COMPETENCY

BASED
LEARNING
MATERIAL
 Sector HEALTH, SOCIAL, AND OTHER
COMMUNITY DEVELOPMENT SERVICES
SECTOR

Qualification Title
BOOKKEEPING NC III

PREPARE FINANCIAL REPORTS

Unit of Competency

Module Title PREPARING FINANCIAL REPORTS

School Logo Date Developed: Document No. NTTA-TM1-01

Month/year Issued by:
training period
BOOKKEEPING Page 2
NC III School Name
Developed by:
Trainee’s Name
Revision # 01
 HOW TO USE THIS COMPETENCY BASED LEARNING
MATERIAL

Welcome to the module in “Preparing Financial Reports”. This

module contains training materials and activities for you to
complete.

The unit of competency " Prepare Financial Reports" deals with the
skills, knowledge and attitude in preparing financial reports manually.

This module will lead you through different learning activities in order to
complete each learning outcome of the module. Each learning outcomes is
provided with Information Sheets (Reference Materials for further reading
to help you better understand the required activities). Follow these activities
and answer the self-check at the end of each learning outcome. You may
remove a blank answer sheet at the end of each module (or get one from
your facilitator/trainer) to write your answers for each self-check. If you
have questions, don’t hesitate to ask your facilitator for assistance.

Recognition of Prior Learning (RPL)

You may already have some or most of the knowledge and skills covered
in this learner's guide because you have:
 been working for some time
 already completed training in this area.

If you can demonstrate to your trainer that you are competent in a

particular skill or skills, talk to him/her about having them formally
recognized so you don't have to do the same training again. If you have a
qualification or Certificate of Competency from previous trainings, show it to
your trainer. If the skills you acquired are still current and relevant to the
unit/s of competency they may become part of the evidence you can present
for RPL. If you are not sure about the currency of your skills, discuss this
with your trainer.
At the end of this module is a Learner’s Diary. Use this diary to record
important dates, jobs undertaken and other workplace events that will
assist you in providing further details to your trainer or assessor. A Record
of Achievement is also provided for your trainer to complete once you
complete the module.

School Logo Date Developed: Document No. NTTA-TM1-01

Month/year Issued by:
training period
BOOKKEEPING Page 3
NC III School Name
Developed by:
Trainee’s Name
Revision # 01
 This module was prepared to help you achieve the required competency,
in Weld Carbon Steel Pipes Using SMAW. This will be the source of
information for you to acquire knowledge and skills in this particular trade
independently and at your own pace, with minimum supervision or help
from your instructor.

 Talk to your trainer and agree on how you will both organize the
Training of this unit. Read through the module carefully. It is divided
into sections, which cover all the skills, and knowledge you need to
successfully complete this module.

 Work through all the information and complete the activities in each
section. Read information sheets and complete the self-check.
Suggested references are included to supplement the materials
provided in this module.

 Use the self-check questions at the end of each section to test your
own progress.

 When you are ready, ask your trainer to watch you perform the
activities outlined in this module.

 As you work through the activities, ask for written feedback on your
progress. Your trainer keeps feedback/ pre-assessment reports for
this reason. When you have successfully completed each element, ask
your trainer to mark on the reports that you are ready for assessment.

 When you have completed this module (or several modules), and feel
confident that you have had sufficient practice, your trainer will
arrange an appointment with registered assessor to assess you. The
results of your assessment will be recorded in your competency
Achievement Record.

School Logo Date Developed: Document No. NTTA-TM1-01

Month/year Issued by:
training period
BOOKKEEPING Page 4
NC III School Name
Developed by:
Trainee’s Name
Revision # 01
 PARTS OF A COMPETENCY-BASED LEARNING MATERIAL

References/Further Reading

Performance Criteria Checklist

Operation/Task/Job Sheet

Self Check Answer Key

Self Check

Information Sheet

Learning Experiences

Learning Outcome Summary

Module
Module Content
Content

Module
List of Competencies
Content

Module Content

Module Content

Front Page
In our efforts to standardize CBLM,
the above parts are recommended for
use in Competency Based Training
(CBT) in Technical Education and
Skills Development Authority (TESDA)
Technology Institutions. The next
sections will show you the
components and features of each part.

School Logo Date Developed: Document No. NTTA-TM1-01

Month/year Issued by:
training period
BOOKKEEPING Page 5
NC III School Name
Developed by:
Trainee’s Name
Revision # 01
 Bookkeeping NC III
COMPETENCY-BASED LEARNING MATERIALS

List of Competencies
(Core competencies)

No. Unit of Competency Module Title Code

Journalize Journalizing HCS412301

1.
Transactions Transactions

HCS412302
2. Post Transactions Posting Transactions

HCS412303
3. Prepare Trial Balance Preparing Trial Balance

Prepare Financial Preparing Financial HCS412304

4.
Reports Reports

Review Internal Reviewing Internal HCS412305

5.
Control System Control System

School Logo Date Developed: Document No. NTTA-TM1-01

Month/year Issued by:
training period
BOOKKEEPING Page 6
NC III School Name
Developed by:
Trainee’s Name
Revision # 01
 MODULE CONTENT

UNIT OF COMPETENCY : PREPARE FINANCIAL REPORTS

MODULE TITLE : PREPARING FINANCIAL REPORTS

MODULE DESCRIPTOR : This module covers the knowledge, skills,

and attitudes in preparing financial
reports manually.

NOMINAL DURATION : 40 Hours

LEARNING OUTCOMES:
At the end of this module you MUST be able to:
1. Prepare financial statements
2. Analyze financial statements

ASSESSMENT CRITERIA:
1. Worksheet is prepared using the prescribed format
2. Income statement is prepared in accordance with generally accepted
accounting principles/Philippine Financial Reporting Standards
3. Statement of Changes in Equity is prepared in accordance with
generally accepted accounting principles/Philippine Financial
Reporting Standards
4. Balance Sheet is prepared in accordance with generally accepted
accounting principles/Philippine Financial Reporting Standards
5. Statement of Cash Flow is prepared in accordance with generally
accepted accounting principles/Philippine Financial Reporting
Standards
6. Financial statements are prepared in accordance with generally
accepted accounting principles/Philippine Financial Reporting
Standards
7. Financial Statements are analyzed in accordance with prescribed
format.
8. Report on financial analysis is prepared in accordance with industry
requirements.

