Reviewer Fabm2

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FABM 2 - Present obligations resulted from past

events and require you to give up


CHAPTER 1
resources when settling them
Types of Financial Statement c. Equity (galling sa sarili mo)
- Assets minus Liabilities
(Product of an accountant) - “capital” and ”net worth/assets”
1. Statement of Financial Position - Residual interest
- Also called “balance sheet” or Presentation of Statement of Financial Position
“statement of condition”
- Provides Current status or information a. Classified (current/non-current distinction)
on the entity’s assets, liabilities, and - Shows information on current and
equity noncurrent assets and liabilities
2. Statement of Profit or Loss and other b. Unclassified(based on liquidity*)
comprehensive income - Does not show distinction between
- Income statement current and noncurrent assets and
- Provides information on income and liabilities
expenses
*easily convertible to cash 😊
- INCOME – EXPENSES = NET
INCOME/ LOSS Current and Noncurrent Assets
3. Statement of Changes in equity
- Assets are classified as current when
- Provides information on the movements
they are expected to be realized within
in the components of equity during the
12 months from the end of the reporting
period
period or depending on the normal
- Beginning Capital + additional
operating cycle. All other assets are
investments = Total – Withdrawals
classified as noncurrent. “Realized”
=Balance +/- Net Income/ Loss = Ending
means converted into cash or claim for
Capital
cash.
4. Statement of Cash flows
- Provides information on how cash and
cash equivalents were generated and
used during the period
- Cash inflow (cash receipts) and outflow
(cash payments)
5. Notes
- provides narrative disclosures and other
information required by the standards
but were not presented in the other Note that:
financial statements Inventory is only for merchandising business
Elements of the Statement of Financial Position Prepaid Expense is also an asset
a. Assets (lahat ng pagmamay-ari mo) Current and Noncurrent Liabilities
- Resources you control (entitled to
possession) - Liabilities are classified as current when
- Resulted from past events they are expected to be settled within 12
- Provide you with future economic months from the end of the reporting
benefits period or depending on the normal
b. Liabilities (galling sa ibang tao) operating cycle. All other liabilities are
classified as noncurrent.
Line items
- Accounts are presented in the financial
statements using “line items.” A line
item is a caption used to describe a
group of accounts with similar nature.
- Examples of line items in the balance
Trade and Nontrade receivables sheet:
- Trade receivables are receivables arising a. Cash and cash equivalents
from the sale of goods or services in the b. Trade and other receivables
ordinary course of business. All other c. Inventory
receivables are nontrade. d. Property, plant and equipment
- Trade receivables are presented as Forms of balance sheet
current assets if they are collectible
within the normal operating cycle, even
if the normal operating cycle is longer
than 12 months.
- Nontrade receivables are presented as
current assets only if they are collectible
within 12 months from the end of
reporting period. Notes to add:
usual form of balance sheet is report form
Normal Operating Cycle
2 types of Cash: On hand and In Bank
- The normal operating cycle of an entity
is the time between the acquisition of Interim – short term period
assets for processing and their realization
in cash. Calendar – 1 year from Jan 1
- When the entity’s normal operating Fiscal – 1 year from any of the 12 months
cycle is not clearly identifiable, it is
assumed to be 12 months. CHAPTER 2

Trade and Nontrade payables Statement of Comprehensive Income

- Trade payables are obligations arising Income statement vs. Statement of


from purchases of inventory that are sold comprehensive income
in the ordinary course of business. All
other payables are nontrade.
- Trade payables are presented as current
liabilities if they are payable within the
normal operating cycle, even if the
normal operating cycle is longer than 12
months. Single-statement vs. Two-statement presentation
- Nontrade payables are presented as
current liabilities only if they are payable
within 12 months from the end of
reporting period.
Presentation of Expenses
a. Nature of expense method (single-step)

Elements of the Statement of Comprehensive


Income
b. Function of expense method (Cost of sales
• INCOME – are increases in economic method or Multi-Step)
benefits during the period in the form of
Major categories of expenses under the
inflows or enhancements of assets or
function of expense method
decreases of liabilities that result in
increases in equity, other than those relating a. Cost of sales (or Cost of goods sold)
to investments by the business owners.
Income includes both revenue and gains.   b. Distribution costs (or Selling expenses)

• EXPENSES – are decreases in economic c. Administrative expenses (or General and


benefits during the period in the form of administrative expenses)
outflows or depletions of assets or increases d. Other expenses
of liabilities that result in decreases in
equity, other than those relating to e. Interest expenses (or Finance cost)
distributions to the business owners. f. Income tax expense
Expenses include both expenses and losses.
• The difference between income and expense
represents profit or loss.
 If income is greater than expenses,
the difference is profit.
 If income is less than expenses, the
difference is loss.
CHAPTER 4
Statement of Cash flows
Presentation of Statement of Cash Flows
• Cash inflows and outflows are presented in
the statement of cash flows according to the
activities in which they have been generated
or utilized, as follows:
1. Operating activities (transactions
affecting Income and Expenses)
2. Investing activities (Owner’s
Capital)
Notes to add: 3. Financing activities (Long term asset
2 types of Transportation Expenses: Freight In and or PPE)
Out
Royalties- kita sa literary works
CHAPTER 3
Statement of Changes in Equity Examples of Operating activities
Transactions that cause changes in equity a. Cash receipts from the sale of goods and
the rendering of services.
b. Cash receipts from interest income.
c. Cash payments for purchases of inventory.
d. Cash payments for expenses.
Examples of Investing activities

Solo proprietorship a. Cash payments for the acquisition of


property, plant and equipment.
- 1 person
b. Cash receipts from sales of property, plant
Partnership and equipment.
- More than 2 Examples of Financing activities
Corporation a. Cash receipts from investments of owner
- Share capital to the business.

Cooperative b. Cash payments on drawings by owner.

- Nonprofit organization c. Cash receipts on loans.


d. Repayment of loans.
Reporting cash flows from Operating activities
• Cash flows from operating activities may be
presented using either:
a. Direct method

b. Indirect method

Guidelines: Indirect Method


ADDITIONAL IN CHAPTER 1 ADDITIONAL IN CHAPTER 2
Financial Statements SOCI shows the ff
- Accounting info is communicated 1. Profit or loss
through this 2. Other comprehensive income
- Purpose of accounting is to provide info 3. Comprehensive income
that is useful for making economic
Revenue
decisions
- Structured representation of an entity’s* - Arises in the course of ordinary activities
a. Financial position - Revenue earned by a service business is
- Resources that are controlled by entity called “service fees”
and how the resources are generated - Revenue earned by a merchandising
b. Results of its operation business is called “sales”
- How well the entity performed
Gains
*entity refers to reporting entity which is the one
whose financial statements are being prepared - May or may not arise in the course of the
ordinary activities of an entity
Information about financial position is provided by
SOFP Expenses

Information on results of operation is provided by - arise in the course of the ordinary


the other components of financial statements : activities of business

1. Info about financial performance is provided Loss


by the SOPLOCI - may or may not arise in the course of
2. Info about changes in financial position is ordinary activities of an entity
provided by the SOCE and SOCF
ADDITIONALS IN CHAPTER 3
Elements of Financial Statements
Sole proprietorship
1. Assets
2. Liabilities - Equity only has one entry (Mr. A’s
3. Equity Capital)
4. Income - Registered with DTI
5. Expenses Partnership
Obligating event - Formed by contractual agreement
a. A legal obligation - Registered with SEC
- Equity has many entries depending on
Legal obligation arises from the number of partners (Mr. A’s , Mr.
a. A contract B’s, Mr. Lance’s Capital)
b. Law Corporation
c. Other operation of law
b. Constructive obligation - Stockholders
- Arises from your past business practices - Formed by operation of law
or published policies - Registered With SEC
- Equity has entries like share capital,
retained earnings, other components of
equity
Cooperative
- Members
- Formed in accordance with the
cooperative code
- Registered with CDA
- Equity has entries like share capital,
donations and grants, statutory funds
GOODLAK MAH PRENDS DE PARIN KAYO
MAHAL NG CRUSH NIYO SAME LANG TAYO
HAHAHAHAHAHAHAHAHAHAHAHAHAHA

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