A Detailed Lesson Plan

In
Business Finance 12
(Review of Financial Statement Preparation, Analysis and Interpretation Part 1)

I. OBJECTIVES
At the end of the lesson the students will be able to:
1. Prepare financial statements.
2. Identify and explain the basic steps in the accounting process (accounting cycle).
II. SUBJECT MATTER
Topic: Review of Financial Statement Preparation, Analysis and Interpretation
Subtopics: a) The accounting equation
b) T-Account analysis
c) Nominal Account
d) The Accounting Cycle
e) Basic Financial Statement
Reference: Teaching Guide for Senior High School, Basic Finance pp. 51-57
Instructional Material: Board, Chalk, Laptop, Projector, and Speaker
Values Infused: Prudence and Honesty
III.PROCEDURE
A. Activity
Teacher’s Activity Student’s Activity
Good Morning, Class! Good Morning, Sir!

How are you today? We are doing fine, Sir!

That’s great!
Let us all stand for the prayer.
Praise be the name of our lord, Jesus Christ.
Now and forever, amen.
Once again, good morning. Kindly pick up the pieces of
dirt under your chairs/arm chairs and throw it in the trash
can.
Now arrange your chairs following the seats in front.
(Students follow)
I believed that everybody is already finished.
(Students arrange their seats)
Before we start our lesson, I would like you to answer the
questions on the board by matching it. (5mins)

(Students answer the questions)

B. Analysis
Teacher’s Activity Student’s Activity
a. Aesthetic Analysis
(After 5 minutes) (Students enjoy)

What have you notice in the questions? It’s all about accounting.

Correct! It’s about the basic terms that we are going to use Yes, Sir!
in our lesson.

b. Content Analysis
Now, can anyone tell me what accounting is all about based
from our short activity? Sir!

Yes, Vincent?
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 Accounting is a systematic recording of
financial transaction.
That’s right! Thank you Vincent!
Because, it

Are you familiar with the basic accounting equation?

Yes Sir!
Yes, Carla?

Accounting equation is Assets =

That’s right and Thank you Carla! Now, let’s proceed to Liabilities + Owner’s Equity
our topic for today.

C. Abstraction
Teacher’s Activity Student’s Activity
Accounting is the systematic and comprehensive recording of
(Students listen)
financial transactions pertaining to a business.
Why is it comprehensive and systematic? Sir!
When we say comprehensive means it’s a
Yes, Janine complete and includes necessary information
of the business transactions.
Very Good! And, systematic because it follows certain procedure
(Students listen)
and treatment according to the standard adopted by the business.
Students: Assets = Liabilities and owner’s
What is the basic accounting equation again?
equity
Very Good!
This means that the whole assets of the company comes from the
liability, and from the capital of the business, and its income. This
reflects the double-entry bookkeeping, and shown in the balance
sheet.
Can anyone tell me about double entry bookkeeping? Sir!
Double entry bookkeeping tells us that if we
add something from the one side, which is
Yes, Jun?
asset, we must add the same amount to the
other side to keep them in balance
Correct! Thank you Jun!
For example, if we were to increase cash (an asset) we might have
to increase note payable (a liability account) so that the basic (Students listen)
accounting equation remains in balance.
ASSETS = LIABILITIES + OWNER’S EQUITY
P 500.00 P 500.00
Can anyone tell me the 2 sides in our equation? Students: Debit and credit
Correct, in double-entry bookkeeping, there is the concept of debit
(dr) and credit (cr). Debit is the left, and credit is the right.
There is also a concept of normal balances. A normal balance,
either a debit normal balance or a credit normal balance, is the
side where a specific account increases.
Where should we put the entries on assets, liabilities and owner's
Sir!
equity?
Assets are on debit side and liabilities and
Yes, Marlou?
equity are on the credit side
Correct, asset is on the left side, while liabilities and equity is on
the right side. Therefore, asset has a debit normal balance,
(Student's listen)
meaning that cash as an asset is debited to increase, while credited
to decrease.
On the other hand, liabilities and owners’ equity have a credit
normal balance. This means that a liability account is credited to
increase, while debited to decrease. The accounting equation (Student's listen)
provides the foundation for what eventually becomes the balance
sheet.
Now, anyone familiar with T-Accounts Analysis?
In T-Accounts the terms debit and credit are used to identify (Student's listen)
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which side of the ledger account an entry is to be made. Debits are
on the left side of the ledger and Credits are on the right side of
the ledger. It does not matter what type of account is involved
Now I am going to illustrate how it should be done
Illustrative Example: (Student's analyze the problem)
Calvo Delivery Service is owned and operated by Noel Calvo.
The following selected transactions were completed by Calvo
Delivery Service during February:
A. Received cash from owner as additional investment, P35,000.
B. Paid creditors on account, P1,800.
C. Billed customers for delivery services on account, P11,250.
D. Received cash from customers on account, P6,740.
Justin, can you read the problem and kindly interpret transaction Sir, Received cash from owner as additional
A. investment, P35,000.
Debit Cash 35,000.
Very good! Justin.
So since it is an asset lets put it on the left side and since it is an
investment it increase the capital of the owner so we will put
35,000 at the right side of Owners equity account
Mario, interpret transaction B. Sir, paid creditors on account, P1,800.
Credit cash 1,800
Correct! Decrease in cash should be on the right side of Cash T-
account
Sir, billed customers for delivery services on
Zue, can you give me your analysis on transaction C?
account, P11,250.
Debit cash 11, 250.
Thank you Zue, however we cannot record it as cash since we
don’t yet collected the amount.
Those account which is billed should be recorded in the account Sir, Debit Accounts receivable, on the left
receivable account, now can you give me the correct enty, Zue? side since that account is asset
Very good Zue!
Transaction D was received cash from customers on account Sir, debit cash 6,740 and credit account
6,740. Zue can you give the entry? receivable 6,740.
Correct! Once sales are collected we will record the transaction in
Cash Account with corresponding entry on its contra-account
Now let's forward to classification of what we've discussed today.
Anyone is familiar with the classification of accounts? No one volunteer
There two major classification of accounts which are nominal and
real accounts.
We will be discussing nominal accounts today as part of our
exercises. When we say nominal account are also called the
income statement account which reports revenues, expenses, gains Student's listen
and losses. It has two major categories, the Expenses and Revenue
accounts
Expenses account has a debit balance means it should be recorded
on the left side. While Revenue account is an equity account that
Yes, Sir!
has a credit balance which means this should be recorded in the
right side. Understand?
Now let’s have another illustration
Illustrative Example: Students analyze the illustration.
J. F. Outz, M.D., has been a practicing cardiologist for three years.
During April 2009, Outz completed the following transactions in
her practice of cardiology:
Mar 1 Provide medical services to clients for cash P35,000.
Mar 2 Paid rent for the month, P3,000. Paid advertising
expense, P1,800 and paid advertising expense, P1,800.
Mar 6 Purchased office equipment on account, P12,300.
Mar 15 Paid creditor on account, P1,200.
Mar 27 Paid cash for repairs to office equipment, P500.
Mar 30 Paid telephone bill for the month, P180.
Mar 31 Paid electricity bill for the month, P315.
Now let’s analyze and put in their respective account

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 Anyone can give me the treatment for each transaction? Sir!
Debit cash 35,000 since it has rendered
Yes, Melody? Please give us your interpretation on Mar 1
services for cash and revenue for
transaction.
35, 000
Very Good!
Now for Mar 2 transaction, anyone? Sir!
Credit cash 4,800 and debit rent expenses
Yes, Rica?
3,000 and advertising expenses 1,800.
Correct! We will be crediting cash as the transaction decreases our
cash balances, and since rent and advertising expenses are
nominal account, an increase of this account should be debited.
Now for Mar 6 transaction, anyone? Sir!
Yes, Myla? Debit Office equipment 12,300
Correct and what should be its another entry? Credit accounts payable 12,300.
So, for March 15 transaction? Can you please tell us your Debit accounts payable 1,200 and credit cash
interpretation Ms. July? 1,200
Correct! Thank you July.
Anyone can give us the entry for Mar 27-30 transaction? Sir!
Debit maintenance expense 500, Utilities
Yes Janine? (Telephone) 180 and Utilities(Electricity)
315 then credit cash 995.
Very Good! Thank you for summarizing.
Now lets get the ending balances for each account
For Cash 35,000-3,000-1800-1200-995 = ? Students: 28,005
Correct how about for Office equipment? Students: 12,300
Very good!
Accounts Payable 12,300-1,200 = ? Students: 11,100
How about for revenue? Sir!
Yes, Carl? Sir, 35,000
Correct but we need to close the expense account at the end of the
period so we deduct all the expenses at our revenue
So 35,000 less total expenses = ? 29, 205 Sir!
Correct! The 1,200 payment of debt to creditors shouldn’t be
included as expense account
Very good! Now lets see if our entries by balancing our equation
Students: Assets = Liabilities and Owner's
What is our accounting equation again?
equity
Total of Cash and Office equipment anyone? Sir!
Yes, Carlo? 28,005+ 12, 300 = 40,305 sir!
Correct! And how about the liabilities and owner's equity
Sir!
assuming we have zero balance in capital?
Yes, Miya? 11,100 + 29,205 = 40,305 Sir!
Correct and thank you Miya!
We're done on our illustration. Let's discussed further what we
have done in our exercise
Lets discuss what is accounting cycle?
When we say cycle it means repeated sequence of events just like
Yes Sir!
bicycle right?
It is the same with accounting cycle starts with the identification
of transaction to post-closing trial balance.
Anyone can enumerate the 9 steps of the accounting cycle? Sir!
Yes Joana? Identification of transaction
Correct! First step is to analyze first the transaction just like what
we did in our previous exercise. Transaction is analyzed if it
affects the company and if needed recording, in our first Yes Sir!
transaction which is rendering for services for 35,000 does it
affect the business?
How? It increases the cash of the business
Correct! How about the owner spend 10,000 for his personal use?
No, as it does not affect business operation
Can this be recorded?
Very good!
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 How about the second process? Sir!
Yes, Juana? Recording through Journal entries
Very good! Using the rules of debit and credit we should record Sir, we will use specialized journal such as
all the business transaction in our Journal. How about if there are purchase, sales, cash receipt and cash
repetitive transactions or high volume? disbursements journal
Very good, we are using specialized journal to make it simple and
clearer. But don’t forget that these entries should be accompanied Students listen
with evidences such as official receipts, purchase orders etc.
Anyone for the next step? Posting sir!
Correct! We should periodically posting our transaction in our
ledger the same with what we have done in our T-accounts Yes Sir!
remember?
Posting is the process of transferring the debits and credits from
our entries. For Example on our Mar 6 transaction which is Students listen
payment of expenses we debited all expenses and credit it to cash
We can also use subsidiary ledger in case there are many items to
Students listen
be considered such as costumers and creditors
In every end of the period we should get the ending balances of
each ledger by adding/subtracting total of debit and credit Students listen
balances and transfer it whichever is higher
Students : Preparation of Unadjusted Trial
Now for the 4th step, anyone?
balance
Correct!
Just like what we did, we summarize all account balances and
transfer it to Trial balance. To make sure the equality the debit and
credit balances must be equal as it is required in the rules of
double entry accounting
It's not done yet, there are lots of transactions to be considered at
the end of accounting period such as prepaid expenses, accrued
expenses, amortization, depreciation and allowances for bad debts.
To correct this entry what is the next step? Sir!
Yes, Justin? Make adjusting entries
Very good! We should make adjusting entries to correct our
unadjusted trial balance
For example, our procured office equipment amounting to 12,300
Sir!
has a lifespan of 10 years? What should be the adjusting entry?
Yes, Janine? Debit depreciation expense 102.50
Correct! Depreciation should be computed based on the estimated
life span of fixed assets. 12,300/10 years = 1230/12 months =
102.50
Now lets move forward on the next step, anyone? Sir!
Yes Carla? Prepared Adjusted Trial Balance
Correct! When we say adjusted it means that all adjustments are
already taken to correct the entries.
Again, this is to ensure that the balances on debit and credit side
are equal
After preparation of adjusted trial balance, 7th step which is
financial statement preparation.
Anyone can give details about financial statement? Sir!
Income Statement, Statement of Financial
Yes, Mona? Position, Statement of Owner's Equity and
Statement of Cash Flow
Correct! Financial statements are basically a summary of all
transactions that are carefully recorded and transformed into
Students listen
meaningful information. It also shows company's permanent and
temporary accounts and financial position.
Let’s start with Income Statement, also known as profit and loss
statement, the summary of the revenue and expenses of the Students listen
business for the specific period of time such as month or year.
Statement of Owner's equity is the report of changes in capital of
the business, it should be reported next to income statement Students listen
because gain/loss must be reported in the balance sheet.
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 Statement of Financial Position now known as Balance Sheet,
provides information regarding liquidity position and capital
structure of the business as of given date. It must also be noted
that the information found in this report are only true as of a given Students listen
date. It shows a list of the assets, liabilities, and owner’s equity of
a business entity as of a specific date, usually at the close of the
last day of a month or a year.
The statement of cash flows reports a company’s cash inflows and
outflows for a period, this is used by managers in evaluating past
operations and in planning future investing and financing
Students listen
activities. It is also used by external users such as investors and
creditors to assess a company’s profit potential and ability to pay
its debt and pay dividends.
After preparation of financial statements, what’s the next step? Students: Make the closing entries
Correct! Nominal accounts such as revenue and expense account
must be close to income summary account by debiting income Student’s listen
summary and credit all the nominal expenses
The last step is to make a post-closing trial balance in which we
only show the real accounts such as assets, liabilities and owner’s
Student’s listen
equity. We can also check if the debit and credit balances are
equal.

D. APPLICATION
Teacher’s Activity Student’s Activity
Now let’s have a look in the financial position of
ABC Company
Assets
Cash 10,000.00
Accounts receivable 5,000.00
Office Equipment 10,000.00
Office 50,000.00
Land 100,000.00
Total Assets 175,000.00
Liabilities & Owner's equity
Accounts Payable 5,000.00
Mortgage Payable 30,000.00
ABC Company Capital 140,000.00
Total Liabilities & Owner's equity 175,000.00
Let’s start first with the Income statement of
ABC Company
Let’s use our previous journal entries
How much revenue do we have? Students: 35,000 Sir!
Very good! And for the expenses? Students: Total of 5,975 sir!
Correct!
Net income formula equals gross revenues less Students: 29,205 Sir!
total expenses, so how much for our net income?
Correct! So let’s illustrate our sample income
statement
ABC Company
Income Statement
Month ended March 2018
Gross Income 35,000.00
Less: Expenses
Rent 3,000.00
Advertising 1,800.00
Maintenance 500.00
Utilities (Telephone) 180.00
Utilities (Electricity) 315.00
Total Expenses 5,795.00
Net Income 29,205.00
Following our discussion, what should be the Sir!
next statement?
Yes, Carla? Statement of Changes in Owner's Equity
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Correct! This is prepared after the income
statement
What is the beginning balance of ABC owner's Students: 140,000 Sir
equity?
Correct! So we just add the Net income or loss
in the incostatement.
ABC Company
Statement of Changes in Owners’ Equity
ABC Company, capital Mar 1 140,000.00
Add: Net Income, Mar 31 29,205.00
ABC Company, capital Mar 31 169,205.00
Now, let’s make our financial position from the
previous journal entries
How much cash do we have? Sir!
Yes, Carlo? 28,005 + 10,000 = 38, 005
Correct! We should include the beginning
balances of each account
And for our Account receivable? Sir!
Yes, Miya? 5,000
Correct! Since we don’t have sales on account
for the month of March
How about for Office equipment? Sir!
Yes, Carla? 10,000+12,300 = 22,300
Correct since we still have a balance of 10,000
How about for office and land? Sir!
Yes, Mario? 50,000 for office and 100,000 for land
Correct so we have a total assets of how much? Students: 213, 305 Sir!
Very good! Now, let’s proceed with liabilities
and owner's equity.
So, for accounts payable anyone? Sir!
Yes, Mariane? 5,000 + 11,100 = 16,100
Correct! And for mortgage payable? 30,000 Sir!
Lets have the Owners equity for March 31, Sir!
anyone?
Yes, Jun? 204,205 Sir!
Correct! So lets plot our entries.
ABC Company
Balance Sheet
March 31, 2018
Assets
Cash 38,005.00
Accounts receivable 5,000.00
Office Equipment 22,300.00
Office 50,000.00
Land 100,000.00
Total Assets 215,305.00
Liabilities and Owners Equity
Accounts Payable 16,100.00
Mortgage Payable 30,000.00
ABC Company Capital 169,205.00
Total Liabilities & Owner's equity 215,305.00
Balance right? Yes Sir!
So if the total debits and credits are the same so
our anwser is correct unless you have forced
balance the figures. That's why honesty and
prudence is needed in accounting.
Now, lets move forward to the next step, which Sir!
is?
Yes, Myla? The statement of cash flows which reports the
company’s cash inflows and outflows for a
period, this is used by managers in evaluating
past operations and in planning future
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 investing and financing activities. It is also
used by external users such as investors and
creditors to assess a company’s profit
potential and ability to pay its debt and pay
dividends.
Very good! When we say cash flows it is the in
and out of money during a period of time such
as collection of accounts, cash sales, investment
and withdrawals or payments.
Now let’s use our previous entries to check if
our cash balance in the balance sheet is correct.
ABC Company
Statement of Cash Flows
For the month-ended March 31, 2018
Cash receipts from operating activities 35,000.00
Less: Payments for expenses 5,795.00
Payments for loans 1,200.00
Total Cash available 28,005.00
Add: Cash as of Mar 1, 2018 10,000.00
Cash on hand, Mar 31, 2018 38,005.00
Did it match with the cash balance in the balance Yes, Sir!
sheet?
Very well! That’s it for the preparation of
Financial Statement preparation and reporting.
Please be cautious and honest in recording day
to day basis especially when applying it in the
real world

IV. EVALUATION

A. Analyze and interpret trial balance of XYZ Company.

B. Prepare Income Statement and Trial balance for the Month ended October 31, 2018
C. Prepare adjusting and closing entries.

XYZ Company
Balance Sheet
For the Month ended September 30, 2018

Cash 10,000
Accounts receivable 10,000
Office Equipment 15,000
Office 50,000
Land 115,000
Total Assets 200,000

Accounts payable 50,000

Loan payable 30,000
Owner’s equity 120,000
Total Liabilities & Owner’s Equity 200,000

Transaction for the month of October 2018

Oct 1 Purchased office supplies for cash 3,000

Oct 5 Additional investment by owner 20,000
Oct 10 Collected receivable 5,000
Oct 12 Sales of 50,000
Oct 20 Paid utilities 5,000
Oct 25 Sales on account 10,000
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Oct 30 Paid loans and creditors, 5,000 and 10,000 respectively

V. ASSIGNMENT

1. Prepare comprehensive financial statements on the problem below from step 1 to step 9 of the
accounting cycle.
XYZ Company
Balance Sheet
For the Month ended September 30, 2018

Cash 10,000
Accounts receivable 10,000
Office Equipment 15,000
Office 50,000
Land 115,000
Total Assets 200,000

Accounts payable 50,000

Loan payable 30,000
Owner’s equity 120,000
Total Liabilities & Owner’s Equity 200,000

Transaction for the month of October 2018

Oct 1 Purchased office supplies for cash 3,000

Oct 5 Additional investment by owner 20,000
Oct 10 Collected receivable 5,000
Oct 12 Sales of 50,000
Oct 20 Paid utilities 5,000
Oct 25 Sales on account 10,000
Oct 30 Paid loans and creditors, 5,000 and 10,000 respectively

Prepared by:
JAY RHENARD L. BETCHAYDA
Teacher I