Financial Statements

 Financial Statements are accounting reports that provide the

financial information of the transactions that have been recorded
Financial and summarized.

Statements  The financial statement are the means by which the information
accumulated and processed in financial accounting is periodically
communicated to the users.
Income  summary of the revenues earned and expenses incurred by the
Statement business for a certain period of time
 Single Step Form Multi Step Form

 consists of three section or

 consists of two sections
Forms of namely the Revenue section
more sections with major
activities shown in the first
and the Expenses section. To
Income determine whether the result
sections and the minor
activities in the last sections.
Statement of operation is a net income
or net loss, the total
A series of additions and
subtractions are needed to
expenses is deducted from
arrive at the net income or
the total revenue. This form
net loss for the period. This
is commonly for a service
form is appropriate for the
business.
merchandising business.
  SERVICE REVENUE/INCOME - revenues earned by performing
Sections of services for a customer or client.
Single Step
Form  SALES REVENUE - revenues earned as a result of sale of
merchandise.
(Revenue)
  COST OF SALES – the cost incurred to purchase or to products
sold to customers during the period. It is also called Cost of Goods
Sold.
 SALARIES OR WAGES EXPENSES - includes all payments as a
result of an employer-employee relationship such as salaries or
Sections of wages, 13th month pay, cost of living allowances and other related
fringe benefits.
Single Step  UTILITY OR TELECOMMUNICATION, ELECTRICITY, FUEL,
Form AND WATER EXPENSE – expenses related to use of
telecommunications facilities, consumption of electricity, fuel and
(Expenses) water.
 RENT EXPENSE – expense for space, equipment or other asset
rentals.
 SUPPLIES EXPENSE – expense for using supplies (e.g. office
supplies) in the conduct of daily business.
  INSURANCE EXPENSE – portion of premiums paid on insurance
coverage (e.g. on motor vehicle, health, life, fire, typhoon or flood)
which has expired.
Sections of  UNCOLLECTIBLE ACCOUNTS EXPENSE – the amount of
Single Step receivables estimated to be doubtful of collection and charged as
expense during an accounting period.
Form  INTEREST EXPENSE – an expense related to use of borrowed
(Expenses) funds.
 REPAIR AND MAINTENANCE EXPENSE – expense for repairing
and servicing the building, machinery and equipment of the
business
 1. The heading may consists of three lines:
 Name the business
Steps in  Title of the report
Preparing  Date

Income 2. List the two sections:

 Service Revenues/Income
Statement  Expenses
 1. The third line in the heading differs from the balance sheet – it
must always be for a time period.
2. A margin on the left side – the extreme margin is used for the
Rules in major sections and inner margin for the details.

Preparing 3. Money columns on the right side – the extreme margin is for
the major amounts and the inner money column for the details.
Income 4. Peso sign in the final money column (extreme right) is placed on
Statement the first and last amounts.
5. A single rule is placed under the last figure to be added or
subtracted and a double line or rule is placed under the final
figure.
Statement of  summary of the changes in capital such as investments, profit or
Changes in loss and withdrawals during a specific period of time such as
month or a year.
Equity
 1. The heading may consists of three lines:
 Name the business
Steps in  Title of the report
Preparing  Date
Statement of 2. List the Account of the following:
 Beginning Capital/Investment
Changes in  Add (Net Income)Less (Owner’s Drawing)
Equity  Less (Net Loss) Add (Owner’s Drawing)
 1. The third line in the heading differs from the balance sheet – it
must always be for a time period.
Rules in 2. A margin on the left side – the extreme margin is used for the
major sections and inner margin for the details.
Preparing 3. Money columns on the right side – the extreme margin is for
Statement of the major amounts and the inner money column for the details.

Changes in 4. Peso sign in the final money column (extreme right) is placed on
the first and last amounts.
Equity 5. A single rule is placed under the last figure to be added or
subtracted and a double line or rule is placed under the final
figure.
  shows the financial position or condition of an entity by listing the
assets, liabilities and owner’s equity as at a specific date.
Balance Sheet  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.
  ASSETS – are property or rights on property owned by
the business. In other words, anything of value owned
by the business.
 Classification of Assets
a. Current Assets - cash and other assets that
Elements of are easily converted into cash or consumed
Balance Sheet during the accounting period usually one
year.
b. Non-current Assets - company's long-term
investments that are not easily converted to
cash or are not expected to become cash
within an accounting year.
  Cash on Hand – refers to cash and other cash items which are not
yet deposited in the bank. It includes coins, currencies, check,
money orders, and other money equivalents.
 Cash in Bank – is money deposited in the bank. 
 Notes Receivable – Amounts collectible from customers for goods
sold and services rendered on credit or from others for loans
granted. Such claims are evidenced by a promissory note.
Current Assets  Accounts Receivable – Claims from customers arising from goods
sold or services rendered on credit. It represents the debtor’s oral
promises to pay.
 Estimated uncollectible Account – is sometimes called Allowance
for Bad Debts. It refers to a provision for accounts that may not be
collected in the future. This is a contra-asset account and is a
deduction from the Accounts Receivable.
  Interest Receivable – is interest earned on an interest-bearing
note not yet collected.
 Accrued Interest Income – is a term, synonymous with interest
receivable.
 Merchandise Inventory – refers to goods unsold at the end of the
accounting period or on hand at the beginning of the year.
Current Assets  Prepaid Expenses – are expenses paid in advance or items that
are bought which will be used during the accounting period.
Examples are: Supplies, Prepaid Insurance, Prepaid Rent. Other
terms used for supplies are Prepaid Supplies, Supplies on Hand,
Unused Supplies or Supplies Inventory.
  Land – Land owned by the business used for building sites and other
business purposes.
 Building – Buildings owned and used by the business in its operation.
 Furniture and Fixtures – It includes tables, chairs, showcases,
counters, cabinets and other pieces of furniture owned and used by
the business in its operation.
 Equipment – It includes typewriters, calculators, cash registers, and
Non-current other similar assets.
Assets  Vehicles – includes cars, jeeps, trucks, vans, and other transportation
vehicles owned by the business.
 Accumulated Depreciation – is a contra-asset account. It is a
deduction from a particular fixed asset account. All fixed assets except
land are subject to depreciation.
 Intangible Assets – are assets that do not have physical existence
owned by the business. Examples are Goodwill, Patents, and
Trademarks.
  LIABILITIES – are debts of the business. These are
obligations owed by the business. The entity or person
to whom the debt is owed is called a creditor/debtor.
 Classification of Liabilities
a. Current Liabilities - obligations or debts of
Elements of the business which will be paid during the
Balance Sheet accounting period by means of payment of
current assets or a creation of another
current liability.
b. Non-current Liabilities - obligations or debts
of the business that will be due and payable
beyond one year.
  Accounts Payable – Amounts due to creditors for the
goods or services bought on credit.
 Notes Payable – Amounts due to the creditors which
are supported by a promissory note. It is a current
Current liability if the note is payable within a year.
Liabilities  Accrued Liabilities – Amounts owed to others for
unpaid expenses. These are debts that have
accumulated because of the passage of time but that
are not yet due for payment as at the balance sheet
date.
  Interest Payable – is the interest due to an interest bearing note.
 Accrued Interest Expense is a term synonymous with interest payable.
 Salaries Payable – Amounts due to the employees for services they
have rendered.

Accrued  Taxes Payable – are taxes due for the government not yet paid by the
business. 
Liabilities  Other examples of expenses not yet paid by the business are Rent
Payable, Utilities Payable, and many others.
 Unearned Revenues – receives payment before providing its customers
with goods or services.
  Mortgage Payable – is a long-term liability account
that refers to debt secured by a mortgage on real
estate.
Non-current  Notes Payable - If the note is payable beyond one
Liabilities year, it is classified as a long-term liability.
  OWNER’S EQUITY – vested interest of the owner in
the business. The difference between the assets and
the liabilities of the business is called owner’s equity or
Elements of owner’s capital.
Balance Sheet  The owner’s equity is partly contributed and partly
earned. The initial investment of the owner will be
increased by the profit earned by the business.
 1. The heading may consists of three lines:
 Name the business
 Title of the report
Steps in  Date
Preparing 2. List the full details of the following elements:
 Assets
Balance Sheet  Liabilities
 Owner’s Equity
  ACCOUNT FORM – following the accounting equation, list the
assets on the left side with the liabilities and owner’s equity on the
Forms of right side.

Balance Sheet
 REPORT FORM – shows the assets firsts, followed by the
liabilities, then the owner’s equity in one straight column.
 1. Margin on the left side
The extreme margin is used for the major classifications like current
assets or current liabilities and the inner margin is used for the detailed
computations.
2. Money columns on the right side
The replacement of the amount usually follows the margin on the left
side: extreme money column of the major amounts and an inner money
Rules in column for the details.

Preparing 3. In the final money column, the Peso sign (P) is placed on the first and last
amount, in the inner money column, the Peso sign is placed on the column
of figures to be added or subtracted.
Balance Sheet 4. A single rule is placed under the last figure to be added or subtracted and a
double line or rule is placed under the final figure.
5. The current assets and current liabilities are arranged according to
liquidity. Liquidity is the ability or ease of an item to be converted or paid
into cash.
6. For the plant assets, land is usually placed at first, with the assets arranged
from the highest amount to lowest amount
  SOLVENCY – is the ability of the business to pay for its current
obligations when these fall due.

Interpretation  LIQUIDITY – is the ability of the business to convert its assets into
cash and this is determined by reviewing the forms of assets
of Balance owned by the business.
Sheet
 STABILITY – is the ability of the business to operate continously
and smoothly.
  provides information about the cash receipts and cash payments
of an entity during a period of time. It is a formal statement that
classified cash receipts (inflows) and cash payment (outflows) into
operating, investing and financing activities

Statement of  shows the net increase or decrease in cash during the period and
the cash balance at the end of the period; it also helps project the
Cash Flow future net cash flows of the entity
 used in evaluating the cash performance, to assess the ability of
the operating activities to generate cash, to assess the investment
activities and the financing activities from which cash funds are
also provided or used
  CASH FLOWS FROM OPERATING ACTIVITIES – generally
involve providing services, and producing and delivering goods.
Includes the cash received from customers and payment for
expenses.

Three
 CASH FLOWS INVESTING ACTIVITIES – include making and
Classifications collecting loans; acquiring and disposing of investment in debt or
of Statement equity securities; and obtaining and selling of property and
equipment and other productive assets. includes acquisition of
of Cash Flow furniture & fixtures, equipment, land, building and so on.

 CASH FLOWS FROM FINANCING ACTIVITIES – includes

obtaining resources from owners and creditors. Includes owner’s
investment, withdrawal, loans from bank.
 1. The heading may consists of three lines:
 Name the business
 Title of the report
Steps in  Date
Preparing 2. List the details of three classifications:
Statement of  Operating Activities
Cash Flow  Investing Activities
 Financing Activities
 1. Margin on the left side
The extreme margin is used for the major classifications like
current assets or current liabilities and the inner margin is used
for the detailed computations.
2. Money columns on the right side
Rules in The replacement of the amount usually follows the margin on the
left side: extreme money column of the major amounts and an
Preparing inner money column for the details.

Statement of 3. In the final money column, the Peso sign (P) is placed on the first
and last amount, in the inner money column, the Peso sign is
Cash Flow placed on the column of figures to be added or subtracted.
4. A single rule is placed under the last figure to be added or
subtracted and a double line or rule is placed under the final figure.
5. The current assets and current liabilities are arranged according to
liquidity. Liquidity is the ability or ease of an item to be converted
or paid into cash.