Republic of the Philippines

Department of Education
PUBLIC TECHNICAL -VOCATIONAL
HIGH SCHOOLS

Unit of Competency : Prepare and Maintain Financial Records

and Reports

Module Title : Preparing and Maintaining Financial

Module No. 7 Records and Reports

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 HOW TO USE THIS MODULE
Welcome to the Module “Preparing and Maintaining Financial
Records and Reports”. This module contains training materials and
activities for you to complete.
The unit of competency “Prepare and Maintain Financial
Record and Reports” contains the knowledge, skills and attitudes
required for the course Entrepreneurship.
You are required to go through a series of learning activities in
order to complete each of the learning outcomes of the module. Follow
these activities on your own and answer the Self-Check at the end of
each learning activity.
If you have questions, don’t hesitate to ask your teacher for
assistance.

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COURSE : ENTREPRENEURSHIP IV

UNIT OF COMPETENCY : Prepare and Maintain Financial

Records and Reports

MODULE TITLE : Preparing and Maintaining

Financial Records and Reports

MODULE DESCRIPTION : This module covers the

knowledge, skills and attitude
required in preparing and
maintaining financial records and
reports.

SUGGESTED DURATION : 10 Hours

SUMMARY OF LEARNING OUTCOME:

Upon completion of the module the students should be able to:

LO1. Prepare and maintain financial records and

reports.

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 WHAT WILL YOU LEARN?

1. Differentiate accounting from bookkeeping.

2. Appreciate the importance of record keeping to the
business.
3. Understand the rules of debit and credit.
4. Prepare financial statement of the business.

WHAT DO YOU ALREADY KNOW?

PRE - TEST
A. MULTIPLE CHOICE:
Direction: Answer the questions honestly. Write the letter of
your choice in your quiz notebook.

1. It is known as the language of business.

a. Accounting
b. Bookkeeping
c. Transaction
d. Posting

2. It refers to recording business and event in a systematic

and chronological manner.
a. Bookkeeping
b. Accounting
c. Transaction
d. Liability

3. It is written on the left side of an account journal

a. debit
b. credit
c. profit
d. sales

4. It refers to the financial position of the business that

shows the assets, liabilities, and owners’ equity.
a. financial statement
b. balance sheet
c. income statement
d. jounalization

5. It is a report that summarizes the revenue items,

expenses and profit/loss for the period.
a. expense
b. deprecation
c. income statement
d. balance sheet

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6. It refers to the things of value owned by a business.
a. capital
b. inventory
c. cash
d. asset

7. It is the amount of merchandise sold and valued at selling

price.
a. sales
b. receivables
c. purchase
d. proprietorship

8. It refers to the amount to be collected or received from a

debtor in the future or at a later date.
a. receivables
b. net profit
c. gross profit
d. expenses

9. It consists of cash and other assets, that in the normal

operations are expected to be converted into cash.
a. fixed assets
b. current assets
c. other assets
d. all of the above

10. It is the expense balance computed from the analysis of

cash payment and comparative balance sheet data.
a. Depreciation
b. Expenses items
c. Revenue items
d. All of the above

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LESSON 1
Prepare and Maintain Financial Records and Reports

WHAT IS THIS LESSON ABOUT?

An entrepreneur’s growing concern is to continuously
learn and understand the activities of his or her business. The
cash movement, if properly recorded and kept, can clearly
describe the total business picture.

Bookkeeping can guide you in your tasks. The primary rule is to

understand the mechanics of financial records.

WHAT WILL YOU LEARN?

At the end of the lesson you should be able to:
1. Prepare and maintain financial records and reports.

LET US STUDY

WORDS TO STUDY
Assets are things of value owned by the business

Receivables are summarized accounts maintained with

debtors and creditors.

Capital is an excess of assets over liabilities

Balance Sheet is the formal statement of the financial position of

the business that shows the assets, liabilities and
owner’s equity.

Income statement is a report that summarizes the revenue items,

expense and the difference between, which is
called net profit/loss for the period.

