of payment made. Revenue:• Associate the following business forms with the respective accounting books: Accounts receivable (Given Price) Revenue (Price net of VAT)Business Forms Accounting Books VAT Payable / Output VAT (VAT)
Check voucher (check voucher package includes purchase request, Cash disbursement books Expense:purchase order, delivery receipts and purchase invoice), suppliers' official Inventory or Expense (Price net of VAT)receipt received for cash payment. VAT Receivable / Input VAT (VAT) Accounts Payable (Given PriceOfficial receipt issued for cash payment and cash register tapes. Cash receipts books
142• Go through the instruction to fill up the accounting practice set. This will normally include the following: - Fill out the business and bank forms to document the given business transactions. - Record the business transactions in the appropriate journal. Use the general and special journals provided in the accounting practice set. - Post the journal entries in the appropriate subsidiary ledgers and general ledger accounts. - Summarize the ledger accounts and list the balances on the trial balance. - Record the necessary adjusting entries. Information to prepare the adjusting entries are normally provided in the accounting practice set. - Prepare the financial statements from the trial balance. - Prepare necessary closing entries and record on the general journal and ledger. - You may perform financial statement analysis of the completed financial statements. Teacher Tips: You may require the learners to work on their practice set as part of their homework.
Sample Flowchart
Figure 1
144 Figure 2
AngTindahan Co. is a wholesaler of office and school supplies. The following are the transactions of AngTindahan Co. for the first month of itsoperations. All cash disbursements are made by bank check. Assume perpetual inventory method is used.
July 1 Rachel Dy made initial contribution to the business by depositing money in the company's P200,000 bank account.
July 1 Purchased laptop from Computershop Inc. for office use. P45,000 Payment term: COD (Cash on Delivery). 145Date Transaction Amount Business/Bank Journal Journal forms to be filled up Entry
July 4 Received 200 reams of bond papers (inventory) ordered from Jude Corp. 25,000 Payment terms: 2/10, n/30.
July 18 Sold 20 reams of bond papers to Audrey Company. Audrey picked up the merchandise 5,500 from the store. Payment term: 15 days. Cost of merchandise was P2,500.
July 19 Received10 boxes of ballpoint pens from Mickey Inc. Payment terms: COD 25,000
July 22 Over the counter sale of 4 boxes of ballpoint pens to Happy Company. 22,000 Cost of merchandise was P 10,000
July 23 Received 10 calculators from Plusminus Corporation. Payment terms: 30 days. 3,000
July 24 Sold 6 calculators to Joel Company. Joel picked up the merchandise from the store. 3,960 Payment Term: 15 days. Cost of merchandise was P1,800
July 26 Received 2 defective calculators from Joel Company. Cost of defective calculators is P 1,320 600
July 31 Over the counter cash withdrawal by the owner, Rachel Dy, for her personal expenses. 10,000 146Requirements:1. Identify the following and indicate on the spaces provided: a. Business or bank forms to be used by AngTindahan to document the above transactions. b. Journal to be used to record the original entry for the respective transactions.2. Prepare the journal entry (debit-credit format) to record the above transactions. Use only the accounts listed on the chart of accounts given below.3. Fill up the relevant forms based on the answer in 1a. Format of the forms are provided below. Reproduce the necessary forms. Follow the numbering instructions.4. Based on your answer in 1b, record the transactions in the appropriate journals. Formats are also provided below.5. Post the journal entries in the appropriate subsidiary ledgers and general ledger accounts.Formats are also provided below.6. Summarize the ledger accounts and list the balances on the trial balance.7. Record the following adjusting entries. a. Accrual of one month rent b. One month depreciation of laptop computer. Estimated life is 5 years. Note: The teacher has the option to instruct the c. Accrue employee salary, P 7,000 learners to perform requirement 1. The other alternative is to give these information to the8. Prepare the financial statements from the trial balance. learners and just go straight to the succeeding9. Prepare necessary closing entries and record on the general journal and ledger. requirements.10. Perform financial statement analysis on the completed financial statements.
147Chart of Accounts
Date received
PO no. 0001000__
________________________________________(Printed Name and Signature)
Received From
Check Number
Prepared by
Checked by
Approved by
Received by 153 PURCHASE ORDER
Note Subtotal
Checked by 154Approved by AngTindahan Company Office Address ____________________________ VAT Registered TIN Number 543-987-234-000
Delivered To Date
TIN Terms
Received the above goods and services in good order and condition
155 AngTindahan Company Office Address ____________________________ VAT Registered TIN Number 543-987-234-000
TIN Terms
SC/PWD Signature
Less: VAT
Less: VAT
VAT Amount
Total Sales
157Accounting Books
Date Account Debited Invoice No. Ref Dr. Accounts Receivable Dr. Cost of Goods sold Cr. Sales Revenue Cr. Inventory
Date Account Credited Ref Dr. Cash Dr. Sales Cr. Sales Cr. Accounts CR Other Accounts Dr. Cost of Goods Sold Discount Revenue Receivable Cr. Inventory
Date Chk No. Account Debited Ref Other Accounts Dr. Accounts Payable Dr. Inventory Dr. Cash Cr
Date Account Number Account Title and Explanation Ref Debit Credit
160 GL Account - <Accounts Payable> Account Number 2000
161 GL Account - <Accounts Receivable> Account Number 1200
162 GL Account - <> Account Number
Account Account Trial Balance Adjustments Adjusted Trial Balance SFP SCI Number Name Debit Credit Debit Credit Debit Credit Debit Credit Debit Credit
164Solution to Sample Accounting Practice SetAngTindahan Co. is a wholesaler of office and school supplies. The following are the transactions of AngTindahan Co. for the first month of itsoperations. All cash disbursements are made by bank check. Assume perpetual inventory method is used.
July 1 Rachel Dy made initial contribution to the P200,000 Deposit Slip Cash Receipts Dr. Cash 200,000 business by depositing money in the Cr. Dy, Capital 200,000 company's bank account.
July 1 Purchased laptop from Computershop Inc. P45,000 Purchase Order Cash Dr. Office Equipment 45,000 for office use. Check Voucher Disbursement Cr. Cash 45,000 Payment term: COD (Cash on Delivery). Bank Check
July 2 Paid advance rental for 6 months. 30,000 Check Voucher Cash Dr. Prepaid Expenses 30,000 Bank Check Disbursement Cr. Cash 30,000
July 4 Received 200 reams of bond papers 25,000 Purchase Order Purchases Journal Dr. Inventory 25,000 (inventory) ordered from Jude Corp. Receiving Report Cr. AP 25,000 Payment terms: 2/10, n/30.
July 7 Delivered150 reams of bond papers to 41,250 Delivery Receipt Sales Journal Dr. AR 41,250 Aurora Company. Sales Invoice Cr. Sales 41,250 Payment terms: 2/10, n/20. Cost of merchandise was P18,750. Dr. Cost of Sales 18,750 Cr. Inventory 18,750
July 8 Paid the July 4 purchases 24,500 Check Voucher Cash Dr. AP 25,000 Bank Check Disbursement Cr. Cash 24,500 Cr. Inventory* 500 (25,000 x 2%) * In periodic inventory method, this will be credited to Purchase Discount - a contra-purchase account.
July 15 Paid salary of employee 7,000 Check Voucher Cash Dr. Salaries expense 7,000 Bank Check Disbursement Cr. Cash 7,000
July 16 Received payment from the July 7 sales. 40,425 Official Receipt Cash Receipt Dr. Cash 40,425 Check Deposit Dr Sales discount 825 Cr. Sales 41,250 165 Date Transaction Amount Business/Bank forms Journal Journal Entry to be filled up
July 18 Sold 20 reams of bond papers to Audrey 5,500 Sales Invoice Sales Journal Dr. AR 5,500 Company. Audrey picked up the Cr. Sales 5,500 merchandise from the store. Payment term: 15 days. Dr. Cost of sales 2,500 Cost of merchandise was P2,500. Cr. Inventory 2,500
July 19 Received10 boxes of ballpoint pens from 25,000 Purchase Order Cash Dr. Inventory 25,000 Mickey Inc. Payment terms: COD Receiving Report Disbursement Cr. Cash 25,000
July 22 Over the counter sale of 4 boxes of 22,000 Sales Invoice Cash Receipts Dr. Cash 22,000 ballpoint pens to Happy Company. Official Receipt Cr. Sales 22,000 Payment term: Cash Cost of merchandise was P 10,000 Dr. Cost of Sales 10,000 Cr. Inventory 10,000
July 23 Received 10 calculators from Plusminus 3,000 Purchase Order Purchases Journal Dr. Inventory 3,000 Corporation. Payment terms: 30 days. Receiving Report Cr. AP 3,000
July 24 Sold 6 calculators to Joel Company. Joel 3,960 Sales Invoice Sales Journal Dr. AR 3,960 picked up the merchandise from the store. Cr. Sales 3,960 Payment Term: 15 days. Cost of merchandise was P1,800 Dr. Cost of sales 1,800 Cr. Inventory 1,800
July 25 Paid electricity bill. 7,400 Check Voucher Cash Dr. Utilities expense 7,000 Bank Check Disbursement Cr. Cash 7,000
July 26 Received 2 defective calculators from Joel 1,320 Receiving Report General Journal Dr. Sales return & allowances 1,320 Company. Cost of defective calculators isP Cr. AR 1,320 600 Dr. Inventory 600 Cr. Cost of sales 600
July 31 Over the counter cash withdrawal by the 10,000 Withdrawal Slip Cash Dr. Dy, Drawins 10,000 owner, Rachel Dy, for her personal Disbursements Cr. Cash 10,000 expenses. 166Recommended worksheet solution:
