FINANCIAL

STATEMENT
The Worksheet
• Accountants often uses a worksheet to help transfer data from the unadjusted
trial balance to the financial statements. This multi-column document
provides an efficient way to summarize the data for financial statements. The
accountant generally prepares a worksheet when it is time to adjust the
accounts and prepare financial statements. Note, however, that it is possible
to prepare financial statements directly from the adjusted trial balance at the
end of the accounting period if the business has relatively few accounts.
• The worksheet simplifies the adjusting and closing process. It can also reveal
errors. The worksheet is not part of the ledger or the journal, nor it is a
financial statement. It is a summary device used by the accountant for his
convenience.
Preparing the Worksheet
The steps in the preparation will be illustrated using the Weddings “R” Us case:
1. Enter the account balances in the unadjusted trial balance columns and total amounts.
2. Enter the adjusting entries in the adjustments columns and total the amounts.
3. 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
columns.
4. 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 statement columns.
5. 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.
• Profit and loss is equal to the difference between the debit and credit
columns of the income statement.
Revenues (Income statement credit column total) P71,700
Expenses (Income statement debit column total) 36,700
Profit P35,000
Essence of Financial Statements
• The objective of financial statements is to provide information about
the financial position, financial performance, and cash flows of an
entity that is useful to a wide range of users in making economic
decisions. An entity shall present with equal prominence all of the
financial statements in a complete set of financial statements.
Complete Set of Financial Statements
Per revised PAS No.1, a complete set of financial statements comprises:
1. A statement of financial position as at the end of the period;
2. A statement of comprehensive income for the period;
3. A statement of changes in equity for the period;
4. A statement of cash flows for the period;
5. Notes, comprising a summary of significant accounting policies and other
explanatory information; and
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 it
reclassifies items in its financial statements.
Preparing the Financial Statements
Statement of Comprehensive Income
• An entity shall present all items of income and expense recognized in a period:
1. In a single statement of comprehensive income, or
2. In two statements: a statement displaying components of profit or loss
(separate income statement) and a second statement beginning with profit or
loss displaying components of other comprehensive income (statement of
comprehensive income)

• The income statement is a statement showing the performance of the enterprise

for a given period of time. It summarizes the revenues earned and expenses
incurred for that period of time. The income statement for Weddings “R” Us is
prepared directly from the income statement columns of the worksheet.
Statement of Changes in Equity
• The statement of changes in equity summarizes the changes that occurred in
owner’s equity. This statement is now required statement (per revised
Philippine Accounting Standards (PAS) No. 1). Changes in an enterprise’s
equity between two balance sheet dates reflect the increase or decrease in its
net assets during the period.
• In the case of sole proprietorships, increases in owner’s equity arise from
additional investments by the owner and profit during the period. Decreases
result from withdrawals by the owner and from loss for the period. The
beginning balance and additional investments are taken from the owner’s
capital account in the general ledger. The profit or loss figure comes directly
from the income statement while the withdrawals from the balance sheet
columns in the worksheet.
Statement of Financial Position
• The statement of financial position is a statement that shows 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. This statement is also called the balance sheet.
Statement of Financial Position
• Users of financial statements analyze the balance sheet to evaluate an
entity’s liquidity, its financial flexibility, and its ability to generate
profits, and its solvency. Liquidity refers to the availability of cash in
the near future after taking account of the financial commitments
over this period. Financial flexibility is the ability to take effective
actions to alter the amounts and timings of cash flows so that it can
respond to unexpected needs and opportunities. This includes the
ability to raise new capital or tap into unused lines of credit. Solvency
refers to the availability of cash over the longer time to meet financial
commitments as they fall due.
Statement of Financial Position (format)
• The balance sheet can be presented in either report format or the account
format. The report format simply lists the assets, followed by the liabilities
then by the owner’s equity in vertical sequence. The account format lists the
assets on the left and the liabilities and owner’s equity on the right. Either
balance sheet format is acceptable.
• When presentation based on liquidity provides accounting information that
is reliable and more relevant to decision-makers then an entity shall present
all assets and liabilities in order of liquidity.
• Assets are classified and presented in decreasing order of liquidity. Cash is the most
liquid. Assets that are least likely to be converted to cash are listed last.
• Liabilities are generally classified and presented based on time of maturity such that
obligations which are currently due are listed first.
The following is the post-closing trial balance
of Abagon Shop dated February 1, 2020:
• For the month of February, the following are the
  Debit Credit transactions of Abagon, Shop.
Cash 220,000    
Accounts Receivable 280,000   1 Abangon withdrew P100,000 cash from the business for
her personal use.
Allowance for doubtful accounts   2,800
3 Paid P12,000 insurance premium.
Unused shop supplies 800  
5 Paid 24,000 rent.
Shop Equipment 240,000  
8 Total service rendered to various customers, P140,000, 40%
Accumulated depreciation- shop   48,000 of total sales are on cash basis and the balance on open
equipment account
Accounts payable   88,800 9 Received promissory note from customer to replace
Notes payable   100,000 P40,000 accounts receivable.
Accrued interest payable   1,200 15 Collected in cash P164,000 of accounts receivable.
20 Paid the notes payable of P100,000 plus the P2,400
Abangon, Capital   500,000 interest.
TOTAL 740,800 740,800 23 Purchased P2,400 shop supplies on cash basis.
25 Paid salaries, P24,000
 1 Abangon, Withdrawals 100,000
• For the month of February, the following are the Cash 100,000
transactions of Abagon, Shop.
3 Prepaid Insurance 12,000
 
Cash 12,000
1 Abangon withdrew P100,000 cash from the
business for her personal use. 5 Prepaid Rent 24,000
3 Paid P12,000 insurance premium. Cash 24,000
5 Paid 24,000 rent. 8 Cash 56,000
8 Total service rendered to various customers, Accounts Receivable 84,000
P140,000, 40% of total sales are on cash basis and the
balance on open account Service Revenue 140,000
9 Received promissory note from customer to replace 9 Notes Receivable 40,000
P40,000 accounts receivable. Accounts Receivable 40,000
15 Collected in cash P164,000 of accounts receivable. 15 Cash 164,000
20 Paid the notes payable of P100,000 plus the P2,400 Accounts Receivable 164,000
interest.
23 Purchased P2,400 shop supplies on cash basis.
25 Paid salaries, P24,000
• For the month of February, the following are the
transactions of Abagon, Shop.
20 Notes Payable 100,000
 
Accrued interest payable 1,200
1 Abangon withdrew P100,000 cash from the
business for her personal use. Interest expense 1,200
3 Paid P12,000 insurance premium. Cash 102,400
5 Paid 24,000 rent. 23 Unused shop supplies 2,400
8 Total service rendered to various customers, Cash 2,400
P140,000, 40% of total sales are on cash basis and the
balance on open account 25 Salaries Expense 24,000
9 Received promissory note from customer to replace Cash 24,000
P40,000 accounts receivable.
15 Collected in cash P164,000 of accounts receivable.
20 Paid the notes payable of P100,000 plus the P2,400
interest.
23 Purchased P2,400 shop supplies on cash basis.
25 Paid salaries, P24,000
 Debit Credit
Cash 175,200
Accounts Receivable 160,000
Allowance for Doubtful Accounts 2,800
Notes Receivable 40,000
Unused shop supplies 3,200
Prepaid Insurance 12,000
Prepaid Rent 24,000
Shop Equipment 240,000
Accumulated Depreciation 48,000
Accounts Payable 88,800
Abangon, Capital 500,000
Abangon, Withdrawals 100,000
Service Revenue 140,000
Interest Expense 1,200
Salaries Expense 24,000
P779,600 P779,600
After the end of the month. The following
information are available to effect 1 Insurance Expense 2,000
adjustments. Prepaid Insurance 2,000
1. The insurance in number 2 for P12,000 is 2 Rent Expense 8,000
applicable for six months starting Prepaid Rent 8,000
February.
3 Interest Receivable 400
2. The rent of P24,000 paid in number 5 is
for 3 months, starting February. Interest Income 400
4 Doubtful Account Expense 400
3. The note receivable is number 9 is
earning 12% interest per year. The note is Allowance for Doubtful Accounts 400
dated February 1, and is due on April 30. 5 Depreciation Expense 4,000
4. Bad debts expense is estimated at 2% of Accumulated Depreciation 4,000
accounts receivable balance 6 Supplies Expense 2,200
5. The annual depreciation is P48,000. Unused shop supplies 2,200
6. The unused supplies balance is P1,000
 Debit Credit
Cash 175,200
Accounts Receivable 160,000
Allowance for Doubtful Accounts 3,200
Notes Receivable 40,000
Interest Receivable 400
Unused shop supplies 1,000
Prepaid Insurance 10,000
Prepaid Rent 16,000
Shop Equipment 240,000
Accumulated Depreciation 52,000
Accounts Payable 88,800
Abangon, Capital 500,000
Abangon, Withdrawals 100,000
Service Revenue 140,000
Interest Income 400
Interest Expense 1,200
Salaries Expense 24,000
Insurance Expense 2,000
Rent Expense 8,000
Doubtful Accounts Expense 400
Depreciation Expense 4,000
Supplies Expense 2,200
P784,400 P784,400
 Abagon Shop
Income Statement
For the Month Ended February 29, 2020

Revenue
Service Revenue P140,000
Interest Income 400 P140,400
Expenses
Salaries Expense P24,000
Interest Expense 1,200
Insurance Expense 2,000
Rent Expense 8,000
Doubtful Accounts Expense 400
Depreciation Expense 4,000
Supplies Expense 2,200 41,800

Profit P98,600
 Abagon Shop
Statement of Changes in Equity
For the Month Ended February 29, 2020

Abangon, Capital, 2/01/2020 P500,000

Add: Profit 98,600
Total P598,600
Less: Withdrawals (100,000)
Abangon, Capital, 2/29/2020 P498,600
 Abagon Shop
Balance Sheet
February 29, 2020
• Debit
Assets
Current Assets
Cash P175,200
Accounts Receivable 160,000
Less: Allowance for Doubtful Accounts 3,200 156,800
Notes Receivable 40,000
Interest Receivable 400
Unused shop supplies 1,000
Prepaid Insurance 10,000
Prepaid Rent 16,000
Total Current Assets P399,400

Property, Plant and Equipment (net)

Shop Equipment 240,000
Less: Accumulated Depreciation 52,000 188,000 _

Total Assets P587,400

 Liabilities

Current Liability
Accounts Payable P88,800
Total Liabilities P88,800
Owner’s Equity
Abagon, Capital 02/29/2020 P498,600
Total Liabilities and Owner’s Equity P587,400
Barbie’s Beauty Salon’s unadjusted trial balance for the current year follows:
Barbie Beauty Salon
Trial Balance
December 31

Cash P 4200
Prepaid insurance 1,480
Shop supplies 990
Shop equipment 3,860
Accumulated depreciation- shop equipt. P 770
Building 57,500
Accumulated depreciation- building 3,840
Land 55,000
Unearned rent 1,600
Long-term note payable 50,000
Barbie, capital 49,860
Rent earned 2,400
Fees earned 23,400
Wages expense 3,200
Utilities expense 690
Property taxes expense 600
Interest expense 4,350
Totals P 131, 870 P 131, 870
1. An insurance policy examination showed P1,240 of expired insurance
2. An inventory count showed P210 of unused shop supplies still available
3. Depreciation expense on shop equipment, P350
4. Depreciation expense on the building, P350
5. A beautician is behind on space rental payments, and this P200 of accrued revenues was
unrecorded at the time the trial balance was prepared.
6. P800 of the Unearned Rent account balance was earned by year-end
7. The one employee, a receptionist, works a five-day workweek at P50 per day. The employee
was paid last week but has worked four days this week for which she has not been paid.
8. Three months’ property taxes, totaling P450, have accrued. This additional amount of
property taxes expense has not been recorded.
9. One month’s interest on the note payable, P600, has accrued but is unrecorded.