12

BUSINESS ENTERPRISE
SIMULATION

Department of Education ● Republic of the Philippines

MODULE 1

What I Know

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 Before starting with this module, let us see what you already know about Business Enterprise
Simulation. Answer the questions below.

Multiple Choice: Select the right answer

1. This is composed of people with both desire and ability to buy a specific product/service.
a. Market b. consumer c. organization d. customers
2. How do we classify products and goods?
a. According to use, type, durability, and class
b. According to use, type, differentiation, and durability
c. According to use, class, differentiation, and durability
d. According to class, use, type, and durability
3. Why do services generally consider more difficult to market?
a. Because of its 4 major attributes: intangibility, variability, inseparability, and perishability
b. Because it is hard to look for the same service
c. It is difficult to sell due to its lack of physical appearance.
d. It is difficult to sell due to lack of credibility
4. What is a physiological necessities required for human survival?
a. Wants b. demand c. authority d. needs
5. What is the purpose of name, logo, symbol or image of a certain product?
a. To make the product more appealing to the consumer
b. To gain popularity among other competitors
c. To be acknowledge by Government to help them promote their product
d. To differentiate it from other similar products
6. Which is an example of Perishability?
a. An obstetrician-gynecologist perform caesarian section in two different manners
b. A lawyer presenting evidence in the court in favor of his client
c. A CPA auditing a company
d. A hotel which has 50 rooms and only 45 rooms were occupied during the holiday promo.
7. Why market demand in the Philippines is challenging?
a. Because few accurate published industry statistics are available
b. Because sometimes company neglect to estimate the market demand
c. Because only few target market are being recognized
d. Because company failed to do segmentation
8. Why organizations must be able to offer products and services at the time when the
costumers need them?
a. Because customer is always right
b. Because customers have varying needs and preferences over time
c. Because companies are not yet ready to launch a new product
d. Because organizations need the result of the survey of the customers
9. Which is TRUE about a customer who has a concern?
a. He would prefer talking to a person who has already gained his trust
b. He will talk to anyone and nag about it
c. He will directly go to the government agency catering the concern of a consumer
d. He will just keep it to himself
10. What should be the goal of a company?
a. Gain more profits c. Producing more products to ahead its
competitors
b. Keeping the customer satisfied d. Selling the products they
produced

Eight Analysis Types to Identify Market Opportunities

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 1.1 Objectives: Scan the market and identify potential business opportunities to capitalize
(ABM_BES12-Ia-c-1)

1. Consumer Segmentation - is the practice of dividing a customer base into groups of

individuals that are similar in specific ways relevant to marketing, such as age, gender,
interests and spending habits

- To understand your demand, you must identify consumer segments that share common
characteristics. These characteristics can be “hard” variables such as age, gender, place of
residence, educational level, occupation and level of income or “soft” variables such as
lifestyle, attitude, values and purchasing motivations.
2. Purchase situation analysis - Purchase situations must also be examined to uncover
expansion opportunities. Questions to ask when reviewing purchase analysis are:

 When do people buy our product or service?

 Is it when they need it?
 Where do people make the purchase?
 How do they pay?

3. Direct competition analysis - In addition to analyzing demand and purchasing situations, it

is important to analyze supply. Knowing the existing players in the market where you are
competing or going to compete is important when evaluating opportunities.  Relevant
questions in this case are:

 What are the products and brands of our industry that are growing more significantly and
why?
 What is their value proposition?
 What competitive advantage do we have over them?

4. Indirect competition analysis - Opportunities can also be found by analyzing substitute

industries. For example, thanks to the decrease in air fares, airlines may look for opportunities
in consumer segments currently supplied by other means of transport. 

Air carriers should research how many people travel on long-distance buses and trains, which
routes are the most in demand, how much travelers pay for their tickets, what the occupation
rate of long-distance buses and trains is and what is necessary to persuade a current passenger
of buses or trains to choose to travel by plane instead. This type of analysis helps establish
competitive advantages against indirect competitors and provide insight on additional
opportunities for growth.

5. Analysis of complementary products and services - Companies should monitor the

performance of other companies’ products, which are complementary to their own. For
instance, a packaging company should monitor sales of products that it could potentially
package, while a company producing coffee machines should gather insights on the evolution
of different types of coffee sales. Trends in complementary markets should be taken into
account when making investment decisions.

6. Analysis of other industries – analyzing other industries.

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 - In any case, to enter a new industry it is important to learn about competition first: market
sizes, market shares, growth rates, unit prices, per capita sales and brands positioning.

- Industry Analysis. Industry analysis is a tool that facilitates a company's understanding

of its position relative to other companies that produce similar products or services.
Understanding the forces at work in the overall industry is an important component of
effective strategic planning.

