REVIEWER IN FABM information on income and expenses; in other words Trade receivables (those that arise from the
Trade receivables (those that arise from the sale of
Information Sheet on Statement of Financial Position
(SFP)
The basic purpose of accounting is to provide
information that is useful in making economic
decisions.
Financial statements (FS) are structured
representation of an entity’s financial position and
results of its operations. They are the end product of
the accounting process.
Financial statements provide information on:
★ How much resources are controlled by an
entity and how these resources were
gathered (financial position)
★ How well the entity performed during a
certain period (results of operations)
The Five (5) Elements of Financial Statements (FS)
are:
★ Assets
★ Liabilities
★ Equity (also called Capital, Net Assets, Net
Worth)
★ Income or revenue
★ Expenses (include Cost of Sales or Cost of
Goods Sold)
A complete set of FS consists of 5 (five) statements:
1. Statement of Financial Position (SFP) “Balance
Sheet” [is a statement that provides information on
assets, liabilities and equity]
2. Statement of Comprehensive Income (SCI)
“Statement of Profit and Loss and other
Comprehensive Income” [is a statement that provides
this statement provides information on results of goods or services in the ordinary course of business)
operations and shows the information on financial are normally classified as current assets.  Trade
performance. payables (those that arise from the purchase of goods
in the ordinary course of business, i.e. merchandising)
3. Statement of Changes in Equity (SCE) [this are normally classified as current liabilities
statement provides information on the movements in
the components of equity during the period; it Prepaid assets and accrued liabilities are normally
provides information on the changes in equity or classified as current assets and current liabilities,
owner’s capital or changes in financial position respectively.
(Ferrer& Millan, p.3)]
Illustration: Statement of Financial Position
4. Statement of Cash Flows (SCF) [is a statement that
provides information on how cash and cash Notes to Financial Statement:
equivalents were generated and used during the
period; its provides information on the changes in
financial position (Ferrer & Millan, p.3)]
5. Notes to FS [is a statement that provides narrative
disclosure and other information required by the
accounting standards but were not presented in the
other financial statements]
The SFP (balance sheet) provides information on an
entity’s financial position or condition of the entity’s
assets, balance and equity.
A classified balance sheet shows information on the
current and noncurrent classification of assets and
liabilities
Current assets are those that are expected to be
realized within 1 year. All other assets are noncurrent
assets.
Current liabilities are those that are expected to be
settled within 1 year. All other liabilities are Reflection: Observe the illustrative example of SFP of
noncurrent. Dakasi Milk Tea Food Store. How much is the total
long term borrowings if you would look at the SFP
without the line item no. 6? Answer: P1,400,000. With
suf icient information in Note 6, you will find that the
true balance is P1,450,000.
Elements of SFP:
Assets are economic resources one has control that
have resulted from past events and can provide
economic benefits. Examples of economic benefits:
1. sold, leased, transferred or exchanged for other
assets;
2. used singly or in combination with other assets to
produce goods or services;
3. Used to enhance the value of other assets;
4. used to promote efficiency and cost savings; 5. used Forms of Balance Sheet Presentation (pro forma)
to settle a liability (Ferrer&Millan, p.5)
Report form-the arrangement of Assets, Liabilities and
Liabilities are present obligations that have resulted Equity accounts are vertical. That is from top to
from past events and may required a person or entity bottom
to give up economic resources when settling them.
Obligation means a duty or responsibility.
Two types:
Legal obligation - obligation that results from a
contract, legislation or other operation of law.
Constructive obligation is an additional obligation that
results from past actions (for example, past practice
or published policies) that have created a valid
expectation on others that a person will accept and
has to discharge certain responsibilities. (Ferrer,
etal.p5)
Equity is simply assets minus liabilities. Its other
terms are capital, net assets, net worth.
Presentation of Statement of Financial Position (SFP).
The SFP maybe presented in either of the two formats:
Classified format (current and noncurrent assets and
liabilities are are shown)
Unclassified format (based on liquidity) does not
show distinction between current and noncurrent
assets and liabilities
Illustratio
Example: (vertically arranged from top to bottom)
Assets xxx
Liabilities xxx
Equity xxx
 services if service business,
3. other income or other expenses,
4. net income or net loss

Illustration: Statement of Comprehensive Income

[SCI] of Merchandising & Service Business [Two (2)
approaches: Single Step and Multi-Step]

SCI Merchandising System

Account form-the arrangement is this: the Asset
accounts are situated at the LEFT side and the
Liability and Equity accounts to the RIGHT side.
Example: (horizontally arranged assets to the left and
Liabilities and equity to right) Left side Right side
Assets xxx
Liabilities xxx
Equity xxx
The Statement of Comprehensive Income (SCI) is
prepared because it shows the changes in the use of
assets during the operations of the business. This
statement measures the financial performance of the
firm for a particular period as distinct from the
Statement of Financial Position that presents the
financial condition of the entity as of a particular
period. The SCI reports whether net income or net
profit is realized or net loss is incurred during the
period.