School Logo Date Developed: Document No. NTTA-TM1-01

Month/year Issued by:
training period
BOOKKEEPING Page 7
NC III School Name
Developed by:
Trainee’s Name
Revision # 01
 LEARNING OUTCOME NO. 1
Prepare Financial Statements

Contents:

1. Accounting principles
2. Philippine Financial Reporting Standards
3. Preliminaries of Financial Statements
4. Income Statement
5. Statement of Changes in Equity
6. Balance Sheet
7. Statement of Cash Flow

Assessment Criteria

1. Worksheet is prepared using the prescribed format

2. Income statement is prepared in accordance with generally accepted
accounting principles/Philippine Financial Reporting Standards
3. Statement of Changes in Equity is prepared in accordance with
generally accepted accounting principles/Philippine Financial
Reporting Standards
4. Balance Sheet is prepared in accordance with generally accepted
accounting principles/Philippine Financial Reporting Standards
5. Statement of Cash Flow is prepared in accordance with generally
accepted accounting principles/Philippine Financial Reporting
Standards
6. Financial statements are prepared in accordance with generally
accepted accounting principles/Philippine

School Logo Date Developed: Document No. NTTA-TM1-01

Month/year Issued by:
training period
BOOKKEEPING Page 8
NC III School Name
Developed by:
Trainee’s Name
Revision # 01
 Conditions

The participants will have access to:

1. Workplace: real or simulated work area

2. Appropriate tools and equipment
3. Materials/supplies relevant to the activity

Assessment Method:

1. Written Examination
2. Demonstration
3. Observation
4. Oral Questioning

School Logo Date Developed: Document No. NTTA-TM1-01

Month/year Issued by:
training period
BOOKKEEPING Page 9
NC III School Name
Developed by:
Trainee’s Name
Revision # 01
 Learning Experiences
Learning Outcome 1
Prepare Financial Statements

Learning Activities Special Instructions

1. Read Information Sheet No. 4.1-1 An Institutional Competency
Accounting Principles Evaluation Tool is developed and
used by the trainers to evaluate the
2. Answer self-check No. 4.1-1
trainees after finishing a
Accounting Principles competency of the qualification.
3. Read Information Sheet No. 4.1-2
Philippine Financial Reporting
Perform the learning activities
Standards
outlined to gain the necessary
4. Answer self-check No. 4.1-2 knowledge and information in order
Philippine Financial Reporting to perform the requirements of the
Standards evaluation tool.

5. Read Information Sheet No. 4.1-3

on Preliminaries of Financial The output of this Learning
Statements Outcome is a complete Institutional
Competency Evaluation Package for
6. Answer self-check No. 4.1-3
one Competency of BOOKKEEPING
Preliminaries of Financial NC III. Your output will form part of
Statements your portfolio for your Institutional
7. Read Information Sheet No. 4.1-4 Competency Evaluation for
on Income Statement preparation PREPARING FINANCIAL REPORTS.
8. Answer self-check No. 4.1-4
Income Statement Preparation Feel free to show your outputs to
your trainer as you accomplish
9. Perform task sheet 4.1-4 them for guidance and evaluation.
Preparation of Income Statement
10. Read Information Sheet No. 4.1-
After doing all the activities for this
5 on Preparation of Statement of
LO1: PREPARE FINANCIAL
Changes in Equity
STATEMENTS; you are ready to
11.Answer self-check No. 4.1-5 proceed to the next learning
12.Perform task sheet 4.1-5 outcomes: LO2: ANALYZE
Preparation of Statement of FINANCIAL STATEMENTS.
Changes in Equity
13.Read Information Sheet No. 4.1-
6 on Balance Sheet Preparation

School Logo Date Developed: Document No. NTTA-TM1-01

Month/year Issued by:
training period
BOOKKEEPING Page 10
NC III School Name
Developed by:
Trainee’s Name
Revision # 01
 14.Answer self-check No. 4.1-6
15.Perform task sheet 4.1-6
Preparation of Balance Sheet
16.Read Information Sheet No. 4.1-
7 on preparation of Statement of
Cash Flow
17.Answer self-check No. 4.1-7
18.Perform task sheet 4.1-7
Statement of Cash Flow

School Logo Date Developed: Document No. NTTA-TM1-01

Month/year Issued by:
training period
BOOKKEEPING Page 11
NC III School Name
Developed by:
Trainee’s Name
Revision # 01
 Information Sheet 4.1-1
Accounting Principles

Learning Objectives:
After reading this INFORMATION SHEET, YOU MUST be able to:
1. Enumerate the principles of accounting
2. Differentiate each principle; and,
3. Apply the accounting principle in a business setting

Last time, we were able to learn that Accounting is considered the

language of business. For business entities to determine their financial
performance, accounting is needed. There are different forms of business
entities according to its organization and operations. A business can be
organized as a sole proprietorship, a partnership or corporation. A business
can be operated as a service, merchandising and manufacturing entity.
Sometimes we want to determine our performance compared to similar
companies, however, since there are a lot of ways and assumptions to
present financial reports, we need to have a generally accepted rule for
accounting.

• Business entity principle – a business enterprise is separate and

distinct from its owner or investor.
Examples:
 If the owner has a barber shop, the cash of the barber shop should be
reported separately from personal cash.
 The owner had a business meeting with a prospective client. The
expenses that come with that meeting should be part of the company’s
expenses. If the owner paid for gas for his personal use, it should not
be included as part of the company’s expenses.

School Logo Date Developed: Document No. NTTA-TM1-01

Month/year Issued by:
training period
BOOKKEEPING Page 12
NC III School Name
Developed by:
Trainee’s Name
Revision # 01
 • Going concern principle – business is expected to continue indefinitely.
Example:
 When preparing financial statements, you should assume that the
entity will continue indefinitely.

• Time period principle – financial statements are to be divided into

specific time intervals.
Example:
 Philippine companies are required to report financial statements
annually.
 The salary expenses from January to December 2015 should only be
reported in 2015.

• Monetary unit principle – amounts are stated into a single monetary

unit
Example:
 Jollibee should report financial statements in pesos even if they have
a store in the United States
 IHOP should report financial statements in dollars even if they have a
branch here in the Philippines

• Objectivity principle – financial statements must be presented with

supporting evidence.
Example:
 When the customer paid Jollibee for their order, Jollibee should have
a copy of the receipt to represent as evidence.
 When a company incurred a transportation expense, a voucher should
be prepared as evidence.

• Cost principle – accounts should be recorded initially at cost.

Example:
 When Jollibee buys a cash register, it should record the cash register
at its price when they bought it. o When a company purchases a
laptop, it should be recorded at the price it was purchased.

School Logo Date Developed: Document No. NTTA-TM1-01

Month/year Issued by:
training period
BOOKKEEPING Page 13
NC III School Name
Developed by:
Trainee’s Name
Revision # 01
 • Accrual Accounting Principle – revenue should be recognized when
earned regardless of collection and expenses should be recognized when
incurred regardless of payment. On the other hand, the cash basis
principle in which revenue is recorded when collected and expenses
should be recorded when paid. Cash basis is not the generally accepted
principle today.
Example:
 When a barber finish performing his services, he should record it as
revenue. When the barber shop receives an electricity bill, it should
record it as an expense even if it is unpaid.

