Quarter2–Module9 Business Implementation

Guidelines for Successful Business Plan Implementation:

1. Objectives – the entrepreneur should have a clear idea on what is his purpose of putting up his
enterprise.
2. Tasks – this means that the entrepreneur must know what are the tasks he has to perform in
order to realize his objectives.
3. Time allocation – This means that the entrepreneur should have a time table or a schedule to
follow for every task so that the tasks will be accomplished timely and he can realize his objectives.
4. Progress – This means the entrepreneur should monitor the development of the tasks and the
accomplishment of the objectives.

In operating a business, the entrepreneur should first consult professionals for advices, like
accountants or consultants from small enterprises. In your case, you can consult your teacher in
Entrepreneurship or anyone you think who could help you.

The following are the basic requirements to start a business in the Philippines:

 Securities and Exchange Commission (SEC) Registration - for partnership or Corporation

 Department of Trade and Industry (DTI) Registration - for your business tradename
 Mayor’s Business Permit - for getting the license to operate in the city or municipality and
payment of your local business taxes
 Bureau of Internal Revenue (BIR) Registration - for getting TIN, official receipts and invoices,
registering your books of accounts and paying your national Internal revenue taxes
 SSS, PhilHealth, and Pag-Ibig Fund registration - for registering yourself or your company as
an employer and for remitting your employees’ contribution together with your employer’s share

Other steps to follow before operating a business are as follows:

1. Set up an accounting system or hire an accountant. Knowing how the business is doing
financially is important for planning and survival.
2. Advertise the business. No one will buy the products or services if customers do not know that
the company exists. You can make use of the social media.
3. Secure insurance for the business. Liability insurance protects the business in the event of
litigation. Consider life and disability insurance, health insurance and fire insurance when you are
leasing an office or storefront.

Keeping Business Records

Good record keeping can help protect the business, measure the performance and maximize
profit.

Records are the source documents, both physical and electronic, that specify transaction dates
and amounts, legal agreements and private customer and business details.

Developing a system to log, store and dispose of records can benefit the business. A
systematic recording allows you to:

A. plan and work more efficiently;

B. meet legal and tax requirements;
C. measure profit and performance;
D. protect your rights; and
E. manage potential risks.
Entrepreneurship
Quarter2–Module10 Bookkeeping

Performing Key Bookkeeping Tasks

Definition of Terms

Depicted in Figure 1 below is a sample format of a general journal:

Figure 1 – General Journal

Sample General Journal Transaction and Entry:

 On June 25, 2020, ABC Laundry Co. rendered laundry services to JJV Hotel in Makati for
P5,000. The customer paid in cash.

Depicted in Figure 2 below is a sample format of a general ledger:

Figure 2 – General Ledger

Depicted in Figures 3 and 4 below are sample formats of a subsidiary ledger showing Accounts
Receivable and Accounts Payable respectively:

Figure 3 – Accounts Receivable Ledger

Figure 4 – Accounts Payable Ledger

The Rules of Debit and Credit

In the process of journalizing business transactions, the rules of Debit and Credit are essential
to ensure accurate recording and sound decision making. Debit is abbreviated as DR while CR for
Credit. Further, it is deemed a requirement that the bookkeeper should be able to master the normal
balance of each account title being used in the process of recording.

The following steps will be undertaken in determining account balances for every account title such
as cash, account receivable, etc.:

1. Add all the debit side to generate total debit

2. Add all the credit side to generate total credit.
3. Subtract total debit to the total credit.
4. Determine the balance of each account.
 Figure 5: T – Account

Sample of General Journal entry and T- Account:

To strengthen your understanding about posting of journal entries to the general ledger, it is
suggested to create T– Account and label them with the account title and group them according to
Assets, Liabilities, Owner’s Equity, Revenue and Expense.
 Depicted in Figure 6 below is a matrix of normal debit and credit balances of the Five Major
Accounts:
 In order to fully understand the concept of debit and credit balances, depicted in Figure 7
below is a matrix of normal debit and credit balances under each of the five major accounts:

Figure 7 - Matrix of Normal Debit and Credit Balances of Sub-Accounts

Now, let us go through the concept of bookkeeping by recording and posting financial
transactions using the books of accounts and T Accounts, respectively.

Illustration on Rules of Debit and Credit

Acquiring Equipment or Supply:

XYZ Company purchased ten (10) latest models of Samsung cellular phones for the company’s staff
to be given as Christmas giveaways, for a total amount of P 350,000.00.

Analysis: The debit side represents the item (Samsung Cellphone) with the amount of P350,000.00
received in exchange of the item given up. The credit side represents the item (Cash) with amount
(P350,000.00) given up.
 In the books of XYZ Company, the nature of acquisition of cellphones is for Christmas
giveaways. The entry debited to Christmas Giveaways must be charged to an expense account. Thus,
it will increase the Expense-Christmas Giveaways balance because the latter’s normal balance is
debit. Meanwhile, the Asset-cash will decrease because in this transaction, Cash was credited.

Investing Capital in the Business:

Ms. Izabelle Neri, a new graduate in business management started a merchandising business
with trade name “The IN Store”. She put up a total cash amounting to P500,000.00 to construct an
office and acquire necessary equipment and supplies.

Analysis: The debit side represents the item (Cash) with amount (P500,000.00) received in
exchange of the item given up. The credit side represents the purpose (Capital) of the transaction
with the amount (P500,000.00) given up.

In the books of XYZ Company, the entry debit to cash will increase the cash balance because
the cash itself has a normal debit balance. Consequently, the entry credit to Capital Account – Neri,
Capital will increase the capital balance because the latter’s normal balance is credit.

Sales/ Service Income Transactions:

Goblin Computer Shop, rendered computer repair services to DN University amounting to
P10,000 for cash.

Analysis: The debit side represents the item (Cash) with amount (P10,000.00) received in exchange
of the item given up. The credit side represents the purpose (Sales/Service) of the transaction with
amount (P10,000.00) given up.
In the books of Goblin Computer Shop, the entry debit to cash will increase the cash balance
because the cash itself has a normal debit balance. Consequently, the entry credit to Revenue -
Service Income will increase the revenue balance because the latter’s normal balance is credit.

Purchase on Account Transaction:

Goblin Computer Shop purchased office supplies amounting to P5,000 from ABC Corp. on
account. The account will be paid next month.

Analysis: The debit side represents the item (OS) with amount (P5,000) received in exchange of the
promise to pay. The credit side represents the nature (credit) of the transaction given up

In the books of Goblin Computer Shop, the entry debit to Office Supplies will increase the
Asset-Office Supplies balance because the office supplies itself has a normal debit balance.
Consequently, the entry credit to Liability-Accounts Payable will increase the liability balance
because the latter’s normal balance is credit.
Trial Balance
Trial balance is a list of all ledger accounts with closed or final balances on a certain period
arranged according to the assets, liabilities, capital, revenue and expense. The debit and credit
columns must be equal in total amount. This is the first report prior to financial statement preparation.

Directions: Below are business transactions of a service-type business. All transactions were
already recorded in the general journal. All you have to do is to follow the process and study how the
transactions are being recorded in the general journal by means of journal entry applying the rules of
debit and credit. The account titles used in the journal entries are found in the chart of accounts below.

Depicted in Figure 8 below is the chart of accounts of Alpha Laundry Services.

Figure 8 – Chart of Accounts

Let’s Begin!

Mr. Denver Ambrose, a retired public school teacher, started his laundry business in the beginning of
June 2018. He used all of his savings to start a “coin-operated” laundry business. He named it Alpha
Laundry Services (ALS). The following are the business transactions for the month of June 2018, the
first month of business operation:

1. June 1, 2018 - Mr. Ambrose invested P 200,000.00 cash in his newly opened Alpha Laundry
System business.

2. June 2, 2018 - Mr. A hired his former classmate, Doree Dy, to be the Laundry Operator of ALS for
a fixed monthly salary of P10,000.00. The operator will be paid every quencina.

EXPLANATION: No entry will be made in this transaction because there was neither inflow or outflow
of cash or an exchange of assets that have monetary value.

3. On June 5, 2018 – Alpha Laundry Systems purchased laundry equipment for cash, P150,000.00

4. On June 6, 2018 – Alpha Laundry Systems paid cash in advance for the 1-year insurance
coverage of laundry equipment amounting to P6,000.00. Monthly insurance expense will be
recognized for each month’s end report.
5. On June7, 2018–Alpha Laundry Systems bought supplies for laundry amounting to P10,000.00.
The supplies bought are laundry consumables such as detergent powder, soap bar and fabric
softener. Monthly inventory will be conducted to determine unused supplies and will be recognized
for each month end report.

6. On June 15, 2018 – Alpha Laundry Systems paid P4,750 cash for salary of laundry operator.

7. On June 16, 2018 – Alpha Laundry Systems received P25,000.00 cash for laundry services
rendered to MZ Hotel.

8. On June 17, 2018 – Alpha Laundry Systems rendered service to Argon Hotel amounting to
P45,000.00. Argon promised to pay on June 20 of the same year.
9. On June 18, 2018, Alpha Laundry Systems purchased office supplies from Ku Enterprises
amounting to P2,000.00 on account. ALS will pay it on June 25 of the same year.

10. On June 20, 2018, Alpha Laundry Systems collected payment from Argon Hotel.
Journal Entry:

11. On June 25, 2018, Alpha Laundry Systems paid in full the amount owed to Ku Enterprises.

12. On June 27, 2018, Alpha Laundry Systems paid electric bill for the month amounting to P1,000.00
in cash. The payment is charged to Utility expense account.
13. On June 30, 2018, Alpha Laundry Systems paid a month’s transportation expense amounting to
P1,300.00.

14. On June 30, 2018, Alpha Laundry Systems paid P5,000 cash for salary of laundry operator.

15. On June 30, 2018, Alpha Laundry Systems paid P7,500 cash for the month’s rent for laundry
space.

The total debit and credit columns of the general journal should always be equal. Otherwise,
the general journal balances will affect overall accuracy of the entire financial report. The error should
be properly corrected before the next step in the recording process takes place.
Directions: In this activity, you are supposed to do the posting of general journal entries to the
general ledger using the T-Accounts technique. The following are suggested activities before posting
journal entries to T- Accounts:

1. Group account titles according to the Five Major Accounts.

2. Determine the normal balance of each account title by referring to the normal balance matrix.
3. Record transactions in sequential order or apply the “First-entry, First-record” system.
4. After all journal entries are recorded, compute the debit and credit totals of all accounts. Compute
for the running balance.

After performing the T-Accounts, outstanding balances of each account under Assets,
Liabilities, Capital, Revenue/Income and Expenses can now be determined. Given below are T–
Accounts for all ledger accounts group according to the five major accounts.
Directions: In this activity, you are tasked to prepare a trial balance for ALS. The period covered is
June 2018. Use the T–Account presented in Bookkeeping Practice Set 2.

The following are suggested activities in preparing trial balance report:

1. Pick up all account balances of cash, accounts receivable up to the last account.
2. Copy them in the designated account title in the trial balance report (unadjusted trial balance)
following its account normal balances.
3. Compute for the total debit and credit balances. The debit amount should be equal to the credit.

It should be noted that all transactions have already been recorded in the general journal and
general ledger. All you have to do is to follow the process and study how the transactions are being
recorded in the working paper to prepare the Trial Balance report by applying the rules of debit and
credit.

Depicted below is a trial balance report of Alpha Laundry Services for the period ended, June 30,
2018.
 Figure 7 – Trial Balance of ALS

As you can observe, the accounts reflected in Figure 7 above are arranged according to the
proper placement of the five major accounts. The Assets, Liabilities, Owner’s Equity, Revenue and
Expense accounts.

Having completed the Trial Balance report is not yet the end of a bookkeeper’s responsibility.
The bookkeeper’s responsibility will only end when the business has closed its books of accounts.
The books of accounts of a business will be closed at the end of the business’s calendar or fiscal year.
The calendar year always begins in January 1 and ends on December 31 of the same year. While the
fiscal year begins at any month of the year and ends on the 12th month of the following year. All
business activities (financial in nature) should be recorded in the books of accounts even when the
financial reports have already been prepared. Business activities or transactions that were not
included in the financial reports will be recorded to reflect necessary adjustments.

What is an Adjusting Entry?

Adjusting entry is an entry made to update the financial data already recorded. Making an
adjusting entry helps the bookkeeper capture all financial events that happened over a period of time
with in the accounting cycle. It is essential in keeping the financial record updated. The bookkeeper is
going to look or examine accounts that needs to be updated. Outlined below are the five basic
sources of adjusting entries:

1. Depreciation expense
2. Deferred expenses of prepaid expenses
3. Deferred income of unearned income
4. Accrued expenses of accrued liabilities
5. Accrued income or accrued assets

1. Depreciation
This is a method of allocating the cost of an asset to an expense over the accounting periods
that make up the asset’s useful life. Examples of assets subject to depreciation are: Store, Office,
Building, and Transportation Equipment. These types of assets lose their ability to provide useful
service as time passes. Depreciation can also be referred to as the decrease in the usefulness of
these types of assets. Take note that Land is not subject to depreciation because the value of land
mostly increases as time passes.
There are several methods or formulas to compute the amount of depreciation.

The simplest is the straight-line method.

2. Deferred expenses or prepaid expenses. These are items that have been initially recorded as
assets but are expected to become expenses over time or through the operations of the business.
In order to recognize the correct amount of expenses, prepayments shall be amortized weekly,
semi-monthly or monthly, depending on its nature and purpose.

3. Deferred income or unearned income. These are items that have been initially recorded as
liabilities but are expected to become income over time or through the operations of the business.

4. Accrued expenses or accrued liabilities. These are items of expenses that have been incurred
but have not been recorded and paid.

5. Accrued income or accrued assets. These are income items that have been earned but have
not been recorded and paid by the customer. In short, these are receivables of the business.

Directions: Let’s take a look at Alpha Laundry Services’ transaction that transpired after the Trial
Balance have been prepared. In this activity, you are tasked to do the following:

1. Identify accounts that need to be adjusted.

2. Prepare adjusting journal entries in the General Journal.

It should be noted that all transactions have already been recorded in the general journal. All
you have to do is to analyze and follow the process on how the transactions are being recorded and
forwarded using the T-Accounts applying the rules of debit and credit.

1. Depreciation of Equipment
The laundry equipment, which was purchased by ALS on June 5, 2018 at P150,000.00 has an
estimated useful life of 5 years with a salvage value of P10,000.00. Compute for the monthly
depreciation to be charged as depreciation expense and will be deducted against the cost to get the
net book value of the laundry equipment.

Required: Compute for the monthly depreciation using straight-line method. Adjusting Entry:
2. Prepaid Insurance
The insurance paid for Laundry equipment is P6,000.00. An expired portion of the insurance in
the amount of P500.00 is determined by dividing the prepayments over 12 months (P6,000.00 / 12
months). The expired portion will be charged to expense. This will reduce the value of prepaid
insurance balance.
Required: Compute for the expired portion of the insurance.

Note: The expired portion is charged to expense (insurance expense). The unexpired portion will be
reported in the balance sheet as the new prepaid insurance account balance for the next month.
3. Deferred expenses for supplies inventory. At the end of the month, unused supplies were
recorded to be P3,000.

Note: The used supplies are charged to expense (supplies expense). The unused portion will be
reported as the new supplies inventory balance for the next month.

Directions: In this activity, you are tasked to do the following:

1. Using the completed adjusting journal entries in the general journal, update the General Ledger
records by adding or subtracting the affected accounts.
It should be noted that all transactions have already been recorded in the general ledger. All you have
to do is to follow the process and study how the transactions are being computed and posted by
means of applying the rules of debit and credit.
Directions: In this activity, you are tasked to do the following:
1. Transfer the adjusting journal entries from the general journal to the adjustments’ column in the
working paper (highlighted in yellow color).
2. Update the balance of all ledger accounts and transfer the balance to form adjusted trial balance
(highlighted in blue color).
3. Compute for the total debit and credit balances (highlighted in green color).

It should be noted that all transactions have already been recorded in the general journal. All
you have to do is to follow the process and study how the transactions are being recorded in the
working paper by means of adjusting journal entry applying the rules of debit and credit.
Identifying Where There Is A Profit Or Loss For A Business

Profitability has always been the bottom line of a business. In reporting accurate financial
information, the bookkeeper and the bookkeeping systems take the significant roles. Accurate
financial reports will enable sound decision making.
In identifying the profit or loss of a business, the bookkeeper must record all transactions that
have monetary value. These records will then be converted into key financial reports. Key financial
reports are composed of statement of financial position (balance sheet), statement of comprehensive
income (income statement), statement of cashflows, and statement of changes inequity. These
reports are discussed in the ABM specialized subject, Fundamentals of Accountancy, Business and
Management 2.

In computing for the Net Income or net earnings, a bookkeeper must consider the type of
business that his/her company is engaged. Below is a matrix of the type of business organizations
and the different types of revenues, cost and expenses to be considered.

For simplicity purposes, this module will tackle the service-concerned business in illustrating
the process of computing net income.

Below is the basic equation for computing net income of a service-concerned business:

Directions: Apply the basic equation of income statement written above and answer the questions
bellow.

GIN Janitorial and General Services, Inc. is a company engaged in providing janitorial services
to different business establishments in the city. The following financial data reveals the income and
expenses records during the last quarter of 2018:
The owner of the business wants to know the operations of the business. You are tasked to compute
for the following:
1. Total service income collected in cash
2. Total service income still collectible
3. Total expenses
4. Net income of GIN Janitorial and General Services, Inc.

Discussion of Activity 1
A wise businessman always monitors the operations of his business in order to render timely
and sound decisions. One of the many ways to track down the operations of the business is to check
the status of its income generating activities on a periodic basis. A trend must be established so that
when the profitability path deviates, a timely decision would be made.
In Activity 1, the financial information reported is enough for a bookkeeper to compute the net
income, total expenses and the collectible amount. Cash and noncash service income should be split
in order to have a proper recording of the cash on hand and the collectibles. In applying the basic
equation of income statement, the following re-grouping is suggested: