BASIC FINANCIAL

ACCOUNTING AND REPORTING

Worksheet and Financial Statements
 Objectives
At the end of the lecture, the student should be able to:
1. Describe the flow of accounting information from the unadjusted
trial balance and finally, into the income statement and balance
sheet columns of the worksheet.
2. Prepare accurately and in good form a ten-column worksheet.
3. Understand and appreciate the usefulness of financial
statements.
4. Develop skills in the preparation of financial statements.
5. Explain how the financial statements are interrelated.
6. Explain why temporary accounts are closed each period.
7. Recognize the need for a post-closing trial balance and
reversing entries in particular instances.
8. Prepare closing entries and reversing entries.
9. Prepare a post closing trial balance. 2
Worksheet

3
Worksheet

Enter the account

balances in the
unadjusted trial
balance columns and
total the amounts.

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Worksheet

Enter the adjusting

entries in the
adjustments columns
and total the amounts.

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Worksheet

Compute each
account’s adjusted
balance by combining
the unadjusted trial
balance and the
adjustment figures.
Enter the adjusted
amounts in the
adjusted trial balance
column.

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Worksheet
Extend the asset,
liability and owner’s
equity amounts from
the adjusted trial
balance columns to the
balance sheet
columns. Extend the
income and expense
amounts to the
income statement
columns. Total the
columns.

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Worksheet

Compute profit or
loss as the difference
between total revenues
and total expenses in
the income statement.
Enter profit or loss as a
balancing amount in
the income statement
and in the balance
sheet, and compute
the final column totals.

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A, L, OE

Rev, Exp

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 Closed to
Expenses Revenues equity

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Financial statements
The objective of financial statements is to provide
financial information about the reprting entity’s
assets, liabilities, equity, income and expenses that is
useful to users of fonancial statements in assessing
the prospects for future net cash inflows to the
reporting entity and in assessing management’s
stewardship of the entity’s economic resoruces.
(Conceptual Framework for Financial Reporting March 2018)
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Financial statements
1. Statement of Financial Position as at the end of the period (Balance
Sheet)
2. Statement of Financial Performance for the period (Income Statement
3. Statement of Changes in Equity for the period
4. Statement of Cash Flows for the period
5. Notes, comprising a summary of significant accounting policies and
other explanatory information
6. A statement of financial position as at the beginning of the earliest
comparative period when an entity applies an accounting policy
retrospectively or makes a retrospective restatement of items in its
financial statements or when or when or reclassifies items in its
financial statements
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 Statement of financial performance
1. Single statement of comprehensive income
2. Two statements: first statement showing the
components of profit or loss & a second
statement beginning with P/L and displaying
components of other comprehensive income

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 Statement of changes in equity
Summarizes the changes that occurred in owner’s
equity.

(+) Additional investment, profit for the period

(-) withdrawals, loss for the period

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 Ledger/previous
period’s balance
sheet
ledger
Income statement

Balance sheet

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 Statement of financial position
A statement showing the financial position or
condition of an entity by listing the assets liabilities,
and owner’s equity as at a specific date.

The information needed for this statement are the

net balances at the end of the period rather than
the total for the period as in the income statement.

Used to evaluate an entity’s liquidity, financial

flexibility, and solvency. 18
 Statement of financial position - Format

Report format

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Statement of financial position - Format
Account Format

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 Statement of financial position - Format
● Classify accounts as current or non-current
● Assets are presented in decreasing order of liquidity
● Liabilities are presented based in time of maturity

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 Not the same balance
with the balance sheet in
the worksheet (page 231)
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 Statement of cash flows
A statement showing the cash receipts (inflows) and
cash payments (outflows) of an entity during the
period.

It shows the net increase or decrease in cash during

the period and the cash balance at the end of the
period.

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 Statement of cash flows
● Operating activities - include cash activities related to
net income; any sources and uses of cash from
business activities. In other words, it reflects how much
cash is generated from a company's products or
services.
● Investing activities - include cash activities related to
noncurrent assets and investments.
● Financing activities - includes the sources of cash
from investors or banks, include cash activities related
to noncurrent liabilities and owners’ equity
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 Operating activities
● Direct method – cash is computed by adding the
individual operating cash inflows and subtracting the
individual cash outflows.
● Indirect method – derives net cash by adjusting profit
for income and expense items not resulting from cash
transactions.

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Indirect method

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Relationships among the financial statements

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 Completing the
accounting cycle
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 Closing entries
● Temporary accounts are closed to Income Summary
and eventually transferred to the capital account
○ Income

○ Expense

○ Drawing

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 Closing entries
● Close the income accounts

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 Closing entries
● Close the expense accounts

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 Closing entries
● Close the income summary account

Income Summary

(Expenses) 36,700 71,700 (Revenue)

35,000 Profit

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 Closing entries
● Close the withdrawal account

May 31 Besario, Capital 14,000

Besario, Withdrawals 14,000

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Post-closing
Trial Balance

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Beg: 250,000
Add: Profit 35,000
Less Drawing (14,000)
Capital, end 271,000
Refer to SOCE

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 reversing entries
● Accruals, prepaid expenses (expense method),
unearned revenues (income method), can be reversed.

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 reversing entries

3 days accrued on May

9 days on June

Paid every two weeks (12 days of work) @ P300 each, 2 workers
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reversing entries

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 assignment
Answer the problems uploaded separately.
Board work is scheduled next meeting.

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end
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