• Matching principle – cost should be matched with the revenue

generated.
Example:
 When you provide tutorial services to a customer and there is a
transportation cost incurred related to the tutorial services, it should
be recorded as an expense for that period.

• Disclosure principle – all relevant and material information should be

reported.
Example:
 The company should report all relevant information.

• Conservatism principle – also known as prudence. In case of doubt,

assets and income should not be overstated while liabilities and expenses
should not be understated.
Example:
 In case of doubt, expenses should be recorded at a higher amount.
Revenue should be recorded at a lower amount.

• Materiality principle – in case of assets that are immaterial to make a

difference in the financial statements, the company should instead record
it as an expense.
Example:
 A school purchased an eraser with an estimated useful life of three
years. Since an eraser is immaterial relative to assets, it should be
recorded as an expense.

School Logo Date Developed: Document No. NTTA-TM1-01

Month/year Issued by:
training period
BOOKKEEPING Page 14
NC III School Name
Developed by:
Trainee’s Name
Revision # 01
 Self- Check 4.1-1
Accounting Principles

Multiple Choice. Write the letter of the correct answer.

1. The accounting guideline that requires financial statement information to
be supported by independent, unbiased evidence other than someone's
belief or opinion is the:
a. Business entity principle
b. Monetary unit principle
c. Going-concern principle
d. Objectivity principle

2. It states that revenue should be recognized when earned regardless of

collection and expenses should be recognized when incurred regardless
of payment
a. Objectivity principle
b. Accrual accounting principle
c. Going-concern principle
d. Revenue recognition principle

3. The rule that requires financial statements to reflect the assumption that
the business will continue operating instead of being closed or sold,
unless evidence shows that it will not continue, is the
a. Going-concern principle
b. Business entity principle
c. Objectivity principle
d. Cost Principle

4. To include the personal assets and transactions of a business's owner in

the records and reports of the business would conflict with the:
a. Objectivity principle
b. Business entity principle
c. Going-concern principle
d. Revenue recognition principle

5. SM Department Store should report financial statements in pesos even if

they have a store in Singapore
a. Objectivity principle
b. Cost Principle
c. Monetary unit principle
d. b. Going-concern

School Logo Date Developed: Document No. NTTA-TM1-01

Month/year Issued by:
training period
BOOKKEEPING Page 15
NC III School Name
Developed by:
Trainee’s Name
Revision # 01
 6. This principle means all relevant and material information should be
reported.
a. Disclosure principle
b. Going-concern principle
c. Continuing-concern principle
d. Objectivity principle

7. Which of the following accounting principles would require that all goods
and services purchased be recorded at cost?
a. Going-concern principle
b. Continuing-concern principle
c. Cost principle
d. Business entity principle

School Logo Date Developed: Document No. NTTA-TM1-01

Month/year Issued by:
training period
BOOKKEEPING Page 16
NC III School Name
Developed by:
Trainee’s Name
Revision # 01
 ANSWER KEY 4.1-1
Accounting Principles

1. D
2. B
3. A
4. B
5. C
6. A
7. C

School Logo Date Developed: Document No. NTTA-TM1-01

Month/year Issued by:
training period
BOOKKEEPING Page 17
NC III School Name
Developed by:
Trainee’s Name
Revision # 01
 Information Sheet 4.1-2
Philippine Financial Reporting Standards

Learning Objectives:
After reading this INFORMATION SHEET, YOU MUST be able to:

1. Understand the different concepts and pervasive principles

2. Learn the financial statement presentations
3. Apply the concepts and pervasive principles, and
4. Be able to present fairly the financial statements.

It is key to remember that in the Philippines, accounting rules and

standards are essential for accurate financial reporting and transparency.
This helps companies adhere to global best practices and boosts investor
trust.

PFRS is the basis for accounting principles in the country. These standards
are in line with IFRS, making them recognized internationally and easier to
compare financial statements across countries.

Furthermore, PFRS has specific requirements for recognition, measurement,

presentation, and disclosure for different financial transactions and events.
This includes revenue recognition, inventory valuation, asset impairment
evaluation, lease accounting, and other aspects of business.

The Financial Reporting Standards Council (FRSC) governs the accounting

rules and standards in the Philippines. These guidelines guarantee
transparency and consistency in financial reporting across all industries.

Section 1 - Scope of the Framework

This Framework is intended for use by small entities as defined by the

Philippine Securities and Exchange Commission.

Entities who have operations or investments that are based or conducted in

a different country shall not apply this Framework and should instead apply
the full Philippine Financial Reporting Standards (PFRSs) or Philippine
Financial Reporting Standard for Small and Medium-sized Entities (PFRS for
SMEs), as appropriate

Section 2 - Concepts and Pervasive Principles

School Logo Date Developed: Document No. NTTA-TM1-01

Month/year Issued by:
training period
BOOKKEEPING Page 18
NC III School Name
Developed by:
Trainee’s Name
Revision # 01
 Objective of financial statements of an entity applying this Framework
The objective of financial statements of an entity applying this Framework is
to provide information about the financial position, performance and cash
flows of the entity that is useful for economic decision-making by a broad
range of users who are not able to demand reports tailored to meet their
information needs.

Financial position
The financial position of an entity is the relationship of its assets, liabilities,
and equity as of a specific date. These are defined as follows:
a) an asset is a resource controlled by the entity as a result of past events
and from which future economic benefits are expected to flow to the
entity;
b) a liability is a present obligation of the entity arising from past events,
the settlement of which is expected to result in an outflow from the entity
of resources embodying economic benefits; and
c) equity is the residual interest in the assets of the entity after deducting
all its liabilities.

Performance
Performance is the relationship of the income and expenses of an entity
during a reporting period.

Income and expenses are defined as follows:

a) income is increases in economic benefits during the reporting period in
the form of inflows or enhancements of assets or decreases of liabilities
that result in increases in equity, other than those relating to
contributions from equity investors; and
b) expenses are decreases in economic benefits during the reporting
period in the form of outflows or depletions of assets or incurrences of
liabilities that result in decreases in equity, other than those relating to
distributions to equity investors.

Cash flows
Cash flow information shows how an entity generates and uses cash and
cash equivalents.

Entities need cash to conduct their operations, to pay their obligations, to

make investments in income-producing assets, and to provide returns to
their investors. Information about the performance of an entity shows the
income, expenses, and profit or loss of the entity on an accrual basis.
However, the actual inflows and outflows of cash from an entity’s operations
generally differ - often significantly - from its income and expenses on an
accrual basis.

School Logo Date Developed: Document No. NTTA-TM1-01

Month/year Issued by:
training period
BOOKKEEPING Page 19
NC III School Name
Developed by:
Trainee’s Name
Revision # 01
 Moreover, reporting performance on an accrual basis gives no insight into
the cash used by an entity in its investing activities or the cash generated by
the entity through its financing activities.

Cash flows are classified as cash flows from operating, investing, and
financing activities.
Classification by activity provides information on how those activities affect
the financial position of the entity (including its liquidity and solvency) and
the amount of its cash and cash equivalents.

Recognition of assets, liabilities, income, and expenses

An item shall be recognized (i.e., incorporated in the financial statements) if
it meets the definition of an asset, liability, income, or expense and satisfies
the following criteria:
a) it is probable (i.e., more likely than not) that any future economic
benefit associated with the item will flow to or from the entity; and
b) the item has a cost or value that can be measured reliably.

In many cases, the cost or value of an item is known. In other cases, it must
be estimated. The use of reasonable estimates is an essential part of the
preparation of financial statements and does not undermine their reliability.

Accrual basis
An entity shall prepare its financial statements, except for cash flow
information, using the accrual basis of accounting. On the accrual basis,
items are recognized as assets, liabilities, equity, income, or expenses when
they satisfy the definitions and recognition criteria for those items.

Fair value of an asset

Measurement requirements are generally set out in the individual sections
of this Framework. However, the following guidance on fair value
measurement is relevant to several sections and so has been included here.

Most of the requirements under this Framework require a cost-based

measurement. However, in a few circumstances, fair value measurement is
required or permitted under this Framework. The fair value of an asset is
the amount for which the asset could be exchanged between knowledgeable,
willing parties in an arm’s length transaction. An entity shall use the
following hierarchy to estimate the fair value of an asset:

a) the best evidence of fair value is a price in a binding sale agreement in

an arm’s length transaction or a quoted price for an identical asset in an
active market (the latter is usually the current bid price).
b) if there is no binding sale agreement or active market for an asset, the
price of a recent transaction for an identical asset provides evidence of
fair value as long as there has not been a significant change in economic
School Logo Date Developed: Document No. NTTA-TM1-01
Month/year Issued by:
training period
BOOKKEEPING Page 20
NC III School Name
Developed by:
Trainee’s Name
Revision # 01
 circumstances or a significant lapse of time since the transaction took
place. If the entity can demonstrate that the last transaction price is not
a good estimate of fair value (for example, because it reflects the amount
that an entity would receive or pay in a forced transaction, involuntary
liquidation, or distress sale), that price is adjusted.
c) if there is no binding sale agreement or active market for an asset and
recent transactions of an identical asset on their own are not a good
estimate of fair value, an entity estimates the fair value by using another
valuation technique. The objective of using a valuation technique is to
estimate what the transaction price would have been on the
measurement date in an arm’s length exchange motivated by normal
business considerations.

Valuation techniques include using recent arm’s length market transactions

for an identical asset between knowledgeable, willing parties, reference to
the current fair value of another asset that is substantially the same as the
asset being measured, and discounted cash flow analysis. If there is a
valuation technique commonly used by market participants to price the
asset and that technique has been demonstrated to provide reliable
estimates of prices obtained in actual market transactions, the entity uses
that technique.

The objective of using a valuation technique is to establish what the

transaction price would have been on the measurement date in an arm’s
length exchange motivated by normal business considerations. Fair value is
estimated based on the results of a valuation technique that makes
maximum use of market inputs, and relies as little as possible on entity-
determined inputs.

A valuation technique would be expected to arrive at a reliable estimate of

the fair value if:
a) it reasonably reflects how the market could be expected to price the
asset; and
b) the inputs to the valuation technique reasonably represent market
expectations and measures of the risk return factors inherent in the
asset

Offsetting
An entity shall not offset assets and liabilities, or income and expenses,
unless required or permitted by this Framework.
a) Measuring assets net of valuation allowances - for example, allowances
for inventory obsolescence and allowances for uncollectible receivables -
is not offsetting.
b) If an entity’s normal operating activities do not include buying and
selling non-current assets, including investments, and operating assets,
School Logo Date Developed: Document No. NTTA-TM1-01
Month/year Issued by:
training period
BOOKKEEPING Page 21
NC III School Name
Developed by:
Trainee’s Name
Revision # 01
 then the entity reports gains and losses on disposal of such assets by
deducting from the proceeds on disposal the carrying amount of the asset
and related selling expenses.

Section 3 - Financial Statement Presentation

Fair presentation
Financial statements shall present fairly the financial position, financial
performance, and cash flows of an entity.

Compliance with this Framework

An entity that meets the requirements of this Framework and whose
financial statements comply with this Framework, shall make an explicit
and unreserved statement of compliance with this Framework in the notes
to the financial statements.

Going concern
The principles of financial reporting in this Framework are intended for an
entity that is a going concern. An entity is a going concern unless
management either intends to liquidate the entity or to cease operations, or
has no realistic alternative but to do so. In assessing whether the going
concern assumption is appropriate, management considers all available
information about the future, which is at least, but is not limited to, twelve
months from the reporting date.

Frequency of reporting
An entity shall present a complete set of financial statements (including
comparative information) at least annually. When the end of an entity’s
reporting period changes and the annual financial statements are presented
for a period longer or shorter than one year, the entity shall disclose the
following:
a) that fact;
b) the reason for using a longer or shorter period; and
c) the fact that comparative amounts presented in the financial
statements (including the related notes) are not entirely comparable.

Consistency of presentation
An entity shall retain the presentation and classification of items in the
financial statements from one period to the next unless it is apparent,
following a significant change in the nature of the entity’s operations or a
review of its financial statements, that another presentation or classification
would be more appropriate. If the entity changes the presentation or
classification of an item in the financial statements this is a voluntary
change in accounting policy (see Section 5 -Accounting Policies, Estimates
and Errors).

School Logo Date Developed: Document No. NTTA-TM1-01

Month/year Issued by:
training period
BOOKKEEPING Page 22
NC III School Name
Developed by:
Trainee’s Name
Revision # 01
 Comparative information
Except when this Framework permits or requires otherwise, an entity shall
disclose comparative information in respect of the previous comparable
period for all amounts presented in the current period’s financial
statements. An entity shall include comparative information for narrative
and descriptive information when it is relevant to an understanding of the
current period’s financial statements.