ACCOUNTING
 The language of business
 The art of recording, classifying, summarizing in a significant
manner and in terms of money, those transactions and events
which are part, at least of a financial character and interpreted
as the results thereof.

BOOKKEEPING
 The act of recording business and events in systematic and
chronological manner. The person involved in this task is the
bookkeeper. His main job is to record and process data in the
accounting system

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Using the example on the below, let us illustrate the ‘Dual Aspect
Convention of Bookkeeping:

Let us assume that the material is Php.1,000.00 per kilo and

Php.50.00 per meter so that with these values, you can now sum up
in monetary terms that you bought goods amounting to Php.
13,850.00 (13 kilos X Php.1,000.00 plus 17 meters X Php 50.00.
It is clear therefore, that the common basis for every
bookkeeping record is the monetary value.

The “Dual Aspect” Convention

The convention is in fact at the very heart of a bookkeeping
system.

Bert brings a kilo of chicken to the market and in exchange he

buys T-shirt from Rene.

Each of the parties in the transaction ‘received’ a certain

economic value and ‘gave’ an identical value.

Bert ‘received’ T-shirt and Rene ‘received’ a kilo of

“Gave” a kilo of chicken chicken and “Gave” T-shirt

After the previous example let us assume that Bert buys a t-shirt from
Rene for Php.130.00. We can see here that although we are concerned
with a single commercial transaction (from Bert’s point of view –
buying chicken for cash, from Rene’s point of view – selling chicken
for cash.) We are still left with the ‘dual aspect.’

Bert ‘received’ goods (T-shirt) Rene ‘received’ money and

and ‘Gave’ money. ‘Gave’ goods (T-shirt)

In other words, the language of bookkeeping tends to record a

single transaction in dual manner. One, what the person ‘received’
and the second, what that same person ‘gave’.

In bookkeeping, each
Debitsingle commercial
and Credit Rule transaction is
recorded twice. On the ‘received’ side and then again on the ‘Gave’
side. Debit is on the left side of an account journal.

Credit is the right side of an account journal.

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 Type of To Debit the Account To Credit the Account
Account
1. Personal When the person in When the person in whose
whose name the account name the account is kept
is kept is in debt to us. is in credit with us.
2. Real When the account When the account gives us
received money or money equivalent.
equivalent
3. Profit and Any account that ends Any account that ends
Loss with the words “Expense with the words ‘Revenue
Accounts” Account”.

COMPREHENSIVE EXAMPLE
1.1 We bought goods from GMC Grocery for an overall sum of
Php.100.00 (invoice no.123)
2.1 We sold part of the goods for Php.600.00 cash (receipt no.1950).
3.1 We paid Php.200.00 cash for electricity expenses (expense
voucher no.001)
4.1 We bought a stone from Rene for Php.20,000.00 (invoice no.953)
5.1 We rented the store out for Php.700.00 cash invoice no. 001

In the first part of the solution, the records will be presented in the form
of a “T Account” and they will be presented textually in the second part.

T Accounts

Good Accounts GMC Grocery

Debit Credit Debit Credit
(1) 1,000 600 (2) 1,000 (1)

Cash Accounts Electricity Expenses

Debit Credit Debit Credit
(2) 600 200 (3) (3) 20
(5) 700

Stone Accounts Rene Accounts

Debit Credit Debit Credit
(4) 20,000 20,000 (4)

Store Rental Account

Debit Credit 7
700 (5)
 Textual Records (Journal Entries)
Debit Credit
(1) Debit: Goods Account 1,000
Credit: GMC Grocery Account 1,000
1.1 Purchase on credit invoice 123
(2) Debit: Cash Account 600
Credit: Goods Account 600
2.1 Cash Sales Receipt invoice
no.123
(3) Debit: Electricity Expenses 200
Credit: Cash 200
3.1 Cash Payment, expense
voucher 001
(4) Debit: Stone Account 20,000
Credit: Rene Account 20,000
4.1 Purchase of Stone Account 953
(5) Debit: Cash 700
Credit: Income from Rental 700
5.1 Cash rental account
TOTAL: Php. 22,500 22,500

Event 1

 The goods account ( a real account) is debited. An

account was received (no.1 in the table)
 The GMC Grocery Account (a personal account) is
credited to receive money (No. 2 in the table)

Event 2

 The cash Account (a real Account) is debited – cash was

received. No.2 in the table
 The goods account (a real account) is credited – the store
issue goods (no. 2 in the table)

Event 3

 The electricity expenses (a profit and loss account) is

debited – every expense account is debited (no. 3 in the
table)

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Event 4

 The store account (a real account) is debited. The

transaction received a monetary value (No. 2 in the
table).
 The Rene account (a personal account) is credited –
according to no.1 and 2.

Event 5

 The income from the mental account ( profit and loss

account) is credited – all receipts are a credit (No.3 in
the table)
 The cash account is debited – (No. 2 in the table)

 It is easy to remember that every expense account is debited

(the expense is a negative matter from an economic point of view
and it is a debt of the business).
 Similarly, all receipts are a credit (a credit is something positive
from an economic point of view and it is to the credit of the
business.

Journalizing Case Problem

CNSAT CATERING SERVICES

Gundaway, Cobarroquis, Quirino

Business Transaction
Date:
2008
August 1 Cash Investment amounting to- Php.10,000.00
Received Group Amounting to- Php.25,000.00
Investment Canteen – equipment- Php.15,000.00
Paid Permit and License Php.500.00
Purchase Merchandise
Php.25,000.00
And paid
Php150.00
Transportation only 90% of the amount purchased was
paid in cash

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August 2-6 : Sold cooked food and merchandise for
Php.30,000.00 only 95% was collected in cash.

August 7 : Purchased merchandise for Php.20, 000.00 in

cash and paid Php.100.00 for transportation.

August 8 – 15 : Sold merchandise for Php.25,000.00 in cash

offered snacks to visitors amounting to
Php.200.00 and recorded it as sales.
Collected Php.1500.00 of account receivables.
Paid account amounting to Php.2,000.00.
Paid salaries and wage manager/cashier and
sales ladies Php.8,000.00
An inventory merchandise amounted to
Php.13,000.00
August 16 - 30 : Purchase liquefied petroleum amounting to
Php.350.00.
Sold Merchandise for Php.50.000.00 only 95%
were collected in cash.
Purchase raw food and merchandise
Php.40,000.00 and paid Php.200.00
transportation. Only 0% of the amount
purchased were paid in cash.

August 31 : Received electric and water bills for the

month
amounting to Php.1,200.00
Sold cooked food and merchandise for
Php.10,500.00 in cash
Collected accounts receivables amounting to
Php.2,000.00.
Paid trade account amounting to
Php.3,500.00.
Paid salaries of manager/cashier and sales
lady Php8,000.00
Bought calculator Php.1,000.00 recorded as
canteen equipment.
Snacks offered to visitors was charged to
capital account.
Received building rental Php1,500.00
Depreciation of canteen equipment
Php.250.00 was recognized
Inventory of Merchandise and raw food
were value Php.19,345.

PREPARATION OF FINANCIAL STATEMENTS

FINANCIAL STATEMENTS
INCOME
BALANCESTATEMENT
SHEET
 It is a formal
Balance Sheetstatement of the financial position of the
 It
business isthat
a report
Income showsthat
thesummarizes
Statement the revenue,
assets, liabilities items,equity.
and owner’s
expense and
It contains the
too
 Statement difference
main between
sections:
of Cash Receipt called net profit/loss for 10
andisDisbursement
the period.  Assets
 Liabilities
 BALANCE SHEET ACCOUNTS
 Cash reported in the balance shows in your cash book,
with the total cash on hand and the bank deposits
 Receivables or payables – are summarized from the
accounts maintained with debtors and creditors.
 Merchandise and supplies inventory – are determined by
having physical count.
 Capital is simply the excess of assets over liabilities
 Assets – are things of value owned by a business
o Assets are normally classified as current, fixed
and other assets.

 Current assets – those consists of cash and

other assets that in normal operation one
expects to be converted into cash or
consumed during the normal operations.
 Fixed assets – are assets that are required
for long term use in the business.
 Other assets – those include patents,
goodwill etc., which do not come within the
above definitions
 Owner’s equity – refers to the interest of up
– owner or proprietors in the assets of a
business.
INCOME STATEMENT

 Sales – the amount to be reported for sales consist of the total of

your cash sales on the account.

 Cost of Goods Sold – the inventory balance shown on in the

balance sheet is reported in the profit and loss statement and is
listed at the beginning of inventory.

 Expense Items – an expense balance computed from the

analysis of cash payment and comparative balance sheet data.

 Revenue items – a revenue balance computed from the analysis

of cash receipts ad comparative balance sheet.

 Depreciation – the charge for the depreciation account, to be

recognized in the profit and loss statement, required a special
analysis of balance sheets as well as cash data.

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 LET US REMEMBER:

 The law requires that some forms of records must

be kept by all businesses.
 In the time of keen competition, rising cost and
increasing taxes, there can be no alternative to
record keeping.
 There must be complete accounting of all
business transactions to efficiently handle
purchases and sales inventory control credit and
collection, depreciation and other expenses.

Activity 1

Direction: Classify the following as: A – assets, L – Liabilities,

C – Capital, R – Revenue, and E – Expenses.
Copy the activity and answer in one whole sheet of paper.

Accounts Classification
1. G.M. Capital
2. Land
3. Cash
4. Building
5. Accounts receivables
6. Delivery truck
7. Service Income
8. Sales
9. Prepaid Insurance
10. Accounts Payable

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 LET US APPLY WHAT YOU HAVE LEARNED:

It is always important to update and keep financial records and

reports. On your own perception express your point of view on the
importance of updating and maintaining financial records and reports
by completing the open sentences below: Copy and answer in one
whole sheet of paper.

1. If a business has clear and accurate financial records, then

____________________________________________________________
____________________________________________________________
___________________________________________________________.

2. Many successful business undertakings happened because

____________________________________________________________
____________________________________________________________
___________________________________________________________.

3. If I want to check and see how my business works, I usually

____________________________________________________________
____________________________________________________________
___________________________________________________________.

HOW MUCH HAVE YOU LEARNED FROM THIS MODULE?

POST TEST
B. MULTIPLE CHOICE:
Direction: Answer the questions honestly. Copy and answer in
one wholesheet of paper. Encircle the letter of the correct
answer.
1. It is known as the language of business.
a. Accounting
b. Bookkeeping
c. Transaction
d. Posting
2. It refers to recording business and events in systematic
and chronological manner.
a. Bookkeeping
b. Accounting
c. Transaction
d. Liability
e.

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3. It is on the left side of an accounting journal.
a. debit
b. credit
c. profit
d. sales
4. It refers to the financial position of the business that
shows the assets, liabilities, and owner’s equity.
a. financial statement
b. balance sheet
c. income statement
d. journalizing
5. It is a report that summarizes the revenue items,
expenses and profit/loss for the period.
a. expense
b. deprecation
c. income statement
d. balance sheet
6. It refers to the things of value owned by a business.
a. capital
b. inventory
c. cash
d. asset
7. It is the amount of merchandise sold and valued at selling
price.
a. sales
b. receivables
c. purchase
d. proprietorship

8. It refers to the amount to be collected or received from a

debtor in the future or at a later date.
a. receivables
b. net profit
c. gross profit
d. expenses

9. It consists of cash and other assets, that in the normal

operations are expected to be converted into cash.
a. fixed assets
b. current assets
c. other assets
d. all of the above

10. It is an expense balance computed from the analysis of

cash payment and comparative balance sheet data.
e. Depreciation
f. Expenses balance
g. Revenue balance
h. All of the above

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