FINANCIAL

STATEMENTS
 Statement of Financial Position
 Statement of Comprehensive Income
 Statement of Changes in Equity
 Statement of Cash Flows
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SFP OR BALANCE SHEET

It includes the amounts of the company’s total assets, liabilities and owner’s equity
which in totality provides the condition of the company on a specific date.

Consist of the following types of accounts:

PERMANENT TEMPORARY/NOMINAL CONTRA-ASSETS

Accounts are retained Accounts are found in the Accounts that are presented
permanently in the SFP until Statement of Comprehensive under the assets portion of
their balances become zero. Income (SCI). the SFP but are reductions to
Ex. - will have zero balances at the company’s assets.
Assets, liabilities and equity the end of the accounting Ex.
accounts period. Allowance for Doubtful
Accounts and Accumulated
Depreciation.
Allowance for Doubtful Accounts is a contra asset to Accounts Receivable. This represents the
estimated amount that the company may not be able to collect from delinquent customers.

Accumulated Depreciation is a contra asset to the company’s Property, Plant and Equipment. This
account represents the total amount of depreciation booked against the fixed assets of the company.
 ELEMENTS OF THE STATEMENT OF FINANCIAL POSITION:
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ASSETS LIABILITIES OWNER’S EQUITY

They are the resources They present obligations

- Short term and highly liquid controlled by the entity as arising from past events, the It is the residual interest of
investments that are readily result of past events and settlement of which is the owner in the business
convertible into cash. Acquired from which future economic (assets minus liabilities).
expected to result in an
three months before their maturity.
benefits are expected to flow outflow from the entity of
to the entity. resources embodying
economic benefits {assets}.
- Cash and Cash Equivalents
- Accounts Receivable - Accounts Payable
- Notes Receivable - Notes Payable
- Interest receivable - Interest Payable CURRENT LIABILITIES
CURRENT ASSET - Inventories - Other Accrued Expenses
- Supplies - Income Tax Payable
- Prepaid Assets (Prepaid Rent, Prepaid - Long term debts
Insurance) - NON-CURRENT LIABILITIES
Bonds Payable
- PPE (Property, Plant and Equipment)
- Intangible Assets (Trademark, Patent,
Copyright)
NON-CURRENT ASSET - Investment Properties (Long term)
- Biological Assets – living plants or
animals.
PRESENTATION OF THE STATEMENT OF FINANCIAL POSITION
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It can be presented either in a report or account format.

Report Form - all assets, liabilities, and OE are written in

a vertical form. Account form - assets are written in the
left side while the liabilities and OE are
written on the right side.
 STATEMENT OF
COMPREHENSIVE
INCOME
 STATEMENT OF COMPREHENSIVE INCOME 6

- informs the reader about the “performance” and activities of the company
for a certain period (e.g., for the period ended December 31, 2019).
- it “contains the results of the company’s operations for a specific period of
time which is called net income if it is a net positive result while a net loss
if it is a net negative result. This can be prepared for a month, a quarter or a
year”.

Accounts found in SCI:

1. Temporary/Nominal Accounts - balances under these accounts are transferred to the capital account, thus
having only temporary amounts and resulting to zero beginning balances at the beginning of the following
year.

Example: revenues, sales, utilities expense, supplies expense, salaries expense, depreciation expense,
interest expense etc...
TWO TYPES OF STATEMENT OF COMPREHENSIVE INCOME
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Single-step Format -all revenues are listed down in one Multi-step Format-there are several steps
section while all expenses are listed in another. needed in order to arrive at the company’s
net income.
- commonly used by merchandising
companies
STATEMENT OF
CHANGES IN
EQUITY
 9
STATEMENT OF CHANGES IN EQUITY

• reports the beginning capital plus net income less withdrawals to compute the ending capital.
 The ending balances in the general ledger accounts of Magic Trading for the quarter ended September 30, 2010
follow:
10

A. Prepare the income statement for the period.

B. Prepare the statement of owner's equity for the period.

C. Prepare the balance sheet as of the last day of the period.

Penny O' Neal, Capital $? 11
Cash 5,629
Merchandise Inventory, July 1 62,147
Offi ce Furniture 2,000
Accumulated Depreciation - Offi ce Equipment 3,690
Sales Discount 297
Salaries Expense 2,789
Accounts Receivable 3,720
Supplies 418
Purchases 2,486
Sales 19,986
Accumulated Depreciation - Offi ce Furniture 1,150
Rent Expense 2,250
Advertising Expense 940
Offi ce Equipment 8,200
Utilities Expense 2,018
Accounts Payable 1,260
Prepiad Insurance 450
Freight In 1,000
Freight Out 1,000

Data for Adjustments:

Merchandise Inventory, Sep. 30 USD 54,996
Supplies on hand, Sep. 30 196
Prepaid Insurance, Sep. 30 270
Annual Depreciation 10% of asset value
Allowance for bad debts 2.5% of
outstandingreceivable

Cash received from sale of all offi ce

furniture, Sep. 30 1,000
Penny O' Neal, Capital $?
Cash 5,629
Merchandise Inventory, July 1 62,147 12
Offi ce Furniture 2,000
Accumulated Depreciation - Offi ce Equipment 3,690
Sales Discount 297
Salaries Expense 2,789
Accounts Receivable 3,720
Supplies 418
Purchases 2,486
Sales 19,986
Accumulated Depreciation - Offi ce Furniture 1,150
Rent Expense 2,250
Advertising Expense 940
Offi ce Equipment 8,200
Utilities Expense 2,018
Accounts Payable 1,260
Prepiad Insurance 450
Freight In 1,000
Freight Out 1,000

Data for Adjustments:

Merchandise Inventory, Sep. 30 USD 54,996
Supplies on hand, Sep. 30 196
Prepaid Insurance, Sep. 30 270
Annual Depreciation 10% of asset value
Allowance for bad debts 2.5% of
outstandingreceivable

Cash received from sale of all offi ce

furniture, Sep. 30 1,000
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14
STATEMENT OF
CASH FLOWS
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STATEMENT OF CASH FLOWS

- Provides information about the cash receipts and cash disbursements/payments of an entity
during a period.
- Shows the net increase or decrease in cash during the period and cash balance at the end of the
period.

Ways in which a business earns and spends its cash:

1. A business earns cash through: (INFLOWS)
• Sales of products or service
• Loan or credit card proceeds
• Asset sales
• Owner investments

2. A business spends cash through: (OUTFLOWS)

• Business expenditures
•Owner withdrawals
• Loan or credit card principal payments
•Asset purchases
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3 MAIN GROUP OF BUSINESS ACTIVITY

Cash INFLOWS Cash OUTFLOWS

• Payments to suppliers of goods and services

OPERATING • Receipts from sale of goods and
• Payments to employees
ACTIVITIES performance of services
• • Payments for taxes
Receipts from royalties, fees,
These are transactions that relate to how commissions and other revenues • Payments for interest expense
a business earns and disburses money on • Payments for other operating expenses
a day-to-day basis.

• Receipts from sale of property and • Payments to acquire property and

INVESTING equipment equipment
ACTIVITIES • Receipts from sale of investments and debt • Payments to acquire debt or equity
Include making loans, acquiring and disposing or equity securities securities
of investments in debt or equity securities, and • Receipts from collections on notes • Payments to make loans to others
buying and selling PPE and other productive receivable generally in the form of notes
assets. receivables

FINANCING • Receipts from investments by owners • Payments to owners in the form of

ACTIVITIES • Receipts from issuance of notes payable withdrawals
• Payments to settle notes payable
It include obtaining resources from
owners and creditors.
Write the cash flow activity of the following transactions and indicate their effect on each activity.
Write O of OPERATING, I if INVESTING, F if FINANCING and Non-Cash if it’s not cash flow
related.

Operating/Investing/Financing + inflow
- outflow

1. Payment of Bank Loan

2. Collection from Customers
3. Purchase of Supplies
4. Proceeds from Sale of truck
5. Payment of Worker’s salaries
6. Owner’s Drawings
7. Payment of Accounts’ payable
8. Estimated Doubtful Accounts
9. Payment of Tax
10. Purchase of Equipment
Write the cash flow activity of the following transactions and indicate their effect on each activity.
Write O of OPERATING, I if INVESTING, F if FINANCING.

Operating/Investing/Financing + inflow
- outflow

Payment of Bank Loan F -

Collection from Customers O +
Purchase of Supplies O -
Proceeds from Sale of truck I +
Payment of Worker’s salaries O -
Owner’s Drawings F -
Payment of Accounts’ payable O -
Estimated Doubtful Accounts Non-Cash No effect
Payment of Tax O -
Purchase of Equipment I -
STRUCTURE OF STATEMENT OF CASH FLOWS
4% p.a
Continuation:
1. Prepare the income statement for the year ended
December 31, 3017.
2. Prepare the statement of changes in equity for the
year ended December 31, 3017.
3. Prepare the balance sheet as of the December 31,
3017.