SHS

Entrepreneurship
Quarter 2: Module 9
Entrepreneurship
Grade 11/12: Quarter 2: Module 9
First Edition, 2020

Copyright © 2020
La Union Schools Division
Region I

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

Development Team of the Module

Author: Encarnacion R. Basallo, T-II

Editor: SDO La Union, Learning Resource Quality Assurance Team

Illustrator: Ernesto F. Ramos Jr., P II

Management Team:

Atty. Donato D. Balderas, Jr.

Schools Division Superintendent

Vivian Luz S. Pagatpatan, Ph.D

Assistant Schools Division Superintendent
German E. Flora, Ph.D, CID Chief
Virgilio C. Boado, Ph.D, EPS in Charge of LRMS
Lorna O. Gaspar, EPS in Charge of ABM
Michael Jason D. Morales, PDO II
Claire P. Toluyen, Librarian II
Entrepreneurship
Quarter 2: Module 9
 Target

How do you measure the success of a business? Is it by employee’s

happiness at work? Customer’s satisfaction?

All of those are significant aspects, but the most important is your company’s profit
and loss.

In preparing a financial record of a company at every accounting period, a

financial statement is utilize as a key indicator on the health of a certain business.
Many entrepreneurs find it challenging for management tools untill they
understand how to interpret them. The fundamental success of a company
depends on a thorough understanding of this process.

In the previous lesson, you have discussed the basic understanding of

bookkeeping and applied vital numerical skills needed for bookkeeping task, which
is required for taking proper decisions on future actions.

This module will help you understand more on how to identify whether your
business is making or losing money.

After going through this module, you are expected to:

1. Identify where there is profit or loss for a business.

2. Learn how a profit and loss statement is structured and how to manage it

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 Jumpstart

This activity will enable you to assess your prior

knowledge on profit and loss report

Activity 1
Direction: In the box are the definitions of some words use in this lesson. Read
each problem carefully. Use the definitions to answer the questions ask in each
number and write it in a separate sheet of paper.

Cost price – the amount paid to purchase an item

Selling price: - amount of an item sold
Profit – amount of money earned from the resale
Loss - amount of money lost from the resale
profit/loss
Percentage of Profit and Loss (%)  x100
cost

Round off the answers to one decimal place only.

1. Mangoes are bought by a fruit stand for Php. 40.00 per kilo and resold at Php.
55.00 per kilo.
a. What is the cost price? ____________________________________________________
b. What is the selling price? _________________________________________________
c. Does the product make a profit or loss? By how much? ____________________
d. Calculate the percentage profit/loss on the cost price. ______________________

2. Celine makes school uniform which costs Php.60.00 per a girl’s fashion skirt.
She then sells them for Php.90 each.
a. What is the cost price? ____________________________________________________
b. What is the selling price? _________________________________________________
c. Did Celine make a profit or loss? By how much? ___________________________
d. Calculate the percentage profit/loss on the cost price.
_______________________

3. Raniel bought a computer set for Php.28,650. One year later, he upgrades and
sells it to his friend for Php.23,500.
Find the following:
a. Cost price ________________________________________________________________
b. Selling price _____________________________________________________________
c. Profit/loss_________________________________________________________________

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 d. Percentage profit/loss on the cost price. ___________________________________

4. Racel bought a residential lot at Php.240,000. He gained 30% of the lot price in
reselling it.
a. What is the selling price? _________________________________________________
b. What is the cost price? ___________________________________________________
c. Did he make a profit or a loss? By how much? _____________________________
d. Calculate the percentage profit or loss on the cost price.____________________

5. Company A resells its share for Php.565,000 and losses Php.141250 from
reselling it.
Find the following:
e. Cost price ________________________________________________________________
f. Selling price _____________________________________________________________
g. Profit/loss_________________________________________________________________
h. Percentage profit/loss on the cost price. ___________________________________

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 Discover

Money flows in and out of your business in many ways, which means you
can easily track of what is happening to the business. That is why keeping on top
of your finances using a profit and loss statement would not just help your
business succeed, but it will also ensure that any unknown costs should
overlooked.

What Are Profit and Loss Statements?

Profit and loss report is also known as the income statement that measures
the profitability of your business. It summarizes all revenues, expenses, and
profit/loss over a given period.

Figure 1. Profit and Loss Statement of Operations

Profit and loss statement focuses on the following components:

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

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

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

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

a. Cost of goods sold (COGS) - the price/cost you pay to create your products
or services.

b. Operating expenses – expenses required to operate the business for a

specific period. It includes rental expenses, payroll, utilities and non-cash
expenses such as depreciation.

 Gross profit - the total revenue minus your COGS. It is also known as gross
income or gross margin. Gross profit is an indicator of overall production
effectiveness for setting prices and sales targets.

 Operating income - the amount of revenue left after deducting the operational
costs from sales revenue. EBIT is also known as operating
profit/EBIT(earnings before interest and taxes) since they both exclude interest
expenses and taxes from their calculations. However, there are cases when
operating income can differ from EBIT

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

How to Calculate Profit or Loss?

There are number of important figure to explain your business’s profitability
using your profit and loss report. Here are some of the following:
 Gross profit = revenue – cost of goods sold
 Operating income = gross profit – operating expenses
 Net profit = operating profit – (taxes + interest)
 Ratio Analysis
You can also use ratio analysis method to reveal the different types of
information about your business. They are as follows:

A. Gross Profit Margin - measures the profitability of a business that shows

the percentage of gross profit in comparison to sales. The higher the gross
profit margin the better the company in managing its cost of sales. To
calculate use the following formula:

Gross profit margin = Gross profit / revenues

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 B. Operating Profit Margin - reveals the amount that a business has made
before financing and other costs are considered. An increasing operating
margin over a period indicates a company whose profitability is improving.
To solve, use the formula:

Operating profit margin = Operating income ÷ Total revenue

C. Net Profit margin - a profitability ratio that indicates how well a company
can convert its revenues into profits. Net profit margin is the percent of

Net Profit margin = Net Income ⁄ Total revenue x 100

revenue remaining after deducting all expenses. The higher the net profit
margin, the more money a company saves. Decreasing net profits are a
symptom of slow sales. To calculate, use the formula:

Sample Calculation of Profit and Loss

Below is an example of a Profit and Loss Statement in Philippine Currency.

Use Figure 2 to calculate profit and loss of a business.

Example 1. Figure 2. Profit and Loss Statement

MEGA MART CO.

Income Statement
For the Years Ending [Dec 31, 2019 and Dec 31, 2018]
Revenue 2018 2019
Gross sales 181,683
(Less sales returns and allowances) (10,000)
Net Sales 171,683 -

Cost of Goods Sold

Beginning inventory
Goods purchased or manufactured 130,028
Total Goods Available 130,028 -
(Less ending inventory)
Cost of Goods Sold 130,028 -

Gross Profit (Loss) 41,655 -

Expenses
Operating Expenses
Advertising Expense 6,755
Commissions Expense 7,500
Office Supplies/Equipment Expense 12,300

Total Operating Expenses 26,555 -

Operating Income (Loss) 15,100 -

Non-operating revenues, expenses, gains, 12,762
Income Before Taxes 27,862 -
(Less income tax expense) (1,069)
Net Income 26,793 -
{42} [42]

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 MEGA MART CO.
Income Statement
 Gross Profit
For the Years Ending [Dec 31, 2019 and Dec 31, 2018]
Revenue 2018 2019
Gross sales 181,683
(Less sales returns and allowances) (10,000)
Net Sales 171,683 -

Cost of Goods Sold

Beginning inventory
Goods purchased or manufactured 130,028
Total Goods Available 130,028 -
(Less ending inventory)
Cost of Goods Sold 130,028 -

Gross Profit (Loss) 41,655 -

MEGA MART CO.

Expenses
Income Statement
Operating Expenses
Gross profit
For the = revenue
Years – cost
Ending [Dec 31, of goods
2019 and sold
Dec 31, 2018]
Advertising Expense 6,755
Revenue
 171,683- 130,028
Commissions Expense 2018
7,500 2019
Office
Gross sales  41,655Expense
Supplies/Equipment 12,300
181,683
(Less sales returns and allowances) (10,000)
 Operating
Net IncomeExpenses
TotalSales
Operating 26,555
171,683 --

Operating
Cost Income
of Goods Sold (Loss) 15,100 -
Non-operating
Beginning revenues, expenses, gains,
inventory 12,762
Income
Goods Before Taxes
purchased or manufactured 27,862
130,028 -
(Less Goods
Total income tax expense)
Available (1,069)
130,028 -
Net(Less
Income
ending inventory) 26,793 -
Cost
{42} of Goods Sold 130,028 -
[42]

Gross Profit (Loss) 41,655 -

Expenses
Operating Expenses
Advertising Expense 6,755
Commissions Expense 7,500
Office Supplies/Equipment Expense 12,300

Total Operating Expenses 26,555 -

Operating Income (Loss) 15,100 -

Non-operating revenues, expenses, gains, 12,762
Income Before Taxes 27,862 -
Operating
(Less incomeincome = gross profit –
tax expense) operating(1,069)
expenses
Net Income  171,683- 130,028 26,793 -
{42} [42]
 41,655

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 Beginning inventory
Goods purchased or manufactured 130,028
Total Goods Available 130,028 -
(Less ending inventory)
Cost of Goods Sold 130,028 -

 Net Profit/Net
Gross Profit Income
(Loss) 41,655 -

Expenses
Operating Expenses
Advertising Expense 6,755
Commissions Expense 7,500
Office Supplies/Equipment Expense 12,300

Total Operating Expenses 26,555 -

Operating Income (Loss) 15,100 -

Non-operating revenues, expenses, gains, 12,762
Income Before Taxes 27,862 -
(Less income tax expense) (1,069)
Net Income 26,793 -
{42} [42]

Net profit = operating profit – (taxes + interest)

 27,862  1,069
 26,793

Rational Analysis (Use Figure 2 to compute the rational analysis)

RATIO ANALYSIS VALUES

Gross Profit Margin = gross profit/revenues .21
Operating Profit Margin = operating profit or EBIT/total revenues .16
Net Profit Margin = (Net Income/total revenues) x 100 16%

Interpretation:
The gross profit of Mega Mart Co. is .21 or 21% of the profit is left after
paying all the cost of the sale. While the company has an operating margin of .16 or
16%, which means, for every Php.1 of sale, the company earns 16 cents for before
taxes and interest for its sales value. Higher operating profit margin is favorable for
a business. This signifies that more part of the revenue can converted to operating
income. On the other hand, the company has 15% net margin. This means that
for every Php.1 sale contributes 15 cents to the net profit of the business. Overall
result of the Profit and Loss Statement of Mega Mart Company has a positive net
income. This means that the company still has the capability to earn and pay its
debts and operating expenses.

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Example 2. Figure 3 shows a company profit and loss statement in Philippine
Currency (Php.) that losses its net income.

Raceline's Construction Supply

Profit and Loss Statement
Dec 31, 2016
Revenue
Gross sales 10,500,000
(Less sales returns) (550,000)
Net Sales 9,950,000

Cost of Goods Sold

Materials 4,430,500
Sales Labor 2,845,000
Cost of Goods Sold 7,275,500

Gross Profit (Loss) 2,674,500

Expenses
Advertising Expense 800,755
Commissions Expense 570,500
Office Supplies/Equipment Expense 880,500
Professional Fees 199,000
Insurance 245,500
Total Operating Expenses 2,696,255

Net Income (21,755)

Figure 3. Profit and Loss Statement

Income Loss = 21,755

No matter what you do to take along the way, the “Net Income” on the profit
and loss statement is critical. It is better to see a positive number, which means
that the company earned more than it pays off during the period. However, if the
bottom line is negative, printed in red, or enclosed in parentheses, then expenses
exceeds its revenue. If that is the case, try to find out why and make a plan to turn
the negative to positive outcome.

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 Explore

Here are some enrichment activities for you to work on to master and
strengthen the basic concepts you have learned from this lesson.

Activity 1: REVENUE OR EXPENSES?

Directions: Put (/) if the following activities refer to the appropriate box. Copy
and answer in a separete sheet of paper.

ITEMS REVENUE EXPENSES

1. Salaries /Wages
2. Amortization
3. Net service sales
4. Provision for Loan Losses
5. Depreciation
6. Interest paid on Debt
7. Utilities
8. Rent
9. Loan fees earned
10. Bank Charges
11. Employers Benefits
12. Interest on Investment
13. Net product sales
14. Equipment
15. Advertisement

Activity 2.
Direction: Study carefully the following statement of profit and loss of Grandeur
Co. for the year ended December 31, 2017 and 2018. Answer the question in each
number. Write it in a separate sheet of paper.

Particulars 2018 2019

Revenue from operations 60,000,000 75,000,000

Other incomes 1,500,000 1,200,000
Expenses 44,000,000 55,500,000

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Questions:

1. What year has higher expenses? By how much?

__________________________________________________________________________

2. What is the percentage profit or loss of revenue from operations in the

succeeding years?
__________________________________________________________________________

3 – 4. What is the net profit in each year:

a. 2018 - ______________________________________________________________
b. 2019 - ______________________________________________________________

5. Which year yields a higher profit? Why?

__________________________________________________________________________
__________________________________________________________________________
__________________________________________________________________________

Scoring Rubric For Number 5

Indicator Moderate Strong Strong Evidence Very Strong

Evidence (1 - 2 (3-4 points) Evidence (5
points) points)

Quality of Wrote a minimal to Wrote a shorter The conclusion or

Work/ nothing essay essay but has interpretation was
Understanding format since there somewhat of an well stated and
was least data to understanding of shown a clear
interpret or the data they understanding
analyze. collected. based on the
gathered data.

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1.

Deepen

Hope that you have gained a lot of knowledge on the discussion. This time let us
test your understanding by doing the following activity! Good luck!

Activity 1: COMPLETE ME!

Directions: Study the given profit and loss statement below and give the
correct answer required in each number. Write the answer on another sheet
of paper.

Educator's Training and Assessment Center

Income Statement
December 31, 2018
Revenue:
Gross Sales PHP 9,033,305
Less:Sales Returns and Allowances -PHP 580,000
Net Sales PHP 8,453,305
Cost of Goods Sold:
Beginning Inventory PHP 900,000
Add: Purchases PHP 1,200,500
Direct Labor PHP 350,000
Indirect Expenses PHP 245,800
Cost of Goods Sold 1)

Gross Profit 2)
Expenses:
Advertising PHP 78,200
Commissions PHP 64,000
Delivery Expenses PHP 32,000
Insurance PHP 305,000
Office Expenses PHP 180,200
Professional Fees PHP 80,700
Property Taxes PHP 982,000
Wages PHP 290,000
Total Expenses 3)

Operating Income 4)
Gain on Sale of Assets PHP 123,800
Income Before Tax 5)
Less income tax expenses -PHP 23,500
Net Income 6)

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 A. Find the following:

1) Cost of Goods Sold _____________ 6) Net Income

2) Gross Profit ____________________ 7) Gross Profit Margin _____________
3) Total Expenses _________________ 8) Operating Profit Margin _________
4) Operating Income _______________ 9) Net Profit Margin _______________
5) Income Before Tax ______________ 10) Did the company make a profit
or loss? ________________________
B. Interpret the result of the Profit and Loss Statement of Educators’ Training
and Assessment Center. (Make use of the “Interpretation” on page 8 as a
guide to create your own.)

____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________

Scoring Rubric

Indicator Moderate Strong Strong Evidence Very Strong

Evidence (1 - 2 (3-4 points) Evidence (5
points) points)

Representation Learners did some Some data may not Most data are
of the information, be reflected correctly reflected
but it has missing accurately in in the in the table. It
significant data. table. It may be includes all
missing and hard to necessary
interpret. information that is
easy to
understand and
interpret

Quality of Wrote a minimal to Wrote a shorter The conclusion or

Work/ nothing essay essay but has interpretation was
Understanding format since there somewhat of an well stated and
was least data to understanding of shown a clear
interpret or the data they understanding
analyze. collected. based on the
gathered data.

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 Gauge

Direction: Read each item carefully. Choose the letter of the correct answer and
write it in a separate sheet.

1. Which of the following is true about profit and loss statement?

A. It is kown as the Net Income and Expense Statement
B. It is kown as the Statement of Basic Income
C. It is kown as the Cash Flow Statement
D. It is kown as the Income Statement

2. Which ratio analysis measures the overall operating efficiency of the firm?
A. Operating profit margin
B. Gross profit margin..
C. Net profit margin.
D. Return on equity.

3. Which of the following are the correct components of the profit and loss
statement?
A. revenues, expenses, investments by owners, distributions to owners
B. revenues, losses, expenses, and gains
C. assets, liabilities, and owner’s equity
D. assets, liabilities, and dividends

4. Which of the following has the same result of reducing expenses?

A. Increasing revenue
B. Decreasing revenue
C. Increasing liabilities
D. Decreasing liabilities

5. Which of the following account does not considered in the profit and loss
statement?
A. Sales revenue
B. General expenses
C. Bonds
D. Cost of goods sold

6. What happens if cost of goods sold exceeds revenue?

A. Products sold cost more than revenue received
B. Likely time to find something else to do
C. It losing its money over time.
D. All of the above.

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7. Which of the following is equal to the profit of a business during an accounting
period?
A. Total cash receipts less total cash payments
B. Total revenues less total cash payments
C. Total cash receipts less total expenses
D. Total revenues less total expenses

8. When is a business said to be in a profit?

A. Income exceeds liability
B. Assets exceed expenditure
C. Income exceeds expenditure
C. Expenditure exceeds income

Items 9 – 10. Study the following figure in the profit and loss record.

Sales 920,000
Cost of Goods Sold 320,000
Gross Profit ________
Other Income 50,000
Salaries 220,000
Advertising 100,000
Rent 80,000
Other Expenses 50,000
Net Profit _________

9. What is the gross profit of the figure?

A. 970,000
B. 920,000
C. 600,000
D. 500,000

10. What is the net profit figure?

A. 600,000
B. 500,000
C. 200,000
D. 150,000

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 Answer Key

Jumpstart
1 2 3 4 5
a. P40 a. P60 a. P28,650 a. P312,000 a. P423,750
b. P50 b. 90 b. P23,500 b. P240,000 b. P565,000
c. Profit/P15 c. Profit/P30 c. Loss/P5,150 c. Profit/P72000 c. Loss/P41,250
d. 37.5% d. 50% d. 18% d. 30% d. 3.3%

Explore
Activity 1 Activity 2
1.
ITEMS REVENUE EXPENSES
2019/P11,500,000
1. Salaries /Wages / 2. 25%
2. Amortization / 3. P17,500,000
3. Net service sales / 4. P20,7000,000
4. Provision for Loan Losses / 5. 2019
5. Depreciation /
6. Interest paid on Debt /
7. Utilities /
8. Rent /
9. Loan fees earned /
10. Bank Charges /
11. Employers Benefits /
12. Interest on Investment /
13. Net product sales /
14. Equipment /
15. Advertisement /

Deepen
Activity 1
1. P2,696,300 6. P3,845,205
2. P5,757,005 7. 68.1%
3. P2,012,100 8. 46.8%
4. P3,744,905 9. 45.5%
5. P3,868,705 10. Profit

Gauge
1 D 6 D
2 A 7 D
3 B 8 C
4 A 9 C
5 C 10 C

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References

Online Resources

Biel, Joel. (2016, August 30). Business of Publishing: How to Write a P&L statement.
https://microcosmpublishing.com/blog/2016/08/business-of-publishing-how-to-
write-a-pl-statement/

Reife, Nathan. (2020, Apr 28). Profit and Loss Statement (P&L)
https://www.investopedia.com/terms/p/plstatement.asp

Meggitt, Jane. (2020, April 06). Beginner’s Guide to Profit and Loss Statements (P&Ls).
https://www.cardfellow.com/blog/guide-to-profit-and-loss-statements-pls/

Murray, Jean. (2020, May 01). How Do I Prepare a Profit and Loss Statement?
With a Sample P&L Statement
https://www.thebalancesmb.com/how-do-i-prepare-a-startup-profit-and-loss-
statement-397546

Wiley, Carol. (2017, September 26) What Is a Profit-And-Loss Statement?

https://bizfluent.com/info-8380293-profitandloss-statement.html

ZIONS BANK (2005): Business Builder 3. How to Prepare a Profit and Loss (Income)
Statement. In: Zions Business Resource Center: URL [Accessed: 11.12.2015]
https://www.zionsbank.com/pdfs/biz_resources_book-3.pdf

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