Information Sheet on Statement of Comprehensive

Income (SCI)

The SCI shows information on an entity’s financial

performance during the period. It shows the
following: 1. company name;
2. title of report: Statement of Comprehensive Income;
3. Period of time covered by the report;

For sole proprietorship; the income statement, aside

from those three (3) mentioned above, shall include:
1. Sales or Net Sales [Net Sales = Gross Sales less
discounts & sales returns) ;
2. Cost of Sales and Operating Expenses
[administrative expenses & selling or distribution
costs/expenses) if merchandising business and cost of

SCI for SERVICE BUSINESS
Elements of SCI statement of comprehensive income
INCOME or Gross Income . It is the INCREASES in
economic benefits during the period in the form of
increases in assets or decreases in liabilities that
result in increase in equity, excluding those relating to
investments by the owner. (additional investments by
owner)
Income includes both revenue and gains
Revenue (Sales for merchandising and Service Income
for service business) arises in the ordinary course of
business operations
Service Fees or Service Income or Professional Fees
or Professional Revenue refer to revenue earned by a
service business from rendering the services
Gross Sales or Income/ Sales Income or Gross
Revenue refer to revenue earned by a merchandising
business from selling goods or merchandise.
Gain or gains represent other items that meet the
definition of income and may or may not arise in the
course of ordinary activities of an entity. Ex. Gain on
sale of equipment; or land, or any property,
EXPENSES are the DECREASES in economic benefits
during the period in the form of decreases in assets, or
increases in liabilities that result in decreases in
equity, excluding those relating to distributions to the
owner. (withdrawals or drawings by owner)
Expenses include both expenses and losses
 Expenses arise in the course of the ordinary
activities of a business. Ex. Operating expense such as
Salary expenses
Losses represent other items that meet the definition
of expenses and may or may not arise in the course of
the ordinary activities of the entity. Ex. Loss on sale of
equipment or any property
The dif erence between income and expenses
represent PROFIT or LOSS (net income/net loss)
★ If income is greater that expenses, the
difference is profit
★ If income is less than expenses, the difference
is loss
PRESENTATION OF EXPENSES . There are two types
of presenting the expenses:
Nature of expense method. Under this method,
expenses are presented according to their nature. For
example, depreciation, purchases of materials,
transportation costs, employee benefits, advertising
costs etc. They are presented without reallocating
among their functions. This presentation is called the
single step approach.
Function of expense method. Under this method,
expenses are classified and presented according to
their function as part of:
1. cost of sales or for example
2. the costs of distribution, or
3. administrative activities,
4. other expenses,
5. interest expense (or finance cost) and
6. income tax expense. At a minimum, cost of sales is
presented separately from other expenses. A
statement of comprehensive income that shows
expenses by their function is referred to as prepared
using a multi-step approach.

Selling Expenses (or Distribution Costs) are costs

attributable to selling activities.
Examples: freight out or delivery fees/expenses, sales
commission, marketing expenses, advertising, sales
salaries (salaries of sales people or store personnel),
depreciation on delivery equipment, delivery vehicles,
store equipment, store furniture, store rentals, store
supplies, store utilities like water, electricity, store
communication expenses for internet, cellular phone,
landline etc

Administrative Expenses are residual category of

expenses, meaning an expense that does not qualify
for classification under the other categories ( see
function of expense: nos 1, 2 and 4 to 6 above)
Example: Insurance expense, taxes and licenses
(except income tax expense) salaries of non-sales
personnel, depreciation of assets not used by sales
department, rent pertaining to of ice space.

Other expenses include losses like casualty losses and

losses on sale of properties. Other expenses include
losses like casualty losses and losses on sale of
properties.

Income tax expense includes taxes on income. Other

taxes are included in the administrative expense
category other under “Taxes and Licenses” Accounts.

Useful Formulas: