-The final line of the report provides the total combined

Statement of Financial Position value of liabilities and equity.

Debit
-Incoming Money Account Form
-an accounting entry that either increases an asset or -Has two columns that shows assets on the left
expense account or decreases a liability or equity side and liabilities and owner’s equity on the right side
account. It is positioned to the left in an accounting just like the debit and credit balances of an account.
entry. -Provides information in an essentially horizontal
format. The left column lists the company’s assets.
Credit -The final line on the left side of the sheet provides the
-Outgoing Money total value of all assets.
-an accounting entry that either increases a liability or -The column on the right lists both liabilities and equity,
equity account or decreases an asset or expense with liabilities coming first.
account. It is positioned to the right in an accounting -The final line on the right provides the total combined
entry. value of liabilities and equity.
Statement of Financial Position
• Also known as balance sheet Assets
• It presents the financial position of an entity at a given • Something that an entity owns or controls
date in order to derive economic benefits from its use.
• The date of the statement is always “as at” or “as of” • Are resources with future benefits that are within the
the end of the period. control of the company.
• Can be classified as current or non-current assets.
Components:
Assets Current Asset
Liabilities -Are items listed on a company’s balance sheet that are
Equity expected to be converted into cash within one fiscal
year.
Basic Accounting Equation Non-Current Asset
Assets = Liabilities + Equity -Are long-term assets that a company expects to hold
over one fiscal year that cannot be readily converted to
Permanent Accounts cash within a year.
• These accounts are permanent in a sense that their
balances remain intact from one accounting period to Current Assets:
another. Cash - Includes bills, and coins on hand, bank
• The accounts are retained permanently in the SFP accounts, and operating funds.
until their balances become zero. Cash Equivalents - Short-term, highly liquid
• At the end, the accounts will have zero balances investments that are readily convertible to known
amounts of cash and which are subject to an
Contra Assets insignificant risk of changes in value.
• Those accounts that are presented under the assets Trade Accounts Receivables - Amounts owed by
portion of the SFP but are reductions of the company’s customers to the entity
assets. Notes Receivables - Are evidenced by a
• This account represents the total amount of promissory note.
depreciation booked against the fixed assets of the Interest Receivables- Related to notes
company. receivables.
Financial Assets at fair value through Profit of Loss -
Report Form Also called trading securities
-Shows asset accounts first then the liabilities and Inventories - Goods for resell or finished goods, goods
owner’s equity accounts after. in the process of production and materials and
-Provides information in a vertical format- one column supplies to be consumed in the production process.
that goes the full width of the page. Notes Receivable- Are evidenced by a promissory note.
-Starts with assets, providing a total value at the end of Supplies and Other Prepaid Assets - Includes office
the assets section. supplies to be consumed by the business and prepaid
-Then lists liabilities, finishes with equity, and assets.
Non-Current Assets: SFP of a Single Proprietorship
Property, Plant and Equipment - Include fixed assets
used in the normal operating cycle or production of the Steps in Preparing a Simple SFP
business. • Start with the Heading
Intangible Assets- Those assets meeting the definition - This includes the name of entity (individual or
of an asset but without physical substance company), name of the statement (statement of
Investment Properties - Are long-lived assets not used financial position), and the reporting period (ex. As of
in production December 31, 2021)
Biological Assets - Are living plants or animals held by • Prepare the Assets
the business for resale or for breeding - Classify the assets into current and noncurrent assets.
• Present the Liabilities
Liabilities - After presenting the total assets, next are the liabilities.
• Are obligations that a business owes to someone. Liabilities should also be classified as current or
• Present obligations arising from past events noncurrent.
• Can be classified as current or non-current liabilities • Add the Owner’s Equity
- The statement of financial Section position is an
Current Liabilities equation of “Assets = Liabilities + Equity”. Thus, there is
- Are those that the company expects to settle within 12 need to add the owner’s equity to the “liabilities and
months of the date on the balance sheet. equity” section of the statement of the financial
Non-Current Liabilities position.
-Are the ones the company reckons and are not going
anywhere soon. Ensure that the Accounting Equation is
Balanced
Current Liabilities:
Trade Accounts Payable - Are open accounts relating
to purchase of goods and/or raw materials.
Notes Payable - Are evidenced by a promissory note.
Interest Payable - Interests are considered as cost for
borrowing money
Other Accrued Expenses - These accounts pertain to
expenses incurred but not yet paid.
Income Tax Payable - Business organization’s tax
liability to the government where it operates.

Non-Current Liabilities:
Long-term Debt - Represent bank loans as a source of
financing for the entity. Can be in a span of 5-25 years.
Bonds Payable- Contracts of indebtedness sold to
certain individuals.
 Merchandising Company
Statement of Comprehensive -A merchandising company sells goods to customers
Income and the main cost associated with the activity is the
cost of the merchandise which is presented under the
Statement of Comprehensive Income line-item Cost of Goods Sold.
-Also known as the income statement. -Multi-Step
-Contains the results of the company’s operations for a
specific period of time which is called net income if it is Parts of the SCI
a net positive result while a net loss if it is a net negative a. Heading
result. i. Name of the Company
-This can be prepared for a month, a quarter or a year. ii. Name of the Statement
(Haddock, Price, & Farina, 2012) iii. Date of preparation (emphasis on the wording – “for
-This financial statement tells the reader about the the”)
“performance” and activities of the company for a b. Revenues
certain period. This is the total amount of revenue that the company
-This statement presents the revenues and expenses was able to generate from providing services to
incurred by the company for a period of time. customers
-The date of the SCI is always “for the period ended” c. Expenses
(e.g. “Statement of Comprehensive Income for the Can be broken down into General and Administrative
Period Ended December 31, 2022”). and Selling Expenses

Temporary Accounts Sample of a Single Step SCI

-Also known as nominal accounts are the accounts i. First part is revenues
found under the SCI. ii. Second part is expenses (can be broken down into
-They are called such because at the end of the General and Administrative and Selling Expenses)
accounting period, balances under these accounts are iii. Revenues less Expenses. Net income for a positive
transferred to the capital account, thus having only result and net loss for a negative result
temporary amounts and resulting to zero beginning
balances at the beginning of the following year.
(Haddock, Price, & Farina, 2012)
-Examples of temporary accounts include revenues,
sales, utilities expense, supplies expense, salaries
expense, depreciation expense, interest expense among
others.

2 Formats of the SCI:

Single-Step
-Called single-step because all revenues are listed
down in one section while all expenses are listed in
another. Sample of a Multi-Step SCI
-Net income is computed using a “single-step” which is i. First part is sales
Total Revenues minus Total Expenses. (Haddock, Price, This is the total amount of revenue that the company
& Farina, 2012) was able to generate from selling products
Multi-Step ii. Second part compose of contra revenue – called
-Called multi-step because there are several steps contra because it is on the opposite side of the sales
needed in order to arrive at the company’s net income. account. The sales account is on the credit side while
(Haddock, Price, & Farina, 2012) the reductions to sales accounts are on the debit
side. This is “contrary” to the normal balance of the
Difference of SCI sales or revenue accounts. (Haddock, Price, & Farina,
Service Company 2012
-A service company provides services in order to ii.i. Sales returns – This account is debited in order to
generate revenue and the main cost associated with record returns of customers or allowances for such
their service is the cost of labor which is presented returns.(Haddock, Price, & Farina, 2012) Sales returns
under the account Salaries Expense. occur when customers return their products for reasons
-Single Step
such as but not limited to defects or change of and contra revenue accounts. (Haddock, Price, &
preference. Farina, 2012)
ii.ii. Sales discount – This is where discounts given to viii. Gross Profit less General and Administrative
customers who pay early are recorded. (Haddock, Price, Expenses less Selling Expenses is Net Income for a
& Farina, 2012) Also known as cash discount. This is positive result while Net Loss for a negative result
different from trade discounts which are given when
customers buy in bulk. A sales discount is awarded to
customers who pay earlier or before the deadline.
iii. Sales less Sales returns and Sales discount is Net
Sales
iv. Third part is Cost of Goods Sold – This account
represents the actual cost of merchandise that the
company was able to sell during the year. (Haddock,
Price, & Farina, 2012)
iv.i. Beginning inventory – This is the amount of
inventory at the beginning of the accounting period.
This is also the amount of ending inventory from the
previous period.
iv.ii. Net Cost of Purchases = Purchases + Freight In
iv.ii.i. Net Purchases = Purchases – (Purchase discount
and purchase returns)
iv.ii.i.i.Purchases – amount of goods bought during the
current accounting period.
iv.ii.i.ii.Contra Purchases –An account that is credited
being “contrary” to the normal balance of Purchases
account.
iv.ii.i.ii.i. Purchase discount – Account used to record
earlypayments by the company to the suppliers of
merchandise. (Haddock, Price, & Farina, 2012) This is
how buyers see a sales discount given to them by a
supplier.
iv.ii.i.ii.ii. Purchase returns – Account used to record
merchandise returned by the company to their
suppliers. (Haddock, Price, & Farina,2012) This is how
buyers see a sales return recorded by their supplier
iv.ii.ii. Freight In – This account is used to record
transportation costs of merchandise purchased by the
company. (Haddock, Price, & Farina, 2012) Called
freight in because this is recorded when goods are
transported into the company.
iv.iii. Add Beginning inventory and Net cost of Purchases
to get Cost of Goods Available for Sale
iv.iv. Ending inventory – amount if inventory presented in
the Statement of Financial Position.
Total cost of inventory unsold at the end of the
accounting cycle.
v. Sales less Cost of Goods Sold is Gross Profit
vi. Fourth Part is General and Administrative Expenses
–These expenses are not directly related to the
merchandising function of the company but are
necessary for the business to operate effectively.
(Haddock, Price, & Farina, 2012)
vii. Fifth Part is Selling Expenses – These expenses are
those that are directly related to the main purpose of a
merchandising business: the sale and delivery of
merchandise. This does not include cost of goods sold
 ii. Additional investment
Statement of Changes in Equity Decreases to Equity
(SCE) i. Net loss for the year
STATEMENT OF CHANGES IN EQUITY ii. Withdrawals by the owner
All changes, whether increases or decreases to the
owner’s interest on the company during the period are
reported here.
- This statement is prepared prior to preparation of the
Statement of Financial Position to be able to obtain the
ending balance of the equity to be used in the SFP

SCE for Partnership/ Corporation

The Statement of Changes in Partners’ Equity is used
by a partnership instead of the Statement of Owner’s
Equity.
The differences between the two are as follows:
Types of Ownership: a. Title – instead of owner’s, partners’ is used to denote
Sole Proprietorship that this is a partnership
- An entity whose assets, liabilities, income and b. There are two or more owners in a partnership thus,
expenses are centered or owned by only one person the changes in the capital account of each partner is
Partnership presented
- An entity whose assets, liabilities, income and c. The net income is divided between partners (not
expenses are centered or owned by two or more always equal. Based on the agreement. Example:
persons. 60:40, 40:60, etc.)
Corporation d. The capital account is called share capital
-An entity whose assets, liabilities, income and (just like owner’s being shareholders)
expenses are centered or owned by itself being a legally e. Instead of additional investment, share
separate entity from its owners. Owners are called issuances (happens when shares are sold to
shareholders or stockholders of the company. shareholders) increases the share capital of a
corporation
Initial Investment f. Instead of withdrawals, distribution of net
The very first investment of the owner to the company income to shareholders decreases the Capital
Additional Investment of the corporation
Increases to owner’s equity by adding investments by
the owner The Statement of Changes in Shareholders’ Equity is
Withdrawals used by a corporation instead of the Statement of
Decreases to owner’s equity by withdrawing assets by Changes in Owner’s Equity.
the owner The differences between the two are as follows:
Distribution of Income a. Title – instead of owner’s, shareholders’ is used
When a company is organized as a corporation, owners to denote that this is a corporation
(called shareholders) do not decrease equity by way of b. There are an unlimited number of shareholders but
withdrawal. Instead, the corporation distributes the unlike the partnership, the names of the
income to the shareholders based on the shares that shareholders are not indicated here. Instead, the
they have (percentage of ownership of the company) corporation keeps an official list with the
corporate secretary
Parts of SCE
Heading
i. Name of the Company
ii. Name of the Statement
iii. Date of preparation (emphasis on the wording – “for
the”)
Increases to Equity
i.Net income for the year
 Therefore:
Cash Flow Statement (CFS) Payments = Beginning Accounts Payable + Beginning
Accrual is a means of recording an expense that was Accrued Salaries Expense + Net Purchases + Salaries
incurred in one accounting period but not paid until a Expense – Payments
future accounting period. Accruals differ from Accounts
Payable transactions in that an invoice is usually not yet Direct
received and entered into the system before the year The operating cash flow section of the CFS under the
end. direct method would show each major class of gross
Depreciation- is a measure of the wearing out, cash receipts and gross cash payments (Deloitte Global
consumption or other loss of value of a depreciable Services Limited, 2015).
asset arising from use, effluxion of time or Indirect
obsolescence through technology and market changes. The operating cash flow section of the CFS under the
indirect method will reconcile the net income/loss of
CASH FLOW STATEMENT the company with the total cash flows generated/used
-Provides an analysis of inflows and/or outflows in operating activities by adjusting the net income/loss
of cash from/to operating, investing and financing for effects of non-cash transactions (Deloitte Global
activities (Deloitte Global Services Limited, 2015). Services Limited, 2015).
- This statement shows cash transactions only
compared to the SCI which follows the accrual Parts of the Cash Flow Statement
principle. Heading
-The CFS provides the net change in the cash balance of Operating Activities
a company for a period. This helps owners see if their Activities that are directly related to the main revenue-
revenues are actually translated to cash collections or if producing activities of the company such as cash from
they have enough cash inflows in order to pay any customers and cash paid to suppliers/employees
maturing liabilities. (Deloitte Global Services Limited, 2015).
Investing Activities
Cash transactions related to purchase or sale of non-
current assets (Deloitte Global Services Limited, 2015).
Financing Activities
Cash transactions related to changes in equity and
borrowings.
Net change in cash or net cash flow
(increase/decrease)
The net amount of change in cash whether it is an
increase or decrease for the current period. The total
change brought by operating, investing and financing
activities.
Beginning Cash Balance
The balance of the cash account at the beginning of the
accounting period.
Ending Cash Balance
The balance of the cash account at the end of the
accounting period computed using the beginning
a.Receipts from customers balance plus the net change in cash for the current
Ending Accounts Receivable = Beginning Accounts period.
Receivable + Net Sales – Collections
Therefore: Sample of Direct Method
Collections (receipts from customers) = Beginning i. First part is operating activities
Accounts Receivable + Net Sales or Net Revenue – ii. Second part is investing activities
Ending Accounts Receivable iii. Third part is financing activities
b. Payments to Suppliers and Employees
Ending Accounts Payable and Ending Accrued Salaries Sample of Indirect Method
Expense = Beginning Accounts Payable + Beginning c.i. First part is operating activities
Accrued Salaries Expense + Net Purchases + Salaries i.i. Non-cash expenses are added back while non-cash
Expense – Payments revenues are deducted. Gain/loss on sale of non-
current assets are deducted/added back because the
cash transaction is recorded under investing activities.
i.ii. Changes in current assets and current liabilities are
either added or deducted depending on whether they
increased or decreased during the year.
Increase in current assets – deducted to net income
Accounts Receivable – increases revenue which
increases net income but is not a cash transaction
Prepaid Expense – decreases cash but does not
change the net income
Decrease in current assets – added to net income
Accounts Receivable – increases cash but does not
change the net income
Prepaid Expense – increases expenses which decreases
net income but is not a cash transaction
Increase in current liabilities – added to net income
Accounts Payable – increases expenses which
decreases net income but is not a cash transaction
Unearned Income – increases cash but does not change
the net income
Decrease in current liabilities – deducted to net income
Accounts Payable – decreases cash but does not
change the net income
Unearned Income – increases revenue which increases
net income but is not a cash transaction

c.ii. Second part is investing activities

c.iii.Third part is financing activities