Chapter 2 Part 1: Elements of Financial Statement

Review: Definition of Accounting - Accounting is - Some examples of assets follow:

a service activity. Its function is to provide
quantitative information primarily financial in -Cash
nature, about economic entities that is intended -Supplies
to be useful in making economic decisions. -Accounts receivable
-Buildings
Financial Information = FINANCIAL
STATEMENTS - Liabilities are debts owed to outsiders
(Balance Sheet, Income Statement, and Changes (creditors).
in Equity only) - Definition: A present obligation of the
entity arising from past events, the
 INCOME STATEMENT/ STATEMENT OF settlement of which is expected to
COMPREHENSIVE INCOME/ Statement result in an outflow from the entity of
of Financial Performance/ resources embodying economic
Profit or loss statement benefits.
- Some examples of liabilities follow:
- Shows the financial performance of the
company for a given period of time. -Accounts payable
- It shows if the result of operations is -Notes payable
profit, loss or break-even -Wages payable
-Interest payable
o Elements of INCOME Statements:

- Revenues (Income) are increases in - Owner’s equity is the owner’s right to

owner’s equity as a result of selling the assets of the business after all
services or products to customers. liabilities have been paid.
- Some examples of revenue accounts - For a proprietorship, the owner’s equity
follow: is represented by the balance of the
owner’s capital account. (Gabayan,
-Fees earned Capital)
-Commission revenue - A drawing account represents the
-Rent revenue amount of withdrawals made by the
-Sales owner. (Withdrawal, Personal)

- The using up of assets or consuming

services in the process of generating  STATEMENT OF CHANGES IN EQUITY
revenues results in expenses.
- Some examples of expenses follow:
- The statement explains the changes in a
-Wages expense company's share capital, accumulated
-Rent expense reserves and retained earnings over the
-Miscellaneous expense reporting period. It breaks down
changes in the owners' interest in the
 STATEMENT OF FINANCIAL POSITION / organization, and in the application of
BALANCE SHEET retained profit or surplus from one
accounting period to the next.
- Reflects the financial condition of the
entity as of the end of the period. o Elements of the STATEMENT OF
- It depicts whether the company is in CHANGES IN EQUITY
good financial health.
- Beginning Capital
o Elements of the Statement of Financial - Net Income
Position - Owner’s withdrawals

- Assets are resources owned by the

business.
- Definition: Resources controlled by an
entity as a result of past events and
from which future economic benefits
are expected to flow to the entity.
Visual Illustration:

Dr. Nick Marasigan Medical Practice Dr. Nick Marasigan Medical Practice
Income Statement Statement of Changes in Owner's Equity
For Month Ended October 30, 2021 For Month Ended October 30, 2021

Add:
(Add) Revenues:
Marasigan, Capital, October 1, 2021
Medical Revenues 434,000 250,000
Net Income
Dr. Nick Marasigan Medical Practice
Research Revenues 30,000
220,333.33
Statement of Financial Position
Total Revenues As of October 31,Total
2021
470,333.33
464,000
Assets
(Less) Expenses: Deduct:
Current Assets: Marasigan, Withdrawals
Salaries Expense 124,000
200,000
Cash.............................................114,000
Insurance Expense Accounts Receivable....................204,000
1,666.67 Total
Medical Supplies............................21,000(200,000)
Repairs Expense 23,000
Prepaid Insurance......................18,333.33
Supplies Expense Total Current assets................
35,000 357,333.33
Marasigan, Capital, October 30, 2021
270,333.33
Association Dues Expense 15,000
Property, Plant, Equipment:
Telephone Expense Land..............................................250,000
3,000
Medical Building........................1,000,000
Depreciation Expense –Accumulated
Building Depreciation.............(5,000)
5,000
-Medical Building
Depreciation Expense – Equipment 9,000
Medical Equipment.......................465,000
Interest Expense 28,000
Accumulated Depreciation..............(9,000)
-Medical Equipment
Total Expenses Total Property, Plant, ............ 1,701,000
(243,666.67) and Equipment

Total Assets: 2,058,333.33

Net Income:
Liabilities
220,333.33
Current Liabilities:
24% Notes Payable....................1,200,000
Accounts Payable...........................49,000
Salaries Payable.............................51,000
Interest Payable.............................28,000
Unearned Research........................60,000
Revenues
Total Current Liabilities: 1,388,000

Non-Current Liabilities:
20% Notes Payable....................400,000
Total Non-Current Liabilities 400,000

Total Liabilities: 1,788,000

Owner’s Equity

Marasigan, Capital 270,333.33

Total Liabilities and Owner’s Equity: 2,058,333.33