7. Foreign market analysis

In addition to product sales you can also investigate what happens in more developed
countries in terms of consumption habits. For example:

 What is the percentage of people who use the smartphone to pay for their purchases?
 What is the market share of private labels in a certain industry?

8. Environment Analysis

Market opportunities can also be identified by analyzing changes in the environment with
technological and scientific developments generating new business opportunities. For
example, the growth of Internet and smartphones’ penetration has enabled the arrival of
companies with new business models such as Airbnb and Uber.

A market threat is an external challenge that may negatively impact your company's ability
to meet its marketing and sales goals. Part of any standard marketing plan is
a SWOT analysis, which assesses the strengths, weaknesses, opportunities and threats that
make up a company's current business conditions.

A market threat is an external challenge that may negatively impact your company's ability
to meet its marketing and sales goals. Part of any standard marketing plan is a SWOT
analysis, which assesses the strengths, weaknesses, opportunities and threats that make up a
company's current business conditions. Threats should not be confused with weaknesses,
which are a company's internal challenges.

POSSIBLE THREATS

1. Economic change
2. Competitive innovation
3. Regulation
4. Consumer perception

- The best way to overcome marketing threats is to be aware of them as far in advance is
possible. A company should monitor legislative activity for potential impact to its
industry and continually assess what changes its competitors are making that may present
threats. Marketing research can be used to gauge consumer preferences and provide early
warning of a shift away from a certain product or category. Finally, a diversified product
and service offering helps to ensure that even if an unforeseen threat suddenly begins to
impact sales, other products remain profitable while the company makes adjustments in
an attempt to recapture lost sales revenue.

HOW TO IDENTIFY OPPORTUNITIES AND THREATS IN BUSINESS?

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 After assessing the strengths and weaknesses of your business for your business plan, look for
external forces, like opportunities and threats that may have an effect on its destiny. These
changes include
 The appearance of new or stronger competitors
 The emergence of unique technologies
 Shifts in the size or demographic composition of your market area
 Changes in the economy that affect customer buying habits
 Changes in customer preferences that affect buying habits
 Changes that alter the way customers access your business
 Changes in politics, policies, and regulations

 Fads and fashion crazes

List the threats and opportunities facing your business, and follow these guidelines:
 When listing opportunities, consider emerging technologies, availability of new materials,
new customer categories, changing customer tastes, market growth, new uses for old products
(think about how mobile phones and even eyeglasses now double as cameras and computers),
new distribution or location opportunities, positive changes in your competitive environment,
and other forces that can affect your success.
 When listing threats, consider the impact of shrinking markets, altered consumer tastes and
purchase tendencies, raw material shortages, economic downturns, new regulations, changes
that affect access to your business, and competitive threats, including new competing
businesses and competitive mergers and alliances. Also think about the impact of expiring
patents, labor issues, global issues, and new products that may make your offering outdated or
unnecessary.

Activity 1: In power point presentation

1. Identify business opportunities in your area

2. Target market
a. Population
b. Consumer segmentation
1. Age
2. Gender
3. Life style
4. income
3. Propose The right product
4. Product features
5. Product packaging/label
6. SWOT analysis
7. Conclusion/recommendation
8. Documentation
9. Actual product sample

1.2 Use appropriate analysis framework and methodology in choosing a product which is
feasible in terms of the market, operations and financials; (ABM_BES12-Ia-c-2)
1.3 Choose the appropriate methodology in choosing a product which is feasible in terms of
the market, operations and financials; (ABM_BES12-Ia-c-3)
1.4 Draw conclusions and formulate recommendations (ABM_BES12-Ia-c-4)

PRODUCT - In marketing, a product is a system made available for consumer use; it is

anything that can be offered to a market to satisfy the desire or need of a customer. In

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 retailing, products are often referred to as merchandise, and in manufacturing, products are
bought as raw materials and then sold as finished goods. Wikipedia
- an article or substance that is manufactured or refined for sale.

Here are some tips to help you find your niche in the market.
1. Target audience: Once you have a better idea of what to sell, you'll then consider who you're
selling to, also known as your target audience or target market. ...
2. Market trends.
3. Product costs.
4. Acquire products from a dropshipper
Dropshipping is a retail fulfillment method where a store doesn't keep the products it sells in
stock. Instead, when a store sells a product, it purchases the item from a third party and has it
shipped directly to the customer.
The most important thing you can do before deciding what to sell is to think. And the more
you think about a product or service before you bring it to market, the better your decisions
will be.

Once you've got a product or service in mind, you need to begin with a self-analysis:

 What kinds of products do you like, enjoy, consume and benefit from?
 Do you like the product or service you're planning to sell?
 Can you see yourself getting excited about this product or service?
 Would you buy it and use it yourself?
 Would you sell it to your mother, your best friend, your next-door neighbor?

Activity 2. Draw your product inside the Box.

What is Market Demand Analysis?

Companies use market demand analysis to understand how much consumer demand exists for
a product or service. This analysis helps management determine if they can successfully enter
a market and generate enough profits to advance their business operations. While several

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 methods of demand analysis may be used, they usually contain a review of the basic
components of an economic market which are:
 Market identification
The first step of market analysis is to define and identify the specific market to target with
new products or services. Companies will use market surveys or consumer feedback to
determine their satisfaction with current products and services. Comments indicating
dissatisfaction will lead businesses to develop new products or services to meet this consumer
demand. While companies will usually identify markets close to their current product line,
new industries may be tested for business expansion possibilities.

 Business cycle
Once a potential market is identified, companies will assess what stage of the business cycle
the market is in. Three stages exist in the business cycle: emerging, plateau and declining.
Markets in the emerging stage indicate higher consumer demand and low supply of current
products or services. The plateau stage is the break-even level of the market, where the supply
of goods meets current market demand. Declining stages indicate lagging consumer demand
for the goods or services supplied by businesses.
 product niche
Once markets and business cycles are reviewed, companies will develop a product that meets
a specific niche in the market. Products must be differentiated from others in the market so
they meet a specific need of consumer demand, creating higher demand for their product or
service. Many companies will conduct tests in sample markets to determine which of their
potential product styles is most preferred by consumers. Companies will also develop their
goods so that competitors cannot easily duplicate their product.
 growth potential
While every market has an initial level of consumer demand, specialized products or goods
can create a sense of usefulness, which will increase demand. Examples of specialized
products are iPods or iPhones, which entered the personal electronics market and increased
demand through their perceived usefulness by consumers. This type of demand quickly
increases the demand for current markets, allowing companies to increase profits through new
consumer demand.
 Competition
An important factor of market analysis is determining the number of competitors and
their current market share. Markets in the emerging stage of the business cycle tend to
have fewer competitors, meaning a higher profit margin may be earned by companies.
Once a market becomes saturated with competing companies and products, fewer
profits are achieved and companies will begin to lose money. As markets enter the
declining business cycle, companies will conduct a new market analysis to find more
profitable markets.

MODULE 2
2.1 Prepare strategic plan outlining the competitive environment and focusing on the
appropriate competition strategy (ABM_BES12-Id-j-c-5)
2.2 Prepare a marketing plan that will describe the product offering, the value it brings to the
consumer, and the subsequent tactical plan on how to reach consumers (4Ps), and conclude
with sales forecast.
2.3 design an operating plan to ensure the inputs and processes required to deliver the product
or service are identified, and estimate the costs needed for production
STRATEGIC PLANNING - is an organization's process of defining its strategy, or
direction, and making decisions on allocating its resources to pursue this strategy. It may also
extend to control mechanisms for guiding the implementation of the strategy

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 A start-up enterprise typically engages in strategic planning. The output for strategic
planning is as follows:

1. Vision, mission, goals, and objectives

2. Environmental analysis
a. Macroenvironment: PEST
b. Microenvironment: Porter Model
c. SWOT analysis
d. Strategy formulation

Vision – is often explained to answer the question, “ Where do we want to go?”. A vision
statement is, therefore, an affirmation of what the enterprise wants to become.

Mission statement- is a declaration of the purpose of the organization and often defines the
scope of its operations in product, market, and service terms. It is helpful to answer the
following questions in formulating the mission statement:

1. What business are we in or what business do we want to be in?

2. What customer needs are we satisfying and how do we intend to satisfy them?
3. What type of work environment do we intend to provide for our employees?

4. Who are our shareholders and what do we expect in terms of returns on investment (ROI)?
5. What is our community and what do we expect to contribute to the external community?

Goals – are shorter-term directions, often stated in specific metrics. Such as geographic,
periodic, and other numerical terms. Goals allow organizations to be directed toward specific
sites or locations, over stated periods of time, and with fixed profits or sales growth. An
example of a statement is “to earn maximum profits’.

Objectives are specific targets set by entrepreneurs to direct them into achieving their goals.

One goal may have more than one objectives designed to achieve it.
It is helpful for the enterprise groups to be S-M-A-R-T: make the vision, mission, and goal
statements specific, measureable, attainable, realistic, and time-bound. Goals or objectives
may be limited to

1. Marketing objectives, such as sales volume and vaalue targets for the period covered;
2. Financial objectives, such as gross or net profit precentages, as drawn from the projected
financial statements;
3. Management objectives, such as enterprise type choice and completion of business
registration requirements;
4. Internal objectives, such s expected learnings from the business simulation; and

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 5. Customer objectives, with surveys from cliets for product or service improvement, or other
pertinent customer satisfaction comments.

ENVIRONMENTAL ANALYSIS

PEST (Political, Economic, Social, Technical)

PESTEL (Political, Economic, Social, Technical, Environment, Legal)
- The PEST/PESTEL models are often used for macro environmental analysis.
- Macroenvironment includes government, economic conditions, social and other factors that
generally affect all organization.
- The PEST variables may be employed as checklist for opportunities and threats from the
macro environment that a firm has little or no control of.

Activity 1.
My Business VMGO
Instruction: Make your own Vision, Mission, Goals and Objectives of your business. Write in a
clean sheet of paper.

MARKETING PLAN

2.2 Prepare a marketing plan that will describe the product offering, the value it brings to the
consumer, and the subsequent tactical plan on how to reach consumers (4Ps), and conclude with
sales forecast (ABM_BES12-Id-j-c-6)

A marketing plan is a business document outlining your marketing strategy and tactics. It's

often focused on a specific period of time (i.e. over the next 12 months) and covers a variety
of marketing-related details, such as costs, goals, and action steps.

-A marketing plan may be part of an overall business plan. Solid marketing strategy is the
foundation of a well-written marketing plan. While a marketing plan contains a list of actions,
without a sound strategic foundation, it is of little use to a business. Wikipedia

A marketing plan is a business document outlining your marketing strategy and tactics. It's often
focused on a specific period of time (i.e. over the next 12 months) and covers a variety of marketing-
related details, such as costs, goals, and action steps.

But like your business plan, a marketing plan is not a static document. It needs to change and evolve
as your business grows, and as new and changing marketing trends develop. Especially in today's
changing world, you need to keep up-to-date on the best ways to reach and engage your market.

PURPOSE OF MARKETING PLAN

1. As road map – provides direction
2. Monitor results
3. Assessed

BENEFITS OF MARKETING PLAN

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1. Gives clarity about who your market is. It's easier to find clients and customers if you know
who they are.
2. Helps you craft marketing messages that will generate results. Marketing is about
knowing what your product or service can do to help a target market. Yourmarketing
messages need to speak directly your market.
3. Provides focus and direction. Your choices for marketing are vast including email, social
media, advertising, guest blogging, direct mail, publicity, and on and on. With so many
marketing choices, you need a plan for determining the best course of action for your
business.

HOW TO CREATE MARKETING PLAN

1. Details about your business' current situation. What is your product or service? What's
working and what challenges are you currently having in generating new clients and
customers? What issues might you encounter over the next year, such as a move (when you
can't work) or new laws that might impact how you do business

2. Who is your target market? Who is the most likely buyer of what you're offering? The
answer should never be "everyone" even if everyone could benefit from your product or
service.
3. What are your goals for the time period of the plan? Be specific in your goals, such as
increase email list by x amount over the next year or find x number of new clients. It's
important that you're able to measure the effectiveness of your marketing plan by having a
quantifiable goal.
4. What marketing tactics will you use to reach your market and goals? Let your target
market be your guide in deciding what marketing strategies you'll use. Where does your
market hangout? How can you entice them to check out your business? 
5. How much will it cost? This is where you make a budget for your marketing plan. 
6. How will you execute your marketing plan? Planning is fairly easy. Carrying out a plan is
more of a challenge. How will you fit in your marketing strategies into your regular business
activities?

Opportunities – are external possibilities or chances that may occur and benefit the business.
Such as occurrences may or may not happen. Some occurrences include
1. Possibility of getting business offers from the external communities;
2. Sudden shifts in customer’s tastes, which favor the entrepreneur’s products; and
3. Changes in market trends due to new developments such as additional grade levels in the
school community.
Threats are undesirable occurrences in the market and are disadvantageous to the business
and may include the following:
 Entry of low cost companies into the market
 A rise in the sale of substitute goods
 Costly regulatory requirements
 Growing bargaining power of customers and suppliers
 Changing customer/buyer needs and tastes
 Changes in demographics

MICROENVIRONMENT: PORTER MODEL

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 Strengths and weaknesses refer to the presence or absence of internal resources in a given
enterprise. Internal resources may include management, manpower, money, materials and
machinery, including technology. Examples of enterprise strengths are skilled manpower,
positive returns, and cutting-edge equipment, while weaknesses may be the lack of reliable
suppliers of materials and limited production capacity.

The microenvironment or the competitive environment defined in the Porter model is

composed of five forces – competitors, new entrants, suppliers, buyers, and substitutes.

The Porter model may be simplified as just listing of strengths and weaknesses which may
include:

Strength
 High quality products
 Affordable but profitable prices
 Ability of the product to meet the customer’s tastes
 Efficiency and effectiveness in serving customers
 Ability to attract customers
 Good business location
 Good and well-trained marketing staff
 High entrepreneurial spirit
Weaknesses

 Being new in the market and having a weak market image

 Weak distribution image
 Below the average marketing skills
 High overall unit costs relative to competitors
 Narrow product line
 Inaccessible location to customers

The data derived from PEST and Porter Model are utilized to identify the strengths,
weakness, opportunities and threats (SWOT) of a given enterprise.

Strategy formulation
The strategies that may be applicable for enterprise start-ups include
1. Market penetration: increasing market share for products and services in existing markets
through marketing efforts;
2. Market development: introducing products and services in new geographic areas; and

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 3. Product or service development: increasing sales by modifying or improving products or
services.
Market penetration plan may include loyalty programs for the existing buyer population to
encourage repeat purchases of products or consumption of services of enterprise.
Introduction of products and services in new geographic areas (market development)
traditionally involves heavy promotional activities; ie., product sampling, flyer distribution,
and even events planning.

Activity 2
1. Please like and share this page: G’s Fashionista and submit a screenshot.
(https://web.facebook.com/Gs-Fashionista-103999891365388)

2. Submit a 1-2 minutes video advertisement of your product.

OPERATING PLAN

The definition of 'Operational plan'

An Operational Plan is a highly detailed plan that provides a clear picture of how a team,
section or department will contribute to the achievement of the organisation's goals. The
operational plan maps out the day-to-day tasks required to run a business and cover.

The plan covers the what, the who, the when, and how much:

 What - the strategies and tasks to be achieved / completed

 Who - the individuals who have responsibility for each task strategy / task

 When - the timeline for which the strategies/tasks must be completed

 How much – the financial resources available to complete a strategy/task

Operational planning is the process of planning strategic goals and objectives to tactical

goals and objectives. ... An operational plan is the basis for, and justification of an
annual operating budget request.

The Organizational and Operational Plan describes how you will structure your company and
how you will carry out everything you present elsewhere in your business plan. Without an
execution strategy, the rest of your plan is meaningless.

KEY COMPONENTS OF OPERATION PLAN

1. Location
2. Supply and Inventory management
3. Production and distribution
4. Business Organization: Management Team and Employees

Organization – is defined as having two or more individuals working toward the attainment
of a goal or goals.

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 Organizational Chart – is a traditional picture of the positions in a firm, how they are
arranged, who reports to whom, and what the specific positions execute in the enterprise. The
boxes represent different roles and the reporting authority is represented by the levels of the
boxes and the lines connecting them.

The vertical structure, or top to bottom line in an organization, is rooted on basic concepts
of authority, span of control, and delegation.

Authority allows owners of enterprises to decide for the organization and assign work tasks
to those in the lower levels of the enterprise.

ORGANIZATIONAL CHART (SAMPLE)

STAFFING PROCESS:
1. Recruitment - the action of finding new people to join an organization or support a cause.
2. Selection - the action or fact of carefully choosing someone or something as being the best or
most suitable.
3. Training and Development - Training is a program that helps employees learn specific
knowledge or skills to improve performance in their current roles. Development is more
expansive and focuses on employee growth and future performance, rather than an immediate
job role.
4. Performance Appraisal - A performance appraisal is a regular review of an employee's
job performance and overall contribution to a company. Also known as an "annual review,"
"performance review or evaluation," or "employee appraisal," a performance appraisal
evaluates an employee's skills, achievements and growth, or lack thereof.
5. Reward System Design

Registration and Licenses

-the registration and reporting requirements for single proprietorship include the business
name registration with the Department of Trade and Industry (DTI) and application with the
BIR, SSS, Pag-ibig and Philhealth.

Activity 3
Make your own creative organizational chart, using some computer
applications and email to: hajiwon3083@gmail.com
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(Please follow instruction)
 MARKETING STUDY

- The process of gathering, analyzing and interpreting information about a market, about a
product or service to be offered for sale in that market, and about the past, present and
potential customers for the product or service; research into the characteristics, spending
habits, location and needs of your business's target market, the industry as a whole, and the
particular competitors you face.

Target market - is a group of customers within a business's serviceable available market at

which a business aims its marketing efforts and resources

Product – a tangible, so its feature s and characteristics are observed by the senses.

Services – intangible, perishable, inseparable

Pricing Strategy
Price dictates the revenue. It is the amount of money exchanged for product purchase or the
delivery of service. For merchandising businesses, the price of the products may be the
purchase cost plus the markup and margins estimated for the buying and selling transactions.

Breakeven point and the used of fixed, variable, and unit costs is helpful in computing prices
for both product and service units.
Breakeven point -  In simple words, the break-even point can be defined as a point where
total costs (expenses) and total sales (revenue) are equal. Break-even point 

Approaches for determining selling price:

1. Cost-oriented pricing – where a cost serves as basis for pricing products

a. Cost-plus pricing, where a specified amount is added to the unit cost
b. Standard markup pricing, where a specific percentage is added to the unit cost
2. Target profit pricing, where the desired profit is added to the unit cost.
3. Competition-based pricing, a pricing strategy that utilizes prices of competitors, the index
for which same, higher or lower price is determined by the owner-entrepreneur

Location or Place Strategies

- This strategy will help also in identifying distribution strategy.

The following list of distribution types to expand location-based client populations:

1. Direct distribution – through house-to-house or stall setups.

2. Indirect distribution- through agents or intermediaries
3. Hybrid distribution, a combination of the direct and indirect approaches.

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 Promotion strategy
Promotion strategies utilize tools that are designed to communicate with the buyer
population.

Projected Sales Volume and Value

This will involve forecasted figures for the marketing activities for the period covered. The
forecasted volume is important for the purchase orders of the operations teams. The
forecasted value is the product of the volume, multiplied by the price per unit.

OPERATION

PRODUCT OR SERVICE DESCRIPTION

- It involves the design of the good and/or service and its quality standards

SUPPLIER-PARTNER DESCRIPTION

- It will include the process, supply chain, and inventory management tasks for the owner-
proprietor and operation teams.

COST OF PRODUCT OR SERVICE

- The cost of a product or service would include expenses for the following:
1. Rental of shop or outlet
2. Renovation or construction of facilities
3. Salaries and wages
4. Utilities expense
5. Transportation expense
6. Communication expense
7. Purchase of materials
8. Purchase of supplies
9. Purchase and/or rental of
 Machinery, tools and equipment
 Furniture and furnishings

MODULE 3

2.4 craft a financial plan, the inputs of which are from results of marketing plan (sales) and
operations plan (operating cost), and which will define the financial goals that will be his/her
target upon eventual execution (ABM_BES12-Id-j-c-8)

FINANCIAL - A financial plan is a comprehensive evaluation of an investor's current and

future financial state by using currently known variables to predict future cash flows, asset
values and withdrawal plans.
FINANCIAL STATEMENT- are formal records of the financial activities and position of a
business, person, or other entity. Relevant financial information is presented in a structured
manner and in a form which is easy to understand
The three basic financial statements are the (1) balance sheet, which shows firm's assets,
liabilities, and net worth on a stated date; (2) income statement (also called profit & loss

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account), which shows how the net income of the firm is arrived at over a stated period, and
(3) cash flow statement, which shows the inflows and outflows of cash caused by the firm's
activities during a stated period. Also called business financials.
BALANCE SHEET - a statement of the assets, liabilities, and capital of a business or other
organization at a particular point in time, detailing the balance of income and expenditure
over the preceding period.

INCOME STATEMENT - An income statement or profit and loss account is one of the
financial statements of a company and shows the company’s revenues and expenses during a
particular period. It indicates how the revenues are transformed into the net income or net
profit 

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 CASH FLOW STATEMENT - In financial accounting, a cash flow statement, also known
as statement of cash flows, is a financial statement that shows how changes in balance sheet
accounts and income affect cash and cash equivalents, and breaks the analysis down to
operating, investing, and financing activities.

THE FIVE MAJOR ACCOUNTS

1. ASSET – In financial accounting, an asset is any resource owned by the business. Anything
tangible or intangible that can be owned or controlled to produce value and that is held by a
company to produce positive economic value is an asset. Simply stated, assets represent value
of ownership that can be converted into cash

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 2. LIABILITIES - In financial accounting, a liability is defined as the future sacrifices of
economic benefits that the entity is obliged to make to other entities as a result of past
transactions or other past events,[1] the settlement of which may result in the transfer or use
of assets, provision of services or other yielding of economic benefits in the future.
A liability is defined by the following characteristics:

 Any type of borrowing from persons or banks for improving a business or personal income
that is payable during short or long time;
 A duty or responsibility to others that entails settlement by future transfer or use of assets,
provision of services, or other transaction yielding an economic benefit, at a specified or
determinable date, on occurrence of a specified event, or on demand;
 A duty or responsibility that obligates the entity to another, leaving it little or no discretion to
avoid settlement; and,
 A transaction or event obligating the entity that has already occurred

3. OWNER’S EQUITY - In accounting, equity is the difference between the value of the assets
and the value of the liabilities of something owned. It is governed by the following equation:
For example, if someone owns a car worth $15,000, but owes $5,000 on a loan against that
car, the car represents $10,000 of equity
4. INCOME - Income is the consumption and savings opportunity gained by an entity within a
specified timeframe, which is generally expressed in monetary terms
5. EXPENSES - In common usage, an expense or expenditure is an outflow of money to
another person or group to pay for an item or service, or for a category of costs. For a tenant,
rent is an expense. For students or parents, tuition is an expense. Buying food, clothing,
furniture or an automobile is often referred to as an expense.

THE ACCOUNTING EQUATION

ASSET= LIABILITIES + OWNER’S EQUITY
- The equation stands for the normal balances or increase siddes

DEBIT SIDE – LEFT SIDE comes from the latin word DEBERE
- The term debit refers to the left-hand side
CREDIT SIDE – RIGHT SIDE comes from the latin word CREDERE
- The term credit refers to the right-hand side
To illustrate:
ASSET
DEBIT SIDE CREDIT SIDE

NORMAL BALANCE OR INCREASE SIDE DECREASE SIDE

LIABILITIES & OWNER’S EQUITY

DEBIT SIDE CREDIT SIDE

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 DECREASE SIDE NORMAL BALANCE OR
INCREASE SIDE

ANALYSIS OF BUSINESS TRANSACTION

Analysis of business transactions means observing the change in financial position of the

business because of business transactions. Different business transactions make changes in
financial position of a business concern. A change in financial position means change in one
or more of the five basic elements of accounting. The five basic elements of accounting are:

1. Assets
2. Liabilities
3. Capital
4. Expenses
5. Revenue.

You should remember an important principle while making the analysis of business
transactions that "every business transaction brings about at least a double change in the
financial position of a business concern". These two changes may take place in any one or
more basic elements of accounting. There is no exception to this principle. For example, Mr.
A purchases machinery worth $100,000. This is a business transaction. It will bring two
changes - machinery increases by $1,00,000 (an asset) and cash decreases by $1,00,000 (an
asset). So, both the changes have taken place in assets (an element of accounting). Similarly,
if he buys this machinery on credit basis from Mr. B, again it will bring two changes -
machinery increase by $1,00,000 (an asset) and a liability increases by $1,00,000 (amount
payable to Mr. B).

Now let us see how the analysis of various business transactions is made. Consider the
following example for this purpose:

Example:

Transaction No. 1

Mr. R invests $200,000 to commence his business.

Analysis:

Two changes have taken place because of this transaction:

1. Cash is increased in the business by $200,000 (an asset).

2. Capital or owner's equity is increased by $200,000 (an internal liability of the business).

Transaction No. 2:

He opens current account with bank and deposits $60,000.

Analysis:

This transaction has brought two changes:

1. Decrease in cash balance by $60,000 (an asset).

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2. Increase in bank balance by $ 60,000 (an asset).

Transaction No. 3:

He borrows $100,000 from Mr. S at 12% per annum.

Analysis:

The two changes are:

1. Increase in cash balance by $100,000 (an asset).

2. Increase in creditor by $100,000 (a liability).

Transaction No. 4:

He purchases furniture worth $40,000 for cash.

Analysis:

The two changes are:

1. Increase in furniture by $40,000 (an asset).

2. Decrease in cash balance by $40,000 (an asset).

Transaction No. 5:

He purchases goods (saleable goods) from Mr. A for $50,000 and paid cash $30,000.

Analysis:

There are three changes in this business transaction:

1. Increase in purchases (goods) by $50,000 (an expense).

2. Decrease in cash balance by $30,000 (an asset).
3. Increase in creditor Mr. A by $20,000 (a liability).

In this transaction goods worth $50,000 have been purchased and the amount paid in cash to
Mr. A is $30,000, which means the balance amount of $20,000 is payable to him, so it is
liability of the business.

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NAME: ____________________________________________SECTION:
_________________ DATE: ___________

EXERCISE # 1A DETERMINATION OF UNKNOWN ACCOUNTING VAUES

The following relates to the financial position of an enterprise:

CASE 1 CASE 2 CASE 3

CASE 4 CASE 5
,ASSETS P175,000 P450,000 P_________
P380,000 P520,000
LIABILITIES ________ 100,000 120,000
________ 260,000
OWNER’S EQUITY P75,000 P _______ P180,000
P -0- P_______

EXERCISE #1B BASIC ACCOUNTING EQUATION

ASSETS = LIABILITIES + CAPITAL

CASE 1 P 350,000 195,000

_________
CASE 2 _______ 250,000 350,000
CASE 3 680,000 _______
450,000
CASE 4 _______ 650,000 320,000
CASE 5 275,000 85,000 ________

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 NAME: ____________________________________________SECTION:
_________________ DATE: ___________

EXERCISE 2A. DETERMINATION OF PROFIT AND LOSS

The following relates to the operating results (performance) of the business:

CASE 1 CASE 2 CASE 3 CASE 4

CASE 5
TOTAL INCOME 85,000 90,000 ______ 60,000
75,000
TOTAL EXPENSE 60,000 ______ 40,000 ______
______
PROFIT (LOSS) _______ 60,000 (10,000)
10,000 -0-

EXERCISE 2B TRANSACTIONS AFFECTING CHANGES IN ACCOUNTING

VALUES

At the beginning of the year, Saranggani Enterprises owned by Alberto Arquillano had
total assets of P750,000 and total liabilities of P450,000. Consider each case separately.
Answer the following questions:

CASE 1 If total assets increased by P150,000 during the year and total liabilities
decreased by P80,000, what is the amount of owner’s equity at the end of the year?
_____________________

CASE 2 During the year , total liabilities increased by P100,000 and owner’s equity decreased
by P70,000, what is the amount of total assets at the end of the year?
___________________________

CASE 3 If total assets decreased by P90,000 and owner’s equity increased by P110,000 during
the year, what is the amount of total liabilities at the end of the year?
_____________________

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CASE 4 If total assets increased to P850,000 during the year and total liabilities decreased to
P400,000, what is the amount of owner’s equity at the end of the year?
____________________

CASE 5 During the year, total liabilities increased to P650,000 and owner’s equity increased to
P400,000, what is the amount of total assets at the end of the year?
___________________________

NAME: ____________________________________________SECTION:
_________________ DATE: ___________

EXERCISE 3. COMPUTATION OF UNKNOWN ACCOUNTING VALUES.

Calculate the missing amount that relates to the financial position of an enterprise:

1. As of the end of the period, Gwen Hollanes Brokerage firm has a total assets equal to
P970,000 and total liabilities equal to P500,000. What is the equity of Gwen Hollanes as
of the end of the period?

2. Jennifer Cabaron has put up cash in the amount of P150,000 representing her initial
capital. Out of P150,000 cash she acquired an equipment costing P100,000 which
requires a cash outlay of P75,000 and incurs a liability of P25,000. How much is the
owner’s equity at the end of the year?

3. Efren Barillo opens a servicing business and started a capital of P200,000. At the end of
the year, the creditor’s claims is P100,000 and the owner’s equity is 80% of the total
assets of P500,000. How much is the owner’s equity at the end of the year?

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4. Jufel Tamala owner’s equity at the beginning of the period is 70% of the total assets. If
total assets is P300,000, how much is the total creditor’s claim at the end of the year?

5. Rosanna Beceira with a Repair Shop business in General Santos City. At the beginning
of the period her capital is P350,000 which equaled to her investment. At the end of the
period, her capital balance is P450,000 which is 60% of total assets. How much
represents to total claims from the outside creditors?

NAME: ____________________________________________ SECTION:

_________________ DATE: ___________

EXERCISE 4. ACCOUNTING EQUATION

The following data were taken from the records of Vallejo’s enterprise a client of G & E
Accounting Firm for the first month of operation.
ASSETS
CASH IN BANK P 80,000
ACCOUNTS RECEIVABLE 75,000
OFFICE EQUIPMENT 120,000
TOTAL ASSETS P275,000

LIABILITIES
ACCOUNTS PAYABLE P 40,000
NOTES PAYABLE

OWNER’S EQUITY

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 VALLEJO, CAPITAL P 235,000

TOTAL LIABILITIES & OE P 275,000

Consider the following additional transactions:

1. 20% was collected from accounts receivable
2. 30% of the Accounts Payable was paid
3. Additional cash investment by Vallejo, P50,000
4. Borrowed money from a bank and issued a note, P100,000
Considering the aforementioned transactions, compute the following:
1. How much is the cash in bank balance
2. How much is total assets?
3. How much is the total liabilities
4. How much is the owner’s equity?
5. What is the accounting equation before considering the aforementioned transactions?

NAME: ____________________________________________SECTION:
_________________ DATE: ___________

EXERCISE 5

The following account balance were taken from the records of Allen Clemen Co. as of
December 31, 2017.

Cash in Bank P 60,000

Accounts Receivable 80,000
Accounts Payable 60,000
A. Clemen, Capital 80,000

All of the above account balance were on the normal balance.

Summary of transactions for the month of January 2018:

a. Total service rendered to customers, P 90,000 of which 40% is cash;
b. Collection from customer’s accounts, P 50,000;
c. Cash payment during the month:
Salaries and wages P 15,000
Payment to supplies acct. 30,000
Other Expenses 10,000
Withdrawal by owner 20,000

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1. A. Clemen should report cash balance as of January 31 of the current year in the amount of –
2. A. clemen should report the actual accounts receivable as of Jan 31 of the current year in the
amount of –
3. A. clemen owner’s equity show a balance of -

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