LANCANAN, MA. SHEILA C.

ABM 1205

CHECK-UP QUESTIONS:
1. What comprises the financial statements of a business?

Balance sheets, income statements, cash flow statements; and statements of shareholders’ equity.
Balance sheets show what a company owns and what it owes at a fixed point in time. Income
statements show how much money a company made and spent over a period of time. Cash flow
statements show the exchange of money between a company and the outside world also over a period
of time. The fourth financial statement, called a “statement of shareholders’ equity,” shows changes in
the interests of the company’s shareholders over time.
2. How can balance sheet be presented?

Balance sheets are typically presented in two different forms. In the report form, asset accounts are
listed first, with the liability and owners' equity accounts listed in sequential order directly below the
assets. In the account form, the balance sheet is organized in a horizontal manner, with the asset
accounts listed on the left side and the liabilities and owner’s equity accounts listed on the right side.
The term balance sheet originates from this latter form: when the left and right sides have been
completed, they should sum to the same dollar amount. In other words, they should balance.

3. What are the types of liabilities?

Current liabilities (short-term liabilities) are liabilities that are due and payable within one year. Non-
current liabilities (long-term liabilities) are liabilities that are due after a year or more. Contingent
liabilities are liabilities that may or may not arise, depending on a certain event. Current liabilities should
be closely watched by management to ensure that the company possesses enough liquidity from
current asset to guarantee that the debts or obligations can be met. Long-term liabilities are crucial in
determining a company’s long-term solvency. If companies cannot repay their long-term liabilities as
they become due, the company will face a solvency crisis.

4. What are the different classifications of assets?

If assets are classified based on their convertibility into cash, assets are classified as either
current assets or fixed assets. An alternative expression of this concept is short-term vs. long-
term assets. Current assets are assets that can be easily converted into cash and cash
equivalents (typically within a year). Non-current assets are assets that cannot be easily and
readily converted into cash and cash equivalents. If assets are classified based on their physical
existence, assets are classified as either tangible assets or intangible assets. Tangible assets are
assets with physical existence (we can touch, feel, and see them). Intangible assets are assets
that lack physical existence. If assets are classified based on their usage or purpose, assets are
classified as either operating assets or non-operating assets. Operating assets are assets that
are required in the daily operation of a business. Non-operating assets are assets that are not
required for daily business operations but can still generate revenue.
Exercise 1
CLASSIFICATION OF ACCOUNTS: Classify the following accounts whether they are asset, liability or
equity accounts. For asset and liability accounts, classify whether they are current or non-current.

ACCOUNT ELEMENT CLASSIFICATION

Accounts Payable Liability Current
Accounts Receivables Asset Current

Bonds Payable Liability Non-Current

Cash Asset Current

Cash in Bank Asset Current

Cash on hand Asset Current

Financial Assets at Fair Value Asset Current

through Profit and Loss
Finished Goods Asset Current

Goods in Process Asset Current

Interest Payable Liability Current

Notes Receivables Asset Current

Prepaid Rent Asset Current

Property and equipment Asset Fixed

Raw Materials Asset Current

Salaries Payable Liability Current

Supplies Asset Current

Utilities Payable Liability Current

 Furniture Repair Shop
Trial Balance
June 30, 2018
Account Account Titles Debit Credit
Code

101 Cash 226000

102 Accounts Receivable 8000
103 Shop Supplies 8500
104 Equipment 80000
202 Notes Payable 50000
301 S. Moreno, Capital 300000
302 S. Moreno, drawing 6000
401 Service Income 38,000
501 Wages Expense 30000
502 Rent Expense 10000
504 Delivery Expense 16000
505 Utilities Expense 3500
388000 388000

Exercise 2
Required: Prepare a report form balance sheet.

Furniture Repair Shop

Income Statement
For the Month Ended June 30, 2018

Service Income P 38,000

Less
Wages Expense P 30,000
Rent Expense P 10,000
Delivery Expense P 16,000
Utilities Expense P 3,500 P 59,500
Net Income P 21,500
 Furniture Repair Shop
Statement of changes in owner’s equity
For the Month Ended June 30, 2018

S. Moreno beginning P 300,000

Add: Net Income P 21,500
Total P 278,500
Less: S. Moreno drawing P 6,000
S. Moreno, Capital- End P 272,500

Furniture Repair Shop

Balance Sheet
As of June 30, 20018

ASSET
Current;
Cash P 226,000
Accounts Receivable P 8,000
Shop Supplies P 8,500
Total Current Asset P 242,500

Non- Current
Equipment P 80,000
Total Asset P 322,500

LIABILITIES
Notes Payable P 50,000

CAPITAL
S. Moreno, Capital P 272,500
Total Liabilities and Capital P 322,500