General purpose of financial statements - intended for wide range of external users; doesn’t cater specific users; kung

ano yung information

provided by the FS yun lang siya

Notes to FS – narrative of description of what transpired in the business; for full disclosure (ipapaliwanag lahat ng changes sa business) including
the comparison of the previous years; understanding of users

Comparability – Intra: within the organization | Inter: comparison to other companies in the same industry

Additional statement of financial position – happens when there are changes within company policy

Accrual basis of accounting – transactions are recorded as they happen (service when rendered not when cash is received; expense when incurred
not paid)

Negotiable instrument - (promissory note)

Statement of financial position (balance sheet) - may be presented as either:

Classified – hiwalay yung current and noncurrent assets and liabilities Unclassified – hindi na nilalagay yung current and non-current

Long term liabilities – current liab if maturing

Refinancing – reloan/replacement of old loan (non-current when agreement is completed on or before balance sheet date; after BS date before FS
authorization issue)

Breach of contract – kapag hindi na-meet yung covenant (reqs) for the loan it will be payable on demand (current); with 12 months grace period
after the BS date to rectify breach of loan covenant (non-current)

Deferred tax liability – utang sa BIR in the future (non-current kahit w/in 12 months ire-reverse

Deferred tax asset – tax benefit; expected from BIR/refund/bawas sa babayarang tax (non-current asset)

Current asset – readily convertible to cash or consumed or sold within 12 months or normal operating cycle whichever is longer

Assets for trading – financial assets held for trading securities, designated at FVPL (current)

Bonds payable – current IF due within 12 months after the FS reporting date as well as the discount

Sinking fund – parallel siya sa liability/long term loans para ring collateral account
Contingent liability – 50-50 to happen (possible); not a liability but a disclosure

Provision liability – probable, most likely to happen (current)

Share dividends payable – contra-equity account

Reserve for contingencies – equity account; reserved retained earnings for future projects

Working capital = current assets – current liabilities

Reclassification of other income – current year c, d, and e are recorded as other comprehensive income then next year they become part of FV
Profit or loss

Disclosure of dividends – dividends declared are disclosed in either (a) notes or (b) statement of changes in owner’s equity

Order of presentation of disclosures in the notes:

1. Statement of compliance with PFRS

2. Summary of significant accounting policies applies
3. Supporting information for items presented in the other financial statements
4. Other disclosures

Treasury notes – 1–10-year maturity

Treasury shares – equity

Redeemable preference shares – can be bought back by entity depending on maturity

Statement of Cash Flows – provides information about historical changes in cash and equivalents during the period

Classified according to:

1. Operating activities – income statement accounts

 Direct method – kung ano yung actual pinaggamitan ng cash

 Indirect method – reconcile accrual to cash basis by
2. Investing activities – long-term and other non-operating assets (noncurrent)

3. Financing activities – equity and non-operating liabilities

CHAPTER 1: CASH AND CASH EQUIVALENTS

Money – standard medium of exchange in business transactions

 Currency and coins in circulation and legal tender

*all money are cash but not all cash are money

Cash – money; bank deposit (unrestricted-can be withdrawn anytime), any negotiable instrument payable in money acceptable by the bank for
deposit and immediate credit/encashment (checks, bank drafts, money orders)

- Initially measured at face value

- should be accepted by the bank for deposit and readily available for unrestricted use
 An entity shall classify an asset as current when it’s cash or cash equivalent unless restricted to settle a liability for more than 12 months
after the end of reporting period
 Must be readily available in payment of current liabilities
 Measured at face value (initial and subsequent measurement)
 First line item under current assets in FS along with cash equivalents
 Unrestricted/Not legally restricted

*Look at the purpose of cash, if it is for above mentioned it is considered cash, no matter the date

*Postdated checks received cannot be considered cash because they are unacceptable by the bank for deposit and immediate credit or
encashment (PAS 1 paragraph 66)

*There is no specific standard dealing with cash

 Cash on hand – negotiable instruments, undeposited cash collections, customer’s/cashier’s/manager’s/traveler’s checks, bank
drafts, money orders (Gcash; postal money orders)
o Traveler’s check – guaranteed ng bank na may balance (gamit noon pag t-travel sa ibang bansa)

 Cash in bank - demand deposit, e-checking account, savings deposit (with interest, passbook, and/or ATM) unrestricted for
withdrawal
o Current account - checking
 Cash fund – petty cash fund, payroll, dividend, change, tax, travel
o Long-term fund – emergency fund
 Bank drafts – letter issued by bank that guarantees the payee to be presented for payment (for valued client); advance ng bank yung
funds sa payee
 Money order – like bank drafts sent through post office

Foreign currency

 Should be translated to Php using current exchange rate as of reporting date

Cash equivalents

 Short-term highly liquid investments that are readily convertible to cash

  Near maturity (3 months or less from purchase date) presenting insignificant risk of changes in value (interest rate)
 First line item under current assets in FS along with cash

Examples:

o 3-month BSP treasury bill (investments from bangko sentral)

o 3-year BSP treasury bill purchased 3 months before maturity date
o 3-month time deposit
o 3-month money market instrument/commercial paper (from business)
o 3-months time deposit
o 3-months acquired redeemable preference shares
o Commercial papers – notes payable issued by large corps which matures less than 270 days

*equity securities aren’t qualified because shares don’t have maturity date

*preference shares with specified redemption date and acquired 3 months before said date can qualify

Excess cash

 Should be invested even temporarily to earn revenue through interest (time deposits, money market instruments, treasury bills)

Classifications of investment of excess cash

a. Cash and cash equivalents – if the term is 3 months or less

b. Short-term financial assets or Temporary investments – more than 3 months but within 1 year; due within 1 year from the end of
reporting period (current assets)
c. Long-term investments - more than 1 year; Time deposit

*kapag non-current asset (equipment, plant) automatic na long-term

Restricted cash – nakatabi na pambayad for obligation either long-term or short-term

 Current operations restriction – cash fund under CASH still

 Long-term restriction – non-current liability or non-current asset or long-term investment
 Compensating balance – maintaining/condition para maka-utang sa bank; guarantee/collateral; disclosed in Notes to FS if restricted or
not

*if problem is silent, the assumption is informal therefore considered cash

Sinking fund – RESTRICTED nakatabi pambayad for long-term obligation; noncurrent asset

Depreciation fund – set aside for asset (equipment) replacement

Redemption fund – for preference shareholders that will redeem their share in cash

Contingency fund – for emergency

Postage stamps – prepaid supplies

Bank overdraft – negative cash balance in bank (current liability-cash overdraft); kulang ang pondo sa account, payable on demand; account can be
closed (current); may penalty

- have existing positive account in the same bank; immaterial (offset, under cash); NOT legal in Philippines

Offsetting – not allowed in bank overdraft except on same bank and if amount is immaterial

Compensating balance - minimum checking or demand deposit account balance that must be maintained in connection with a borrowing
arrangement with a bank

- under cash if it’s non-legal restriction

-Current asset is legally restricted short-term borrowing

Checks – written, dated, and signed instrument that directs a bank to pay a specific sum of money to the bearer (payee)
  Undelivered checks
 Post-dated checks
 Stale checks

Good check – dated; date of check determines the time it can be deposited/encashed on the bank

 Dated – 6 months prior to receipt of check/date today; pag dinala sa bank ng within 6 months sa date na nakalagay sa check
 Stale – more than dated; 6 months or more according to law; di na tatanggapin ng bank (INCLUDED sa cash)
 Unreleased – di pa nakakarating sa payee (INCLUDED sa cash)
 Post-dated - on a future date (lagpas ng date received; kunwari april 8 nareceive pero ang date sa check at april 10 so di pa siya
tatanggapin ng bank)
o PDC received – EXCLUDED in cash; di pa tatanggapin ng banko/encashed
o PDC drawn – included in cash; di pa mababawas sa account

Escrow account – restricted deposit to a trustee (other assets NOT cash); disclosed in Notes to FS

Compensating balance – collateral na bank balance sa bangko kapag may credit line/pinapautang ng banko si company

Legally restricted – excluded from cash

Not legally restricted – included in cash

Legal Tender for coins and currency (Currency) - Authorized by Central Bank to be in Circulation, thus accepted by bank for encashment

Coins and Currency on hand Total Face value per count

Negotiable Instruments Present Value at the balance sheet date

Cash in Operating Funds Cash Items left in the fund at balance sheet date

Unrestricted bank deposit The adjusted balance in the bank recon at BS date

Cash Equivalents The Present Value of the instruments

Disclosure

 Entities shall provide disclosures that enable users of financial statements to evaluate changes in liabilities arising from financing
activities [IAS 7.44A-44E]
 The components of cash and cash equivalents should be disclosed, and a reconciliation presented to amounts reported in the statement
of financial position [IAS 7.45]
 The amount of cash and cash equivalents held by the entity that is not available for use by the group should be disclosed, together with a
commentary by management [IAS 7.48]

Disbursement – deliver the check / money to the payee; should be dated, legal tender, and delivered to the payee

Certificate of deposit - cash equivalent

Form over substance

IOU - I owe you; advances to employees

Current assets classifications hierarchy (at least 1):

1. Cash and cash equivalents
2. Part of operating cycle
3. 12 months or less
4. Held for the purpose of being traded
Current/demand/checking account – for business safe-keeping; NO interest; checks/bank statement

Savings account – earns minimal interest; deposit slip/withdrawal slip

CASH FRAUD

CHAPTER 2: BANK RECONCILIATION

Relationship of bank to depositor

Bank – debtor Depositor – creditor

Bank deposits:

 Demand deposit – current/checking account; withdrawable anytime; liability of bank to depositor

 Savings deposit – to save with small interest
 Time deposit – has time restriction


Bank credit – cash receipts/liability ni bank, cash deposits ni company Bank reconciliation - cash in bank only

Books and Bank are opposite of each other Book = ledger

Bank perspective: cash account normal balance - credit company name (liability)

Normal Balances

Book: Debit Receipts Credit Disbursement Bank: Debit Withdrawal Credit Deposit

Bank balance reconciling items: DIT, OC (out=less)

(no need for aje)

 (+) Deposit in transit – naglabas na ng pera at recorded in books but not yet in bank (add in bank bal)
 (-) Outstanding checks – nag issue na ng check pero hindi pa ine-encash sa bangko nung nakatanggap/pinagbayaran (deduct in the bank
bal)
 (+/-) Bank errors – erroneous debits and credits

Book/Ledger balance reconciling items: MEMOS (Debit=Deduct)

 (+) Credit memo – nadagdag na sa bank account but not yet recorded in books I.e: notes receivable, interest, proceeds of loan, matured
time deposit
(add in book bal; debit cash, account title: bank credit)
 (-) Debit memo - check received by entity is NSF/DAIF (will still be receivable); service charge against bank acc; loans payable; technically
defective checks (deduct on book bal; credit cash, account title: bank charges)
 (+/-) Book errors - erroneous debits and credits (pag silent sa problem book ang nagkamali since bank prepares FS daily/perfect AS)
ADJUSTED BALANCE METHOD

Adjusted book = adjusted bank

Format:

Unadjusted book balance

Add: CM

Less: DM

Add/Less: Error

Adjusted Book Balance

Unadjusted bank balance

Add: DIT

Less: OC

Adjusted Bank Balance

PETTY CASH

Petty Cash Fund – money set aside to pay small expenses which cannot be paid conveniently by means of check (under cash fund with restriction
for current operation)

*Encashment of personal checks to pcf MUST NOT be allowed

Imprest System – end of the day dine-deposit sa bank ang collections and lahat ng disbursements ay through check dahil nasa bangko ang pera

Voucher system – before making payments, gagawa muna ng accounts payable voucer (APV approved) PO, invoice, delivery receipt attached

-ensures that all payments are reviewed, authorized, and supported by necessary docs

Imprest Fund System – pinagsasama-sama bago I-record yung small expenses kapag magre-replenish na; mag re-reversing entry kapag 1 st day of
year for simplicity (if not minus ang expenses ofthe previous from the next month of the new year)

Fluctuation Fund System – everytime na may movement sa fund, nire-record

Petty Cash Custodian – taga-hawak ng petty cash (bills and coins)

Petty Cash Memorandum Book – where petty expenses are logged

*If silent, use Imprest System

(upon establishment: gagawa ng check then withdraw)

Imprest & Fluctuating - Dr PCF CR Cash in bank (same)

(Upon expense happenning)

Imprest system –NO ENTRY Fluctuating system – Dr Expense Cr PCF

Replenishment – changing receipts/vouchers to money equivalent to the difference between the petty cash fund and the amount left in the
fund (PCF-Currency and coins)

- yung previous unreplenished balance ay kasama sa amount ng balance upon replenishment

- if there is a replenishment, there is cash in bank, if there is none, then no cash in bank too
(Upon replenishment) (Upon increase) decrease – invert

Imprest system - Dr Expense Cr Cash in Bank Imprest system - Dr PCF Cr Cash in Bank

Fluctuating system – Dr PCF Cr Cash in Bank Fluctuating system – Dr PCF Cr Cash in Bank

(Upon end of reporting period)

Imprest system – Dr Expenses Cr PCF (kapag inabutan ng year end na hindi nakakapag-replenish)

Fluctuating system – no record

(Temporary valuation account)

IMPREST

Cash shortage – Dr Cash shortage Cr cash in bank; debit reason (i.e: loss; misc expense) credit CSO

Cash overage – Dr cash in bank Cr Cash overage; debit CSO credit reason (i.e: payable to cashier/custodian; misc revenue)

FLUCTUATING

Cash shortage – Dr cash shortage Cr PCF Cash overage – Dr PCF Credit cash overage

Currency and coins – cash left from PCF Liquidation – surrender receipts; give excess money; ask additional

(Upon liquidation)

Imprest system - no entry Fluctuating system – Dr receipts Cr PCF

(Before Balance sheet date/End of the year)

Imprest system - No entry Fluctuating system – Dr Receipts Cr PCF

(Balance sheet date/End of the year)

Imprest system - Dr Receipts Cr PCF Fluctuating system – No entry

(Next acc period/reversing)

Imprest system - Dr PCF Cr Receipts Fluctuating system – No entry

CHAPTER 3: PROOF OF CASH BANK RECONCILIATION

Usually done at the end of the year; audit

Technique: pag magkatabi magkaibang sign, pag magkalayo, same sign

Last month + Present Receipts – Present Disbursements = End of the year balance

Disbursements/Withdrawals - kapag positive value ending, add sa cash, kapag naman negative,
decrease sa cash

FOR BOOK
CM last month (unadjusted balance): add + dahil yun ay nakarating at nirecord ni book this month pero for last month pa yun at dun nirecord ni
bank

CM last month (receipts): deduct – dahil yung for last month na CM, dito nai-record

CM this month (receipts): add kasi para dito talag dapat

Cm this month (balance): positive

DM last month (unadjusted balance): deduct – dahil yung DM ay hindi na-record last month kaya mas mataas ang balance ni book

DM last month (disbursement): negative sign but positive ending value because of the equation dahil the DM na hindi na-record ay para talaga
this month so tataas ang disbursments

DM this month (disbursement): positive sign but negative ending value because of the equation dahil yung disbursement na para last month ay
dito nai-record kaya babawasan kasi sobra

DM this month (balance): negative

FOR BANK

DIT last month (unadjusted balance): add dahil late na nalaman ni bank

DIT last month (deposit/receipts): deduct dahil for last month talaga dapat

DIT this month (deposit/receipts): add dahil para dito dapat yung DIT

DIT this month (balance): add/positve

OC last month (unadjusted balance): deduct since hindi na-record ni bank pero recorded na sa book

OC last month (withdrawal/disbursements): negative sign but positive ending value because of the equation dahil dito lang nai-encash yung check

OC this month (withdrawal/disbursements): positive sign but negative ending value because of the equation dahil dito lang nai-encash yung check

OC this month (balance): negative

For AJE: ending balances on present month; positve – debit on caash;

negative – credit on cash

Book debits – under present receipts Book credits – under present disbursements

Bank debits – disbursements Bank credits – receipts

Cash on bank account balance = unadjusted balance on book Bank statement balance = unadjusted balance on bank

Principles:
 1. Adjustments this month were adjusted the following month.
2. Bring these adjustments back to its period (the time it happens)
3. If ERRORS happens in the current month, correct the same in that month.

ON BANK

Outstanding checks (last month) – deduct on disbursement and on balance last month; deduct from unadjusted bank when preparing bank recon

Outstanding checks (present month) – add on disbursement and deduct on present balance

Deposit in Transit (last month) – deduct on receipts, add on last month bal (addition to bank)

Deposit in Transit (present month) – add on receipts, add on present balance

Error changed (previous month) - deduct on receipts, add on previous bal

Error changed (present month) – deduct on disbursement, add on present balance

ON BOOK

Bank service charge (last month) – deduct on disbursement and on last balance of book

Bank service charge (present month) – add on disbursement, deduct on present balance

Error on notes (previous month) - add on receipts, deduct on previous bal

Error on notes (present month) – deduct on receipts, deduct on present balance

Adjusted balance method

Last month + Present Receipts – Present Disbursements = End of the year balance

Nov. 30 Dec Dec Dec. 31

Balance Receipts Disbursements Balance
Unadjusted book 2,032,000 2,568,000 1,440,000 3,160,000
Bank Service Charge (2,000) (2,000)
- Nov
- Dec 4,000 (4,000)

Error on Notes - Nov (200,000) 200,000

- Dec (300,000) (300,000)

Adjusted Balance 1,830,000 2,468,000 1,442,000 2,856,000

Unadjusted bank 1,890,000 2,090,000 1,080,000 2,900,000

Outstanding Checks (180,000) (180,000)
- Nov
- Dec 592,000 (592,000)

Deposit in Transit 80,000 (80,000)

- Nov
- Dec 498,000 498,000

Error charged - Nov 40,000 (40,000)

- Dec (50,000) 50,000

Adjusted Balance 1,830,000 2,468,000 1,442,000 2,856,000

To be adjusted
Book to bank
 Nov. 30 Dec Dec Dec. 31
Balance Receipts Disbursements Balance
Unadjusted book 2,032,000 2,568,000 1,440,000 3,160,000
Bank Service Charge (2,000) (2,000)
- Nov
- Dec 4,000 (4,000)

Error on Notes - Nov (200,000) 200,000

- Dec (300,000) (300,000)

BANK
Outstanding Checks 180,000 180,000
- Nov
- Dec (592,000) 592,000

Deposit in Transit (80,000) 80,000

- Nov
- Dec (498,000) (498,000)

Error charged - Nov (40,000) 40,000

- Dec 50,000 (50,000)

Unadjusted bank 1,890,000 2,090,000 1,080,000 2,900,000

Bank to book

Nov. 30 Dec Dec

Balance Receipts Disbursements
Unadjusted bank 1,890,000 2,090,000 1,080,000
Outstanding Checks (180,000) (180,000)
- Nov
- Dec 592,000

Deposit in Transit 80,000 (80,000)

- Nov
- Dec 498,000

Error charged - Nov 40,000 (40,000)

- Dec (50,000)

BOOK
Bank Service Charge 2,000 2,000
- Nov
- Dec (4,000)

Error on Notes - Nov 200,000 (200,000)

- Dec 300,000

Unadjusted book 2,032,000 2,568,000 1,440,000

OUTSTANDING CHECKS OC FORMULA
Outstanding Checks, beginning xxx <last month checks outstanding>

Add: Checks disbursement, this month

Book Credits xxx

Less: DM, May 30 (xxx) xxx <CHECKS ISSUED BY BOOK>

Total checks to be paid by the bank xxx

Less: Checks actually paid by bank, June 30

Bank Debits xxx

Less: DM, June 30 (xxx) (xxx) <CHECKS CLEARED BY BANK>

Outstanding checks, end xxx

ALTERNATIVE OC FORMULA
Outstanding Checks, beginning xxx

Add: Checks issued by book xxx

Total: xxx

Less: Checks cleared by bank (xxx)

Outstanding checks, ending xxx

DEPOSIT IN TRANSIT DIT FORMULA

Deposit in transit, beg xxx

Add: Cash Receipts deposited, this month

Book debits xxx

Less: CM, last month (xxx) xxx <ACTUAL DEPOSITS>

Total deposits to be acknowledged by book xxx

Less: Deposits acknowledged by book, this month

Bank Credit xxx

Less: CM, this month (xxx) xxx <ACTUAL DEPOSITS>

Deposit in Transit, end xxx

ALTERNATIVE DIT FORMULA

Deposit in transit, beg xxx

Add: Book deposits xxx

Total xxx

Less: Book deposit recorded (xxx)

Deposit in Transit, end xxx

CHAPTER 4: RECEIVABLES

Accounts receivable – initially measured at Fair Value – Transaction cost

Trade receivables – from normal operation (always current asset no matter the term/how long); A/R, Notes Receivable
 Receivables and revenues are recorded when transaction happened at transaction price (walang interest or additional charges)
 Recognized when entity has unconditional right to consideration (pag na-deliver na yung goods/services sa customer siya na yung may
control/dapat bayaran/siya na yung owner)
Nontrade receivables – other income; >1 yr is noncurrent asset
 advances to/receivables from: employees, shareholders, directors, officers (NC if silent)
 Advances to affiliates – long-term investments (NC unless otherwise stated)
 Advances to suppliers - (Current under regular operation)
 Subscription receivable – subscriber/gustong sumali sa corp/partnership (NC receivable but presented as equity deduction if silent; if
stated current then addition to equity)
 Creditor’s account with debit balances – receivable from supplier in case may return na sobra sa payment ang cost (Current if silent)
 Special deposits on contract bids – same concept of construction ban in subdivision; maco-collect after fulfillment of contract (NC if silent)
 Accrued income – Current if silent
 Claims receivable – when there are damages; (current if silent)

Accounts Receivable measurement

Initial – Fair/face value/Original invoice price + Transaction cost
Subsequent – Amortized cost/Net realizable value/Recoverable amount invoice

Invoice – given by the seller to buyer

Write off – DEDUCT sa A/R; estimation ng di na makukuha

Net realizable value – A/R amount to be reported at the end of acctng period (accounts receivable - allowance for uncollectible accounts)

FOB Freight technique – straight and curved (FOB Dest Seller; FOB SP Buyer; Freight Prepaid Seller; Freight Collect Buyer)

FOB – freight on board; who SHOULD shoulder the freight; determines transfer of ownership (SP kay buyer na agad during shipping; Dest kay buyer
pagdating)

Freight – who paid the freight

Transfer of ownership – owner shall pay the freight

o Freight on board (FOB) Shipping point – upon shipment; A/R and sales are recognized on shipment date
o Freight on board (FOB) Destination – upon receipt; A/R and sales are recognized when the buyer receives the goods

o Freight prepaid – paid in advance by seller before shipment

o Freight collect – paid by buyer upon delivery

Trade discount – discount na bawas sa invoice (not journalized); for buyers who buy in bulk
Cash discount – to encourage early payment
Accounting for cash discount:
 PFRS15 – estimates the discount
 Traditional GAAP
o Gross method - recrd sales and A/R on gross then sales discount are recorded when buyer availed
o Net method – seller: discounts are recognized early then sales discount forfeited (other income) will be CREDITED when buyer
did not avail buyer: debit purchase discount lost (other expense)

Receivable aging - Analysis ng account balances kung gaano katagal na siyang hindi nababayaran sa company

*Cash discounts are given to encourage buyers to pay early

Gross method
Initial entry: selling price

A/R
Sales Revenue

After payment within discount period:

Cash
Sales discount
A/R

After payment outside discount period: selling price

Cash
A/R
UNCOLLECTIBLE ACCOUNTS

When collectability becomes doubtful

Allowance method
Bad debts expense
Allowance for bad debts

Direct method
(no entry)

Write-off: pag sure na AJE

Allowance method Uncollectible accounts expense
Allowance for bad debts Allowance for uncollectible accounts
A/R
Allowance method

TIME VALUE OF MONEY

Lump sum – isang BUONG bayad ng
utang
Annuity – installment
Ordinary annuity – end ang bayad
Annuity due – start ang bayad
Present value of 1 – lumpsum
Present value of ordinary annuity of
1 – installment

NOTES RECEIVABLE

Interest bearing – carries a stated rate of interest

Noninterest-bearing – interest is included in the face amount (nakatago)

Effective interest – rate that exactly discounts estimated future cash payments
Yield – effective interest rate dictated by the market (BSP)

Transaction cost – expenses directly involved with the activity

Short term – 12 months or less maturity date

Long term – more than 12 months maturity date
With zero interest – non-interest bearing note (follow effective rate)
With unreasonable interest – stated/nominal interest has too much gap from the effective rate

Face amount – nakasulat sa pera/check

Summary of Measurement

I = Prt
PV = Principal * PV of P1 at %
Rate = 1 + %, divided twice and equals
number of periods

Annuity = sum of present value factors

 LOANS RECEIVABLE
Fair value – initial measurement + transaction costs
Amortized coz – subsequent measurement

RECEIVABLE FINANCING
Pledge – collateral in a loan arrangement
Assignment – more formal because there is transfer of rights in
A/R
Factoring – selling or A/R
Notes receivable discounting – obtaining cash before maturity
date throug discount to a financing company

INVENTORIES
 Recognized when goods are held for sale or when ownership is transferred to business
 Initially measured at cost of goods, subsequent at net realizable value or cost whichever is lower

Manufacturing – raw materials/manufacturing supplies, work in progress, finish goods/merchandise inventory (unused goods, unfinished, and
unsold)

Merchandising – merchandise inventory Service – supplies inventory

Consigned goods – nagpapabenta ng goods yung consignor (owner) then bibigyan ng commission yung consignee

Lay away – goods are delivered when buyer makes the final payment

Installment – goods are delivered but the ownership is not yet transferred (INCLUDED in buyer’s inventory)
*Mas mahalaga ang physical control ng asset kaysa sa legal ownership

Bill-and-hold – seller bills the buyer for goods sold but the seller retains physical possession until goods are transferred to buyer in the future
Buyers' POV – included in inventory at the time of sale
Seller POV – excluded in inventory at the time of sale

Inventory Systems:
 Perpetual – uses merchandise inventory for purchase returns and freight
 Dr COGS Cr Mer Inv
o Has updated inventory using stock/bin cards (subsidiary ledger) where in and out of inventory is recorded

 Periodic – uses purchases, returns, and freight in accounts

o Cost of sales determined through physical count

PROFIT FORMULA
Net Sales
Less: Cost of Sales
Beg. Inv
Add: Net cost of purchase
Gross purchases
Add: Freight in
Less: purchase discount
Purchase returns & allow.
Total goods available for sale (TGAS)
Less: Ending inventory
Gross Profit
Less: Operating Expense
Net Profit

Product cost – TGAS/Cost of sales/direct cost/capital expenditure; not entirely deducted, nile-less pa yung ending inventory to get the COGS
Capital expenditure – added as asset

Period cost – operating expenses/indirect cost/revenue expenditure that are entirely deducted from gross profit to get net profit
Revenue expenditure – deducted from revenue

Cost of inventories:
 Purchase cost - purchase price (net of trade & cash discount and other rebates), import duties, tax, handling
o Import duties – nonrefundable tax sa customs
 VAT is refundable so EXCLUDED
o Custom bonded warehouse – sa pier

 Conversion cost – labor, overhead

 Other cost – necessary to bring the inventory to their present location and condition

NRV = selling price – cost – expenses

Capitalized interest – Direct cost, borrowing is done solely to acquire the asset

 Purchase price Commission

 Freight Duties (non-refundable tax; customs)
 Insurance (shipping) Other expenses


Revenue – net sales

Profit = Revenue - expenses

FIFO – naunang cost, yun din

mauunang ich-charge sa cost of
sales

COGS = end balance – TGAS

End balance =
latest cost paakyat
Impairment loss - pag di normal sa bussiness (I.e pinagbawal ng gov)

Impairment loss xx
Inventory xx
Decline in inventory

Inventory xx
Gain xx
Reversal of impairment

Commitments – agreement with unrelated party, binding on

both parties and usually legally enforceable
 Specifies all significant terms (price,
timing of transactions)
 Includes a disincentive (penalty) for
non-performance that is sufficiently
large to make performance highly
probable

Loss on purchase commitment – write down for

future delivery
Loss on purchase commitment 100
Accounts payable 100

Impairment loss 20
Inventory 20

Net sales = gross profit + COGS Gross profit = net sales –

COGS COGS = net sales – gross profit

INVESTMENTS

Preference shares – have a fixed number of dividends (stocks no maturity date w/ fixed interest)
Ordinary shares – dividends depend on what’s left from preferred

Stocks
 Stocks are issued by corporations or joint-stock
companies

 Stockholders are owners

 No maturity date
 Barns dividends when declared by the BOD
 Participants are Market maker, Floor trader, Floor broker

Bonds
 Bonds are issued by public sector authorities, credit
institutions, companies and supranational institutions
 Bondholders are creditors
 Includes a maturity date
 Earns periodic fixed interest
 Investors, Spectators,
 Institutional Investors