Fundamentals of
Accountancy, Business
and Management 2
MODULE 4
Prepared by:
Claudine Carcueva
Instructor
This module is made to ACADEMICALLY HELP and ENRICH the SCC-SHS students. Please DON’T REPLICATE without
proper permission and authorization.
Dear Student,
Panagdait sa tanang kabuhatan!
The success of this module lies in
your hands. This was prepared for you to
learn diligently, intelligently, and
independently. As you embark on this
new learning journey, have this material
as your map and compass in venturing
the world of Accounting.
–
Bon Voyage! “An investment in
knowledge pays the best
interest.” Benjamin Franklin
This module is made to ACADEMICALLY HELP and ENRICH the SCC-SHS students. Please DON’T REPLICATE without
proper permission and authorization.
STUDY SCHEDULE AND HOUSE RULES
Course Title: Fundamentals of Accountancy, Business and Management
Course Description: This is an introductory course in accounting, business and
management data analysis that will develop students’ appreciation of accounting as a
language of business and an understanding of basic accounting concepts and principles
that will help them analyze business transactions.
STUDY SCHEDULE
MODULE 1: ACCOUNTING FOR MERCHANDISING BUSINESS (January 18- February 8)
WEEK TOPIC Date Time
Week 1 Lesson 1 – ANALYSIS AND INTERPRETATION OF
FINANCIAL STATEMENTS
Week 2 Lesson 2– BANK RECONCILIATION
FINAL EXAMINATION
This module is made to ACADEMICALLY HELP and ENRICH the SCC-SHS students. Please DON’T REPLICATE without
proper permission and authorization.
The following guides and house rules will help you to be on track and complete the module
with a smile on your face.
1. Read and understand every part of the module. If there are some contents or tasks which
you find difficult to understand, try to re-read and focus. You may also ask help from your
family at home, if it doesn’t work, you may send a private message on my Facebook
account (Claudine Carcueva) or email with my Gmail account
[email protected]
2. Each module begins with an overview and a list of the topics you are expected to learn.
3. Before reading the module and working on the activities, answer the pretest first. Find out
how well you did by checking your answers against the correct answers in the answer key.
4. At the end of each lesson try to reflect and assess if you were able to achieve the learning
objectives. Remember that you can always read again if necessary.
5. Learn to manage your time properly. Study how you can manage to work on this module
in consideration of your other modules.
6. Each module has worksheets where you can do all your activities. At the end of the month,
remove the worksheets and submit them to your teacher.
7. Have patience and do not procrastinate.
8. Practice the virtue of honesty in doing all your tasks.
9. Lastly, the activities in the module must be done by you and not by others. Your family and
friends may support and guide you but you must not let them do the work. DO YOUR
BEST AND GOD WILL DO THE REST.
Claudine B. Carcueva
Instructor
This module is made to ACADEMICALLY HELP and ENRICH the SCC-SHS students. Please DON’T REPLICATE without
proper permission and authorization.
This module is made to ACADEMICALLY HELP and ENRICH the SCC-SHS students. Please DON’T REPLICATE without
proper permission and authorization.
Analysis and
Module 4
Interpretation of Financial
Lesson 1 Statements
LEARNING OUTCOMES:
define the measurement levels, namely, liquidity, solvency, stability, and profitability
perform vertical and horizontal analyses of financial statements of a single proprietorship
compute and interpret financial ratios such as current ratio, working capital, gross profit
ratio, net profit ratio, receivable turnover, inventory turnover, debt-to-equity ratio, and the
like
Content focus
What is Financial Analysis?
Financial analysis is the examination of financial information to reach business decisions.
This analysis typically involves an examination of both historical and projected profitability,
cash flows, and risk. It may result in the reallocation of resources to or from a business or a
specific internal operation. This type of analysis applies particularly well to the following
situations:
• Investment decisions by external investor. In this situation, a financial analyst or
investor reviews the financial statements and accompanying disclosures of a company to
see if it is worthwhile to invest in or lend money to the entity. This typically involves ratio
analysis to see if the organization is sufficiently liquid and generates a sufficient amount of
cash flow. It may also involve combining the information in the financial statements for
multiple periods to derive trend lines that can be used to extrapolate financial results into
the future.
• Investment decisions by internal investor. In this situation, an internal analyst reviews
the projected cash flows and other information related to a prospective investment (usually
for a fixed asset). The intent is to see if the expected cash outflows from the project will
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generate a sufficient return on investment. This examination can also focus on whether to
rent, lease, or purchase an asset.
The key source of information for financial analysis is the financial statements of a
business. The financial analyst uses these documents to derive ratios, create trend
lines, and conduct comparisons against similar information for comparable firms.
The outcome of financial analysis may be any of these decisions:
• Whether to invest in a business, and at what price per share.
• Whether to lend money to a business, and if so, what terms to offer.
• Whether to invest internally in an asset or working capital, and how to finance it.
Financial analysis is one of the key tools needed by the managers of a business to
examine how their organization is performing. For this reason, they are constantly
querying the financial analyst about the profitability, cash flows, and other financial
aspects of their business.
See Chapter 5: ANALYSIS AND INTERPRETATION OF FINANCIAL
STATEMENTS of your book “Fundamentals of Accountancy,
Business, & Management 2” for further discussion and illustrations.
(I will send separately the scanned copy for this pages)
This module is made to ACADEMICALLY HELP and ENRICH the SCC-SHS students. Please DON’T REPLICATE without
proper permission and authorization.
Self-check
Name: _____________________________________________ Course & Year: ________
TEST 1 Directions: Encircle your answer.
1. A firm has a higher quick (or acid test) ratio than the industry average, which implies. A.
the firm has a higher P/E ratio than other firms in the industry.
B. the firm is more likely to avoid insolvency in short run than other firms in the industry.
C. the firm may be less profitable than other firms in the industry.
D. A and B.
E. B and C.
2. An example of a liquidity ratio is _______.
A. fixed asset turnover
B. current ratio
C. acid test or quick ratio
D. A and C
E. B and C
3. A firm has a higher asset turnover ratio than the industry average, which implies A. the
firm has a higher P/E ratio than other firms in the industry.
B. the firm is more likely to avoid insolvency in the short run than other firms in the industry.
C. the firm is more profitable than other firms in the industry.
D. the firm is utilizing assets more efficiently than other firms in the industry.
E. the firm has higher spending on new fixed assets than other firms in the industry.
4. A firm has a lower asset turnover ratio than the industry average, which implies A. the
firm has a lower P/E ratio than other firms in the industry.
B. the firm is less likely to avoid insolvency in the short run than other firms in the industry.
C. the firm is less profitable than other firms in the industry.
D. the firm is utilizing assets less efficiently than other firms in the industry.
E. the firm has lower spending on new fixed assets than other firms in the industry.
5. If the interest rate on debt is higher than ROA, then a firm will __________ by increasing
the use of debt in the capital structure.
A. increase the ROE
B. not change the ROE
C. decrease the ROE
D. change the ROE in an indeterminable manner
E. none of the above
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proper permission and authorization.
6. A firm has a market to book value ratio that is equivalent to the industry average and an
ROE that is less than the industry average, which implies _______. A. the firm has a
higher P/E ratio than other firms in the industry
B. the firm is more likely to avoid insolvency in the short run than other firms in the industry
C. the firm is more profitable than other firms in the industry
D. the firm is utilizing its assets more efficiently than other firms in the industry E. none of the
above
7. A firm has a P/E ratio of 12 and a ROE of 13% and a market to book value of __________. A.
0.64
B. 0.92
C. 1.08
D. 1.56
E. none of the above
8. 31. A firm has a (net profit / pretax profit ratio) of 0.625, a leverage ratio of 1.2, a (pretax profit
/ EBIT) of 0.9, an ROE of 17.82%, a current ratio of 8, and a return on sales ratio of 8%. The
firm's asset turnover is _________.
A. 0.3
B. 1.3
C. 2.3
D. 3.3
E. none of the above
9. A firm has an ROA of 14%, a debt/equity ratio of 0.8, a tax rate of 35%, and the interest rate on
the debt is 10%. The firm's ROE is _________.
A. 11.18%
B. 8.97%
C. 11.54%
D. 12.62%
E. none of the above
10. A firm has an ROE of -2%, a debt/equity ratio of 1.0, a tax rate of 0%, and an interest rate on
debt of 10%. The firm's ROA is ________.
A. 2%
B. 4%
C. 6%
D. 8%
E. none of the above
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proper permission and authorization.
11. Inventory Turnover measures the relationship of inventory with:
a. Average Sales c. Total Purchases
b. Cost of Goods Sold d. Total Assets.
12. The term 'EVA' is used for:
a. Extra Value Analysis c. Expected Value Analysis
b. Economic Value Added d. Engineering Value Analysis.
13. Return on Investment may be improved by:
a. Increasing Turnover c. Increasing Capital Utilization
b. Reducing Expenses d. All of the above.
14. In Current Ratio, Current Assets are compared with:
a. Current Profit c. Fixed Assets
b. Current Liabilities d. Equity Share Capital.
15. ABC Ltd. has a Current Ratio of 1.5: 1 and Net Current Assets of P 5,000,000. What are the
Current Assets?
a. P 5,000,000 c. P 15,000,000
b. P 10,000,000 d. P 25,000,000
16. There is deterioration in the management of working capital of XYZ Ltd. What does it refer to?
a. That the Capital Employed has reduced c. That debtors collection period has
b. That the Profitability has gone up increased
d. That Sales has decreased.
17. Which of the following does not help to increase Current Ratio?
a. Issue of Debentures to buy Stock c. Sale of Investment to pay Creditors
b. Issue of Debentures to pay Creditors d. Avail Bank O/D to buy Machine
18. Debt to Total Assets Ratio can be improved by:
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a. Borrowing More c. Issue of Equity Shares
b. Issue of Debentures d. Redemption of Debt.
19. Ratio of Net Income to Number of Equity Shares known as:
a. Price Earnings Ratio
b. Net Profit Ratio
c. Earnings per Share
d. Dividend per Share.
20. Trend Analysis helps comparing performance of a
firm
a. With other firms,
b. Over a period of firm
c. With other industries
d. None of the above.
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TEST II. Provide your answer. Show your computation in a separate sheet of paper. Your final answer should
be in two decimal places
The financial statements of Black Barn Company are given below.
QUESTIONS:
1. What is the firm's current ratio for 2007? _______
2. What is the firm's quick ratio for 2007? _______
3. What is the firm's leverage ratio for 2007? _______
4. What is the firm's times interest earned ratio for 2007? _______
5. What is the firm's average collection period for 2007? _______
6. What is the firm's inventory turnover ratio for 2007? _______
7. What is the firm's fixed asset turnover ratio for 2007? _______
8. What is the firm's asset turnover ratio for 2007? _______
9. What is the firm's return on sales ratio for 2007? _______
10. What is the firm's return on equity ratio for 2007? ______
Module 4 The Bank Reconciliation
Lesson 2
LEARNING OUTCOMES:
• Describe the nature of a bank reconciliation statement
• Identify common reconciling items and describe each of them
• Analyze the effects of the identified reconciling items
• Prepare a bank reconciliation statement
Content Focus
Systematic Instructions
Always start with the three-line header, which includes the name of the
corporation/company, the title of the statement, and the end date for the fiscal period for
which the statement is being prepared.
Cash Balance per Bank Statement Section:
1. In the right hand column, place the ending balance from the bank statement. You will
find this peso amount in two places on the bank statement. One is “Balance This
statement.” Two is the balance on the last day of the month from the daily balance.
Title this line “Cash balance per bank statement:” in the left hand column.
2. On the next line, place the line title “Add:” No peso amount is required for this line.
3. The first item to look for is a “Deposit in Transit.” You compare the deposits on your
bank statement with the deposits recorded in your checkbook register or your cash
receipts journal. Only deposits that are entered in your records and not on the bank
statement are in transit. Place any peso amounts in the far right hand column. Place
the line title “Deposit in transit” in the left hand column indented. If a prior month’s
Bank Reconciliation Statement is provided, always start with the deposit in transit
from the statement when checking off deposits that have cleared the bank. Lastly
always check the amounts to make sure all deposits were recorded for the correct
peso and cent amount. (Note: check the amounts carefully to find book error(s).
It could be as simple as two numbers switched.)
4. On the next line, place the line title “Less:” in the left hand column.
5. Next, look for outstanding checks. Compare the bank statement with your check
register or the cash payments journal. Checks that are entered into your records but
not on the bank statement are outstanding. If a prior months Bank Reconciliation
Statement is provided the first thing to do is to check off the checks that have
cleared from the outstanding check from the prior month. Any check(s) that did not
clear are still outstanding. Place the line title
“Outstanding Check(s):” in the left hand column after which place the check
number(s) in order. Place the peso amounts of each check in the middle column.
6. Total all outstanding checks. Place the peso amount on the same line as the last
check in the right hand column.
7. The last line for this section will have the line title “Adjusted cash balance per bank”
in the left hand column. In the right hand column, place the peso amount, which
results from subtracting the total of outstanding checks from the peso amount
arrived at by adding the beginning balance to any deposit(s) in transits. Double
underline the final total for this section.
Cash balance per Book Section:
1. The first line of this section will have a line title of “Cash balance per book:” placed
in the left hand column. You will find this amount in your checkbook register from
your ending balance. The other way to find this peso amount is to take the
beginning of the month balance from your cash account than add your total peso
amount from cash receipts for the current month and subtract your total peso
amount from cash payments for the current month. Place the resulting peso amount
in the right hand column.
2. Next go through the list of items to add to this balance and record any that are on
your bank statement. If any of the following items are not on the bank statement
than you do no need to record them on the bank reconciliation statement.
They are as follows:
a. EFT (electronic funds transfer) money transferred into the account
for other accounts. Money taken from a checking account and
placed into a saving account.
b. Notes collected these are accounts receivable owed to your
company by a customer. The bank collects the not plus any
interest minus any collection fee that the bank charges.
c. Interest earned some bank accounts will pay you interest for
keeping a minimum balance in your account.
d. Direct Deposit this is an amount deposited into the account on a
regular basis. Often used for contractual agreements or pay
checks.
e. Book errors this is where an error has been made in recording a
deposit or a check by your company.
3. Total all of step two and place that amount in the far right hand column. Then add it
to the beginning balance.
4. Next, go through the list of items to subtract from the balance and record any that
are on your bank statement. If any of the following items are not on the bank
statement than you do not need to record them on the bank reconciliation
statement.
They are as follows:
a. ATM withdrawals: amounts of money withdrew from the account
using a plastic debit or credit card.
b. Automatic withdrawals: amounts of money that the person or
company authorized for the payment of bills or other items.
c. Check redeposit: a check(s) may be redeposit into a company’s
account for the following reasons: Duplicate payment, unavailable
merchandise, incorrect amount, conference cancelled, missed
conference for which you were registered, overpayment of
shipping charges, and entertainer did not perform.
d. Service charges: charges from the bank for services performed for
the company.
e. Online fees: charges for services provide to an online banking
customer such as your company.
f. Overdrafts: a service provided by the bank where if your
company’s account balance goes into the negative the bank will
still honor the company’s checks.
g. Automatic payments: a service provided by the bank where your
monthly bills will automatically be paid from your account.
h. Stop payment: The fee charged by the bank to stop the payment of
a check when it is present to a bank. This is done in cases where
the check has be destroyed, lost, or stole.
i. NSF check: When someone writes you a check and the money to
pay the check is not in their bank account.
j. Book error: errors in recording either deposits or checks.
5. Total all of the item in (4) and place the amount in the far right hand
column. Next subtract that amount from the subtotal. The title for this line
will be, “Adjusted cash balance per books.”
Notes: The adjusted cash balance per bank must equal the adjusted cash balance
per books for the bank reconciliation statement to be correct and complete. Don’t
forget your peso signs and double underlines. Always check to see that the checks
the bank cleared on your account are from your company and not another
company with a name and address that looks the same as your company’s name.
See Chapter 8: BANK RECONCILIATION STATEMENTS of your book
“Fundamentals of Accountancy, Business, & Management 2” for
further discussion and illustrations.
(I will send separately the scanned copy for this pages)
Self-check
Name: ________________________________________________________ Course & Year: ____________
Directions: Perform the tasks below.
Grass Company provided the following information:
Balance per bank statement July 31 1,240,000
Balance per ledger, July 31 750,000
Deposit of July 30 not recorded by bank 280,000
Debit memo—service charges 10,000
Credit memo—collection of note by bank for Grass 300,000
Outstanding checks 550,000
An analysis of the cancelled checks returned with the bank statement revealed the
following:
Check for purchase of supplies was drawn for P60,000, but was recorded as P90,000.
The manager wrote a check for traveling expenses of P100,000 while out of town. The
check was not recorded.
REQUIREMENTS:
1. What amount of cash in bank should be reported on July 31? ______________
2. Prepare the bank reconciliation for the month of July.
REFERENCES:
DIWA, Fundamentals of Accountancy, Business, and Management 2nd ed
Rafael M. Lopez Jr. (2016), Fundamentals of Accountancy, Business and Management 1
Win Ballada & Susan Ballada (2019), Accounting Fundamentals
Wild, J. (2009). Principles of Accounting 19th Ed. McGraw Hill Publishing.
Haddocl, M., Proce, J., & Farina, M. (2012). College Accounting: A Contemporary Approach,
2nd ed. New York: McGraw-Hill/Irvin
Valencia, E.G. & Roxas, G.F. (2010). Basic Accounting 3rd ed.
Mandaluyong City, Philippines: Valencia Educational Supply.
https://courses.lumenlearning.com/ https://openstax.org/books/principles-financial-
accounting https://www.wyzant.com/resources/lessons/accounting
https://www.coursehero.com