167Financial Statements in Good Form:
Dy, Capital 242,615 Total Liabilities and Owner's Equity Php 52,615
22-Jul Over the counter cash sales 22,000.00 Purchase of office equipment (45,000)
25-Jul Paid electricity bill 7,000.00 Net cash used in investing activities (45,000)
169SUGGESTED FINANCIAL STATEMENT ANALYSISOnly vertical analysis is recommended because data is insufficient for horizontal analysis. Also, data provided is only for the firstmonth of operations therefore financial ratios may not be meaningful.
Salaries Payable 3%
Total Liabilities 4%
170Fundamentals+of+Accountancy,+Business,+and+Management+2 540 MINS
171INTRODUCTION AND MOTIVATION (20 MINS) Teacher Tips: If learners do not have internet facilities, the• Require the learners to download the latest BIR Tax Rate Table, BIR Withholding Tax Table, E-birforms instructor may download and print the software and BIR form 1701 from the BIR websitewww.bir.gov.ph. necessary materials. Provide the materials to the students for photocopying.
• You can use the following articles to perk up the interest of the learners on this topic: Current BIR rules require that BIR forms - LIST: 39 celebrities among BIR's Top 500 individual taxpayers should be prepared using the E-birforms - http://www.gmanetwork.com/news/story/478514/money/personalfinance/list-39-celebrities- software. However, the teacher can choose among-bir-s-top-500-individual-taxpayers#sthash.IsT4jnym.dpufhttp://www.gmanetwork.com/ to use paper forms to guide learners in accomplishing tax forms. The contents of news/story/478514/money/personalfinance/list-39-celebrities-among-bir-s-top-500-individual- the paper forms and the E-birforms are the taxpayers same.
- Manny Pacquiao Lands $75 Million Blow In Tax Evasion Case Also, for high school accounting purposes, - http://www.forbes.com/sites/robertwood/2014/08/22/manny-pacquiao-lands-75-million-blow-in- there will be no discussion on the difference between financial accounting and tax tax-evasion-case/ accounting. This topic will be for collegiate accounting discussions.• All earnings citizens of the Philippines, whether from compensation or business, are required to pay taxes. Taxes are revenue of the government that funds government expenditures and programs.
Teacher Tips:INSTRUCTION/DELIVERY (300 MINS) • For this part of the lecture, you may opt to project the enumeration of theI. Principles of Taxation principles of taxation and list of gross income on the board (powerpoint• Governing tax law in the Philippines is the National Internal Revenue Code of 1997. The Bureau of presentation, overhead slides, manila Internal Revenue (BIR) is the primary implementing agency of this law. paper). Learners need not memorize all• Taxation is the process by which the government collects revenue in order to pay for its expenses. this information. An appreciation of the• Income tax is defined as the tax on the net income or the entire income realized in one taxable year. principles is sufficient at the high school level. These topics will be discussed in 172 greater detail in collegiate tax subjects.• Who are required to pay income tax in the Philippines? (Section 23 of the National Internal Revenue Teacher Tips: Code [NIRC] of 1997) • The list of gross income (Letter II below) - A citizen of the Philippines, living in the Philippines, is taxable on all income earned inside and enumerates the sources of income for outside the Philippines; both individuals and businesses. Except - A non-resident citizen is taxable only on income earned in the Philippines; for compensation and income derived - An OFW is taxable only on income earned in the Philippines. from trade or business, other income sources are generally subject to final - A foreigner living in the Philippines is taxable only on income earned in the Philippines. withholding tax on passive income. These - A domestic corporation is taxable on all income derived from sources inside and outside the income sources are subjected to regular Philippines; and income tax rate only if the source did not - A foreign corporation is taxable only on the income derived inside the Philippines. meet the exact specifications of income subject to final tax as expressed in the law. Again, students only need anII. List of sources of gross income: (NIRC 1997 Chapter 6 Section 32 A) appreciation of this part. There is no need• Compensation for services in whatever form paid, including, but not limited to fees, salaries, wages, to go in detail because it will only confuse commissions, and similar items; the learners at this level. At the collegiate tax subjects, these items will be discussed• Gross income derived from the conduct of trade or business or the exercise of a profession; in greater detail with reference to both• Gains derived from dealings in property; (Note: subject to 6% capital gains tax for individuals and for the law (NIRC) and the specific corporation if land and building is not used in business) implementation guidelines in the BIR revenue regulation.• Interests; (Note: generally subject to 20% final withholding tax) • There is a misconception that individual• Rents; income taxation is about compensation• Royalties; (Note: generally subject to 20% final withholding tax,10% if from books and literary works) income. But this is not true. An individual• Dividends; (Note: generally subject to 10% final withholding tax for individuals, tax exempt for may be generating income from corporation) compensation (as an employee) and business (for part time services or• Annuities; consultation services). Also, an individual• Prizes and winnings; (Note: generally subject to 20% final withholding tax, except those that are tax may also be generating solely business exempt based on specific criteria in the law) income if his or her business is legally organized as a sole proprietorship or a• Pensions; and general professional partnership. In such• Partner's distributive share from the net income of the general professional partnership. cases that business income is part of an individual tax payer's income, the tax rateIII. Compensation Income is based on the individual's progressive income tax rate. This is important for the• Employed individuals that earn compensation income pay their income taxes monthly. Employers learners to understand because this will withhold the income tax of their employees from their monthly gross income and remit these sums to be used in the examples and practice the BIR. question in the later section.• Philippine individual income tax is progressive. The tax rate increases as the tax base increases which means that tax payers with more capacity to pay will pay more taxes. 173• All individual taxpayers are granted a personal exemption of P 50,000. Additional exemptions of • In the list of sources, you may highlight ₱ 25,000 are given for each qualified dependent but only up to four dependents. For husband and the difference between income from wives with children, only one spouse can claim the additional exemption. The husband is deemed compensation and income from conduct of trade. In the individual taxpayers' head of the family and will claim the deduction unless he explicitly waves his right in favor of his wife. income tax return, there is a separate• Withholding income tax for employees: column for compensation income and - Employers are required by law to withhold income tax dues from their employees' salary. business income. - It is implemented because employees might not have sufficient cash to pay for their income tax dues if aggregated to a one time annual payment. - The withholding tax deduction is computed based on the employee's gross compensation (net of mandatory contributions to SSS or GSIS, Philhealth and Pag-ibig Fund), tax status, timing of compensation payments and using the published BIR withholding tax table.• Income tax is computed at the end of the year based on all compensation income derived during the year. - Taxable income is computed after deducting personal and additional exemptions. - Applicable tax rate is applied on the taxable income to get the tax due. - The total income tax withheld by the employer is deducted from the tax due to get remaining tax liability by the employee.• Taxpayers who derive their income solely from compensation are required to file BIR Form 1700 as their income tax returns. However, to give relief to these taxpayers, the employee may present BIR Form 2316 as their income tax return. BIR Form 2316 is a statement issued by the employer and signed by the employee but not filed with the BIR. This is referred to as substituted filing.
10,000 5%
Less: Statutory contributions (SSS or GSIS, Philhealth and Pag-ibig Fund) 13,425.60
What if the employer withheld a total of P95,000? Then on April 15 on the subsequent year, theemployee will pay an additional P4,972.32. But this does not happen often. Normally, the employerscompute for the annual tax due based on the actual gross compensation income at the end of the year.Any additional tax payment may be deducted from the December compensation. Teacher Tips: Teachers may also choose to discuss howB. Business Income: the monthly withholding income tax isTotal revenues (Sales, Professional Fee, etc) determined using the withholding tax table. Tables are in Attachment 4.Less: Total expenses (Cost of Goods Sold, Operating Expenses)Taxable income from businessLess: Personal ( P 50,000 per tax payer) and additional deductions (P 25,000 per qualified dependent,max of 4)=Net taxable income
Example:Juan Dela Cruz is the owner-manager of JDC Trading Company. Total Sales generated during the yearamounted to P 1,230,000. Cost of goods sold is P 492,000 and total operating expenses is P 184,500.The company opted for itemized deduction.
Sales P 1,230,000
177Scenario 1: Juan Dela Cruz is single with no qualified dependent
• Is this the amount payable to the BIR on April 15? Not exactly. If during the year, some of JDC's issued creditable income tax withheld (meaning the clients remitted the withheld amount to the BIR), then the amount withheld maybe deducted from P 126,120. Creditable income tax withheld is basically prepaid income tax.• The remaining liability (after deducting creditable tax withheld), if greater than P 2,000, may be paid in installment – half on April 15 and the other half on July 15.
Scenario 2: Juan Dela Cruz is single with 1 qualified dependent; JDC received creditable income tax withheld from its customers at P27,655.
178From tax table, tax due for P 478,500 is computed as follows:P 50,000 + 30% of the excess over P 250,000P 50,000 + 30% (P478,500 - P 250,000) = P118,550P 118,550 - P27,655 = P90,895 (Note: Liability to the BIR. If paid in installment, Juan Dela Cruz will pay P 45,447.50 each on April 15 and July15).
Example:Juan Dela Cruz, a married man with two qualified dependents, generated income from the following sources:
Compensation income: a. Annual compensation income generated was P 555,000. b. Statutory payments are as follows: SSS – P 6,975.60; Philhealth - P 5,250; Pag-ibig Contribution – P 1,200. Total: P 13,425.60 c. Tax exempt 13th month pay and other bonuses – P60,000. d. Employer withheld P 89,471.16
Professional income: a. Consultancy services earned P 1,230,000. Clients withheld P 61,500 and provided creditable income tax withheld tax return. b. He has no record of the receipts of his expenses. He opted for standardized deductions.
Compensation income
Instruct the learners in the procedures of using the eBIRForms software. Work on Scenario 1.
180PRACTICE (120 MINS) Teacher Tips: This can be made into homework after the• Go to Attachment 4 for Practice of preparing BIR forms. Require the learners to prepare the BIR lecture on computation of tax due. forms 1701 for Scenarios 2 to 4 and Additional Exercise (for itemized business income). Attachment 4 may be used for both eBIRForms software and the manual preparation of the BIR form. Blank copy of To make it interesting, learners may "invent" the personal background of the BIR Form 1701 is in Attachment 5. taxpayer - Taxpayer Identification Number, Address, Birthdate, email address and phone number. However, the other information should be based on the problem.
181Additional Exercises
1. Jacqueline Cruz generated annual compensation income of ₱ 455,000, net of statutory payments. Tax exempt 13th month pay and other bonuses – ₱ 30,000. Determine the tax due of Jacqueline Cruz based on the following possible tax status of Jacqueline: a. Jacqueline is single with no dependent. b. Jacqueline is single with one qualified dependent. c. Jacqueline is married with one qualified dependent. d. Jacqueline is married with three qualified dependent. e. Jacqueline is married with five dependents.
2. Jack Cruz is a project consultant. Total project fees earned during the year amounted to P853,000. Jack opted to use the optional standard deduction of 40%. Determine the tax due of Jack Cruz based on the following possible tax status of Jack: a. Jack is single with no dependent. b. Jack is married with one qualified dependent. c. Jack is married with three qualified dependent.
3. Juana Dela Cruz owns a trading business. Sales for the year amounted to P 1,765,000. Expenses are given in the table below:
Determine the tax due of Juana Dela Cruz based on the following possible tax status of Jack: a. Juana is married with two qualified dependent. b. Juana is single with three qualified dependent.
Problem 1
Number of children 0 1 1 3 5
183Problem 2
Number of children 0 1 3
184Problem 3Taxpayer Juana dela Cruz Computation of Taxable Income
A B Sales 1,765,000.00
Operating expenses
185Biographical NotesJOSELITO G. FLORENDO REYMOND PATRICK P. MONFEROTeam Leader WriterMr. Joselito Florendo is an assistant professor of various business Mr. Reymond Monfero is an instructor at De La Salle University,courses under the Cesar E.A. Virata School of Business in UP Manila. He teaches Management Accounting, AccountingDiliman. In addition, he was appointed as Vice President for Information Systems, Audit of Accounting Information Systems,Planning and Finance on 7 May 2014 at the UP Diliman - Cesar Ethics for Accountant, Accounting for Partnership andE.A. Virata School of Business. Prior to this appoint, he has Corporation, and Statistics for Accountant. He worked at Sycipserved multiple duties and responsibilities in the institution as a Gorres Velay and Co. (SGV) for three (3) years and performedformer Assistant Vice President for Planning and Finance, financial audit accordance with Philippine Financial ReportingExecutive Director of the UP Provident Fund, Director of the Standards (PFRSs), Philippine Accounting Standards (PASs) andUniversity's Budget Office, Chief Accountant of the University's Philippine Standards on Auditing (PSAs).Accounting Office, Assistant Executive Director of the UPFoundation, Director of UP Diliman's Business Concessions Office He received his Bachelor's degree in Commerce in De La Salleand Chair of the Department of Accounting and Finance at the University in 2011 and is currently finishing his MA degree in theVirata School of Business. same university. He earned his professional license in public accountancy in 2011.Vice President Florendo completed his International Master's inSmall and Medium Enterprises in 2005 at the Asia-Europe CARLSBERG S. ANDRESInstitute of the University of Malaya in Kuala Lumpur, Malaysia Writer(with distinction). He obtained his Bachelor of Science in Business Mr. Carlsberg Andres has been a College Professor, since 2008,Administration and Accountancy degree, cum laude, in 1992 at at the University of Santo Tomas. His education backgroundUniversity of the Philippines Diliman and ranked 15th in the May includes a Bachelor of Science in Accountancy from UST and a1994 Certified Public Accountants Licensure Examination. Masters of Science in Finance from the University of the Philippines - Diliman. Mr. Andres is proficient in multiple businessVP Florendo actively conducts seminars and workshops in disciplines such as financial modelling, quantitative methods,accounting and finance for various public and private, local and financial reporting & analysis, investment management, andinternational organizations. He was recently awarded the financial risk management to name a few. In addition to hisDeloitte-FINEX Most Outstanding Finance Educator of the academic achievements, he also has experience using softwarePhilippines for the year 2014-2015. platforms such as Quickbooks, Peachtree, and Xero accounting system.DANI ROSE C. SALAZAR BRAD NEIEL T. DELA CRUZWriter Technical EditorMs. Dani Rose Salazar is an educator and finance officer at the Mr. Brad dela Cruz is an instructor handling Accounting, AuditingUniversity of the Philippines - Diliman. She is teaching finance and Finance subjects at the University of the Philippines -and accounting courses in the university for almost 15 years.She Diliman. In addition, he also works as a consultant for RedPeakhas published works and contribution in the Development Center Capital Holdings, Inc. He graduated Magna Cum Laude with afor Finance in 2003 and 2008. She earned her Master's degree in Bachelor of Science degree in Business Administration andFinance and Bachelor's degree in Business Administration and Accountancy (BS BAA). In addition to his outstanding academicAccountancy and graduated Magna Cum Laude in 1998 at the achievement, he is also a 7th place in the October 2012 CPAUniversity of the Philippines Diliman.She is currently an ASEAN Board Exam out of over 10,000 examinees. With his backgroundPhD fellow at the Korea Foundation. in the finance curricula, he is highly knowledgeable on international accounting standards with specialization on IAS 39,CHRISTOPHER B. HONORARIO IFRS 9, IAS 32, IFRS 7 and IFRS 13WriterAtty. Christopher Honorario is an Assistant Professor V under the DANIEL DAY V. AGUILLONCollege of Management of the University of the Philippines - CopyreaderVisayas. He specializes in the following subjects: Financial Mr. Daniel Aguillon has been teaching for various institutions,Accounting, Managerial Accounting, Auditing and Design of with the latest at San Beda College - Alabang. His academic loadAccounting Information Systems. He graduated with a Bachelor consists of Technical Drafting/Engineering 1 for Grade 10 andof Science in Accountancy at UP Visayas in the year 1999 and Basic Accounting. He graduated from the Technologicalthen fulfilled his Masters of Management in the same university in University of the Philippines- Cavite Campus with a degree ofthe year 2005. Furthermore, he accomplished his Bachelor of Bachelor of Science in Industrial Education, major in MechanicalLaws at the University of Iloilo in 2012 and was admitted to the Engineering Technology. He is currently accomplishing hisBar two years later. Atty Honorario also passed the Certified graduate degree in Master of Arts in Education, major in GeneralPublic Accountant Licensure Exam in the year 1999. Science at the University of the Philippines - Diliman. Mr. Aguilon has also achieved numerous professional eligibilities, passing the Civil Service Commission-Career Service Examination - Professional Level and the Licensure Examination for Teachers (LET).