Materiality and aggregation

Information is material if its omission or misstatement could, individually or
collectively, influence the economic decisions of users made based on the
financial statements. Materiality depends on the size and nature of the item
or error judged in the circumstances of its omission or misstatement. The
size or nature of the item, or a combination of both, could be the
determining factor. However, it is inappropriate to make, or leave
uncorrected, immaterial departures to achieve a particular presentation of
an entity’s financial position, financial performance, or cash flows.

An entity shall present separately each material class of similar items. An

entity shall present separately items of a dissimilar nature or function
unless they are immaterial.

Complete set of financial statements

A complete set of financial statements of an entity shall include all the
following:

a) a statement of financial position (sometimes called the balance sheet),

showing the entity’s assets, liabilities, and equity as at the reporting date.
b) a statement of income for the reporting period, displaying all items of
income and expense recognized during the period and a ‘bottom line’ that
may be called ‘profit or loss’ or ‘net income or loss’.
c) a statement of changes in equity for the reporting period. The
statement of changes in equity presents a reconciliation between the
carrying amount at the beginning and end of the period for each
component of equity. However, if the only changes to equity in the
current period or any comparative period presented in the financial
statements arise from profit or loss, payment of dividends, corrections of
prior period errors, and changes in accounting policy, the entity may
present a single statement of income and retained earnings in place of
the statement of income and statement of changes in equity.
d) a statement of cash flows for the reporting period. The statement of
cash flows provides information about the changes in cash and cash
equivalents of an entity for a reporting period, showing separately,
changes from operating activities, investing activities and financing
activities.

School Logo Date Developed: Document No. NTTA-TM1-01

Month/year Issued by:
training period
BOOKKEEPING Page 23
NC III School Name
Developed by:
Trainee’s Name
Revision # 01
 e) notes, comprising a summary of significant accounting policies and
other explanatory information. Notes contain information in addition to
that presented in the statements in (a)-(d) above. Notes provide narrative
descriptions or disaggregation of items presented in those statements
and information about items that do not qualify for recognition in those
statements.

An entity may use titles for the financial statements other than those used
in this Framework as long as they are not misleading.

Identification of the financial statements

``An entity shall clearly identify each of the financial statements and the
notes and distinguish them from other information in the same document.
In addition, an entity shall display the following information prominently,
and repeat it when necessary for an understanding of the information
presented:
a) the name of the reporting entity and any change in its name since the
end of the preceding reporting period;
b) the fact that the financial statements cover an individual entity or a
group of entities;
c) the date of the end of the reporting period and the period covered by
the financial statements;
d) the currency in which the financial statements are presented; and
e) the level of rounding, if any, used in presenting amounts in the
financial statements.

An entity shall disclose the following in the notes:

a) the domicile and legal form of the entity, its country of incorporation
and the address of its registered office (or principal place of business, if
different from the registered office); and
b) a description of the nature of the entity’s operations and its principal
activities.

Statement of financial position and accompanying notes

Current/non-current distinction
An entity shall present current and non-current assets, and current and
non-current liabilities, as separate classifications in its statement of
financial position.

An entity shall classify an asset as current when:

a) it expects to realize the asset, or intends to sell or consume it, in the
entity’s normal operating cycle;
b) it holds the asset primarily for the purpose of trading;
c) it expects to realize the asset within twelve months after the reporting
date; or

School Logo Date Developed: Document No. NTTA-TM1-01

Month/year Issued by:
training period
BOOKKEEPING Page 24
NC III School Name
Developed by:
Trainee’s Name
Revision # 01
 d) the asset is cash or a cash equivalent, unless it is restricted from being
exchanged or used to settle a liability for at least twelve months after the
reporting date.

An entity shall classify all other assets as non-current. When the entity’s
normal operating cycle is not clearly identifiable, its duration is assumed to
be twelve months.

An entity shall classify a liability as current when:

a) it expects to settle the liability in the entity’s normal operating cycle;
b) it holds the liability primarily for the purpose of trading;
c) the liability is due to be settled within twelve months after the
reporting date; or
d) the entity does not have an unconditional right to defer settlement of
the liability for at least twelve months after the reporting date.

An entity shall classify all other liabilities as non-current.

Sequencing of items and format of items in the statement of financial

position
The Framework does not prescribe the sequence or format in which items
are to be presented. In addition:
a) line items are included when the size, nature or function of an item or
aggregation of similar items is such that separate presentation is relevant
to an understanding of the entity’s financial position; and
b) the descriptions used and the sequencing of items or aggregation of
similar items may be amended according to the nature of the entity and
its transactions, to provide information that is relevant to an
understanding of the entity’s financial position.

Information to be presented either in the statement of financial

position or in the notes

An entity shall disclose, either in the statement of financial position or in the

notes, the following sub-classifications of the line items, as applicable:
a) property, plant, and equipment in classifications appropriate to the
entity;
b) trade and other receivables showing separately amounts due from
related parties, amounts due from other parties, and receivables arising
from accrued income not yet billed;
c) inventories, showing separately amounts of inventories:
i) held for sale in the ordinary course of business (for example,
inventories held by retailers and the finished goods of a
manufacturer);

School Logo Date Developed: Document No. NTTA-TM1-01

Month/year Issued by:
training period
BOOKKEEPING Page 25
NC III School Name
Developed by:
Trainee’s Name
Revision # 01
 ii) in the process of production for such sale (for example, the work in
progress of a manufacturer); and
iii) in the form of materials or supplies to be consumed in the
production process or in the rendering of services (for example, raw
materials).
d) trade and other payables, showing separately amounts payable to
trade suppliers, payable to related parties, deferred income and accruals;
e) provisions for employee benefits and other provisions;
f) liabilities and assets for current tax;
g) deferred tax liabilities and deferred tax assets (as applicable); and
h) classes of equity, such as paid-in capital, share premium, and retained
earnings.

An entity with share capital shall disclose the following, either in the
statement of financial position or in the notes:
a) for each class of share capital:
i) the number of shares authorized;
ii) the number of shares issued and fully paid, and issued but not
fully paid;
iii) par value per share, or that the shares have no par value;
iv) a reconciliation of the number of shares outstanding at the
beginning and at the end of the period;
v) the rights, preferences and restrictions attaching to that class
including restrictions on the distribution of dividends and the
repayment of capital; and
vi) shares reserved for issue under options and contracts for the sale
of shares, including the terms and amounts; and
b) a description of each reserve within equity.

An entity without share capital, such as a partnership or trust, shall

disclose information equivalent to that required by paragraph 36(a), showing
changes during the period in each category of equity, and the rights,
preferences and restrictions attaching to each category of equity.

If, at the reporting date, an entity has a binding sale agreement for a major
disposal of assets, or a group of assets and liabilities, the entity shall
disclose the following information:
a) a description of the asset(s) or the group of assets and liabilities;
b) a description of the facts and circumstances of the sale or plan; and
c) the carrying amount of the assets or, if the disposal involves a group of
assets and liabilities, the carrying amounts of those assets and liabilities.

Statement of income and accompanying notes

An entity shall not present or describe any items of income and expense as
‘extraordinary items’ in the statement of income or in the notes.

School Logo Date Developed: Document No. NTTA-TM1-01

Month/year Issued by:
training period
BOOKKEEPING Page 26
NC III School Name
Developed by:
Trainee’s Name
Revision # 01
 Analysis of expenses
An entity shall present an analysis of expenses using a classification based
on either the nature of expenses or the function of expenses within the
entity, whichever provides information that is reliable and more relevant.

Analysis by nature of expense

a) Under this method of classification, expenses are aggregated in the
statement of income according to their nature (for example, depreciation,
purchases of materials, transport costs, employee benefits and
advertising costs), and are not reallocated among various functions
within the entity.
Analysis by function of expense
b) Under this method of classification, expenses are aggregated according
to their function as part of cost of sales or, for example, the costs of
distribution or administrative activities. At a minimum, an entity
discloses its cost of sales under this method separately from other
expenses.

Statement of cash flows and accompanying notes

Cash and cash equivalents
Cash includes cash on hand and demand deposits. Cash equivalents are
short-term, highly liquid investments held to meet short-term cash
commitments rather than for investment or other purposes. Therefore, an
investment normally qualifies as a cash equivalent only when it has a short
maturity of, say, three months or less from the date of acquisition. Bank
overdrafts are normally considered financing activities similar to borrowings.
However, if they are repayable on demand and form an integral part of an
entity’s cash management, bank overdrafts are a component of cash and
cash equivalents.

Operating activities
Operating activities are the principal revenue-producing activities of the
entity. Therefore, cash flows from operating activities generally result from
the transactions and other events and conditions that enter into the
determination of profit or loss. Examples of cash flows from operating
activities are:
a) cash receipts from the sale of goods and the rendering of services;
b) cash payments to suppliers for goods and services;
c) cash payments to and on behalf of employees; and
d) cash payments or refunds of income tax, unless they can be
specifically identified with financing and investing activities.
Some transactions, such as the sale of an item of plant by a manufacturing
entity, may give rise to a gain or loss that is included in profit or loss.
However, the cash flows relating to such transactions are cash flows from
investing activities.

School Logo Date Developed: Document No. NTTA-TM1-01

Month/year Issued by:
training period
BOOKKEEPING Page 27
NC III School Name
Developed by:
Trainee’s Name
Revision # 01
 An entity shall present cash flows from operating activities using either:
a) the indirect method, whereby profit or loss is adjusted for the effects of
non-cash transactions, any deferrals, or accruals of past or future
operating cash receipts or payments, and items of income or expense
associated with investing or financing cash flows; or
b) the direct method, whereby major classes of gross cash receipts and
gross cash payments are disclosed.

Indirect method
Under the indirect method, the net cash flow from operating activities is
determined by adjusting profit or loss for the effects of:
a) changes during the period in inventories and operating receivables and
payables;
b) non-cash items such as depreciation, provisions, accrued income
(expenses) not yet received (paid) in cash, unrealized foreign currency
gains and losses; and
c) all other items for which the cash effects relate to investing or
financing.

Direct method
Under the direct method, net cash flow from operating activities is presented
by disclosing information about major classes of gross cash receipts and
gross cash payments. Such information may be obtained either:
a) from the accounting records of the entity; or
b) by adjusting sales, cost of sales and other items in the statement of
income for:
i) changes during the period in inventories and operating receivables
and payables;
ii) other non-cash items; and
iii) other items for which the cash effects are investing or financing
cash flows.

Investing activities
Investing activities are the acquisition and disposal of long-term assets
and other investments not included in cash equivalents. Examples of cash
flows arising from investing activities are:
a) cash payments to acquire property, plant, and equipment (including
self-constructed property, plant, and equipment);
b) cash receipts from sales of property, plant, and equipment;
c) cash advances and loans made to other parties; and
d) cash receipts from the repayment of advances and loans made to other
parties.

School Logo Date Developed: Document No. NTTA-TM1-01

Month/year Issued by:
training period
BOOKKEEPING Page 28
NC III School Name
Developed by:
Trainee’s Name
Revision # 01
 Financing activities
Financing activities are activities that result in changes in the size and
composition of the contributed equity and borrowings of an entity. Examples
of cash flows arising from financing activities are:
a) cash proceeds from owner contributions, issuing shares or other
equity instruments;
b) cash payments to owners to acquire or redeem the entity’s shares;
c) cash proceeds from loans payable and other borrowings; and
d) cash repayments of amounts borrowed.

Reporting cash flows from investing and financing activities

An entity shall present separately major classes of gross cash receipts and
gross cash payments arising from investing and financing activities.

Interest and dividends

An entity shall present separately cash flows from interest and dividends
received and paid. The entity shall classify cash flows consistently from
period to period as operating, investing, or financing activities.

An entity may classify interest paid and interest and dividends received as
operating cash flows because they are included in profit or loss.
Alternatively, the entity may classify interest paid and interest and dividends
received as financing cash flows and investing cash flows, respectively,
because they are costs of obtaining financial resources or returns on
investments.

An entity may classify dividends paid as a financing cash flow because they
are a cost of obtaining financial resources. Alternatively, the entity may
classify dividends paid as a component of cash flows from operating
activities because they are paid out of operating cash flows.

Income tax
An entity shall present separately cash flows arising from income tax and
shall classify them as cash flows from operating activities unless they can be
specifically identified with financing and investing activities. When tax cash
flows are allocated over more than one class of activity, the entity shall
disclose the total amount of taxes paid.

Non-cash transactions
An entity shall exclude from the statement of cash flows investing and
financing transactions that do not require the use of cash or cash
equivalents. An entity shall disclose such transactions elsewhere in the
financial statements in a way that provides all the relevant information
about those investing and financing activities. Examples of non-cash
transactions is the contribution of a non-cash asset, for example, an item of
property, plant, and equipment, by the owner.
School Logo Date Developed: Document No. NTTA-TM1-01
Month/year Issued by:
training period
BOOKKEEPING Page 29
NC III School Name
Developed by:
Trainee’s Name
Revision # 01
 Components of cash and cash equivalents
An entity shall present the components of cash and cash equivalents and
shall present a reconciliation of the amounts presented in the statement of
cash flows to the equivalent items presented in the statement of financial
position. However, an entity is not required to present this reconciliation if
the amount of cash and cash equivalents presented in the statement of cash
flows is identical to the amount similarly described in the statement of
financial position.

Other disclosures
An entity shall disclose, together with a commentary by management, the
amount of significant cash and cash equivalent balances held by the entity
that are not available for use by the entity.

For example, cash and cash equivalents held by an entity may not be
available for use by the entity because of legal restrictions.

Notes to the financial statements

The notes shall:
a) present information about the basis of preparation of the financial
statements and the specific accounting policies used.
b) disclose the information required by this Framework that is not
presented elsewhere in the financial statements; and
c) provide information that is not presented elsewhere in the financial
statements but is relevant to an understanding of any of them.

Additional disclosures may be necessary in the notes if management feels

that compliance with the specific requirements in this Framework is
insufficient to enable users to understand the effect of transactions, other
events and conditions on the entity’s financial position and financial
performance.

An entity shall, as far as practicable, present the notes in a systematic

manner. An entity shall cross-reference each item in the financial
statements to any related information in the notes.

An entity normally presents the notes in the following order:

a) a statement that the financial statements have been prepared in
compliance with this Framework;
b) a summary of significant accounting policies applied;
c) supporting information for items presented in the financial statements,
in the sequence in which each statement and each line item is presented;
and
d) any other disclosures.

School Logo Date Developed: Document No. NTTA-TM1-01

Month/year Issued by:
training period
BOOKKEEPING Page 30
NC III School Name
Developed by:
Trainee’s Name
Revision # 01
 Disclosure of accounting policies
An entity shall disclose the following in the summary of significant
accounting policies:
a) the measurement basis (or bases) used in preparing the financial
statements (for example, historical cost, fair value, etc.); and
b) the other accounting policies used that are relevant to an
understanding of the financial statements.

School Logo Date Developed: Document No. NTTA-TM1-01

Month/year Issued by:
training period
BOOKKEEPING Page 31
NC III School Name
Developed by:
Trainee’s Name
Revision # 01
 Self- Check 4.1-2
Philippine Financial Reporting Standards

TRUE OR FALSE
Write TRUE if the statement is correct, and FALSE if the statement is
incorrect.
1. An entity shall prepare its financial statements, except for cash flow
information, using the accrual basis of accounting.

2. A complete set of financial statements of an entity shall include any

two of the following: Income Statement, Statement of Changes in
Equity, Balance Sheet, Statement of Cash Flows and Notes to the
Financial Statements.

3. An asset is classified as current if it expects to realize the asset, or

intends to sell or consume it, in the entity’s normal operating cycle or
if it expects to realize the asset within twelve months after the
reporting date.

4. A liability is classified as non-current if the liability is due to be

settled within twelve months after the reporting date.

5. Performance is the relationship of the income and expenses of an

entity during a reporting period.

6. The financial position of an entity is the relationship of its assets,

liabilities, and equity as of a specific date.

7. An entity shall retain the presentation and classification of items in

the financial statements from one period to the next.

8. Income is increases in economic benefits during the reporting period

in the form of inflows or enhancements of assets or decreases of
liabilities that result in increases in equity, other than those relating
to contributions from equity investors.

9. The measurement basis used in preparing the financial statements

must be disclosed in the summary of significant accounting policies.

10. An entity shall present a complete set of financial statements at least

annually.

School Logo Date Developed: Document No. NTTA-TM1-01

Month/year Issued by:
training period
BOOKKEEPING Page 32
NC III School Name
Developed by:
Trainee’s Name
Revision # 01
 ANSWER KEY 4.1-2

Philippine Financial Reporting Standards

1. TRUE

2. FALSE

3. TRUE

4. FALSE

5. TRUE

6. TRUE

7. TRUE

8. TRUE

9. TRUE

10. TRUE

School Logo Date Developed: Document No. NTTA-TM1-01

Month/year Issued by:
training period
BOOKKEEPING Page 33
NC III School Name
Developed by:
Trainee’s Name
Revision # 01
 Information Sheet 4.1-3
Preliminaries of Financial Statements

Learning Objectives:
After reading this INFORMATION SHEET, YOU MUST be able to:

1. Understand the different concepts and pervasive principles

2. Learn the financial statement presentations
3. Apply the concepts and pervasive principles, and
4. Be able to present fairly the financial statements.

Financial statements (or financial reports) are formal records of the financial
activities and position of a business, person, or other entity.

Relevant financial information is presented in a structured manner and in a

form which is easy to understand. They typically include four basic financial
statements accompanied by a management discussion and analysis:

A balance sheet or statement of financial position, reports on a

company's assets, liabilities, and owners’ equity at a given point in time.

An income statement—or profit and loss report (P&L report), or

statement of comprehensive income, or statement of revenue &
expense—reports on a company's income, expenses, and profits over a
stated period. A profit and loss statement provides information on the
operation of the enterprise. These include sales and the various expenses
incurred during the stated period.

A statement of changes in equity or statement of equity, or statement

of retained earnings, reports on the changes in equity of the company over
a stated period.

A cash flow statement reports on a company's cash flow activities,

particularly its operating, investing, and financing activities over a stated
period.

Notably, a balance sheet represents a single point in time, whereas the

income statement, the statement of changes in equity, and the cash flow
statement each represent activities over a stated period.

For large corporations, these statements may be complex and may include
an extensive set of footnotes to the financial statements and management
School Logo Date Developed: Document No. NTTA-TM1-01
Month/year Issued by:
training period
BOOKKEEPING Page 34
NC III School Name
Developed by:
Trainee’s Name
Revision # 01
 discussion and analysis. The notes typically describe each item on the
balance sheet, income statement and cash flow statement in further detail.
Notes to financial statements are considered an integral part of the financial
statements.

Purpose for financial statements

"The objective of financial statements is to provide information about the
financial position, performance and changes in financial position of an
enterprise that is useful to a wide range of users in making economic
decisions." Financial statements should be understandable, relevant,
reliable, and comparable. Reported assets, liabilities, equity, income, and
expenses are directly related to an organization's financial position.

Financial statements are intended to be understandable by readers who

have "a reasonable knowledge of business and economic activities and
accounting and who are willing to study the information diligently."

Financial statements may be used by users for different purposes:

Owners and managers require financial statements to make important
business decisions that affect its continued operations. Financial
analysis is then performed on these statements to provide management
with a more detailed understanding of the figures. These statements are
also used as part of management's annual report to the stockholders.

Employees also need these reports in making collective bargaining

agreements (CBA) with the management, in the case of labor unions or
for individuals in discussing their compensation, promotion and
rankings.

Prospective investors make use of financial statements to assess the

viability of investing in a business. Financial analyses are often used by
investors and are prepared by professionals (financial analysts), thus
providing them with the basis for making investment decisions.

Financial institutions (banks and other lending companies) use them to

decide whether to grant a company with fresh working capital or extend
debt securities (such as a long-term bank loan or debentures) to finance
expansion and other significant expenditures.

Stockholders may from time-to-time request insight into how share

capital is managed, which may be made available via financial
statements (or stock statements), as it lies in the financial interest of
shareowners in affirming that capital stock is handled viably and
mindfully with duly care.

School Logo Date Developed: Document No. NTTA-TM1-01

Month/year Issued by:
training period
BOOKKEEPING Page 35
NC III School Name
Developed by:
Trainee’s Name
Revision # 01
 Consolidated financial statement

Consolidated financial statements are defined as "Financial statements of a

group in which the assets, liabilities, equity, income, expenses and cash
flows of the parent (company) and its subsidiaries are presented as those of
a single economic entity", according to International Accounting Standard
27 "Consolidated and separate financial statements", and International
Financial Reporting Standard 10 "Consolidated financial statements".

Notes
Additional information added to the end of financial statements that help
explain specific items in the statements as well as provide a more
comprehensive assessment of a company's financial condition are known as
notes (or "notes to financial statements").

Notes to financial statements can include information on debt, accounts,

contingent liabilities, on going concern criteria, or on contextual information
explaining the financial numbers (e.g., to indicate a lawsuit). The notes
clarify individual statement line-items. Notes are also used to explain the
accounting methods used to prepare the statements and they support
valuations for how particular accounts have been computed. As an example:
If a company lists a loss on a fixed asset impairment line in their income
statement, the notes may state the reason for the impairment by describing
how the asset became impaired.

In consolidated financial statements, all subsidiaries are listed as well as the

amount of ownership (controlling interest) that the parent company has in
the subsidiaries.

Any items within the financial statements that are valuated by estimation
are part of the notes if a substantial difference exists between the amount of
the estimate previously reported and the actual result. Full disclosure of the
effects of the differences between the estimate and actual results should be
included.

Advantages of Financial Statements

Financial Statements are useful for the following reasons:

 To determine the ability of a business to generate cash, and the

sources and uses of that cash.
 To determine whether a business has the capability to pay back its
debts.
 To track financial results on a trend line to spot any looming
profitability issues.
 To derive financial ratios from the statements that can indicate the
condition of the business.
School Logo Date Developed: Document No. NTTA-TM1-01
Month/year Issued by:
training period
BOOKKEEPING Page 36
NC III School Name
Developed by:
Trainee’s Name
Revision # 01
  To investigate the details of certain business transactions, as
outlined in the disclosures that accompany the statements.
 To use as the basis for an annual report, which is distributed to a
company’s investors and the investment community.

Disadvantages of Financial Statements

There are few downsides to issuing financial statements.
 A possible concern is that they can be fraudulently manipulated,
leading investors to believe that the issuing entity has produced
better results than was really the case. Such manipulation can also
lead a lender to issue debt to a business that cannot realistically
repay it.
 Another concern is that financial statements are entirely historical
in nature, and so can be misleading when used to project the
future results of a business. For example, a business that relies on
government contracts might report robust results for its most
recent period, and yet have no additional sales on tap, since it just
completed all of the contracts that it had been awarded.

School Logo Date Developed: Document No. NTTA-TM1-01

Month/year Issued by:
training period
BOOKKEEPING Page 37
NC III School Name
Developed by:
Trainee’s Name
Revision # 01
 Self- Check 4.1-3
Preliminaries of Financial Statements

IDENTIFICATION
1. The statement that reports on the changes in equity of the company
over a stated period.

2. They are the formal records of the financial activities and position of a
business, person, or entity.

3. The statement that reports on a company's cash flow activities,

particularly its operating, investing, and financing activities over a
stated period.

4. The statement that reports on a company's assets, liabilities, and

owners’ equity at a given point in time.

5. It reports the company's income, expenses, and profits over a stated

period. It provides information on the operation of the enterprise.

6. Financial statements may be used by users for different purposes.

Name 5 users of information from financial Statements

School Logo Date Developed: Document No. NTTA-TM1-01

Month/year Issued by:
training period
BOOKKEEPING Page 38
NC III School Name
Developed by:
Trainee’s Name
Revision # 01
 ANSWER KEY 4.1-3

Preliminaries of Financial Statements

1. Statement of Changes in Equity

2. Financial Statements
3. Statement of Cash Flows
4. Balance Sheet
5. Income Statement
6. a. Owners
b. Employees
c. Investors
d. Financial Institutions
e. Stockholders

School Logo Date Developed: Document No. NTTA-TM1-01

Month/year Issued by:
training period
BOOKKEEPING Page 39
NC III School Name
Developed by:
Trainee’s Name
Revision # 01
 Information Sheet 4.1-4
Income Statement /
Statement of Comprehensive Income(SCI)

Learning Objectives:

After reading this INFORMATION SHEET, YOU MUST be able to:

1. Identify the elements of the Income Statement/SCI and describe each

of these items for a service business.
2. Prepare an Income Statement/SCI for a service business using the
single-step approach

STATEMENT OF COMPREHENSIVE INCOME – Also known as the income

statement. Contains the results of the company’s operations for a specific
period 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.

TEMPORARY ACCOUNTS – Also known as nominal accounts are the

accounts found under the SCI. They are called such because at the end of
the accounting period, 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. Examples of
temporary accounts include revenues, sales, utilities expense, supplies
expense, salaries expense, depreciation expense, interest expense among
others.

The single-step and multi-step format of the Income Statement

Single-step – Called single-step because all revenues are listed down in one
section while all expenses are listed in another. Net income is computed
using a “single-step” which is Total Revenues minus Total Expenses.

Multi-step – Called multi-step because there are several steps needed in

order to arrive at the company’s net income.

a. The two steps are only formats and will yield the same amount of net
income/loss

School Logo Date Developed: Document No. NTTA-TM1-01

Month/year Issued by:
training period
BOOKKEEPING Page 40
NC III School Name
Developed by:
Trainee’s Name
Revision # 01
 b. Single-step Income Statement is more commonly used by service
companies while multi-step format is more commonly used by
merchandising companies

Using the worksheet derived from the previous lessons, Income

Statement is prepared as shown below:

Difference of the Income Statement of a Service Company and of a

Merchandising Company

The main difference of the Statements of the two types of business lies on
how they generate their revenue.
A service company provides services in order to generate revenue and the
main cost associated with their service is the cost of labor which is
presented under the account Salaries Expense.

School Logo Date Developed: Document No. NTTA-TM1-01

Month/year Issued by:
training period
BOOKKEEPING Page 41
NC III School Name
Developed by:
Trainee’s Name
Revision # 01
 On the other hand, a merchandising company sells goods to customers and
the main cost associated with the activity is the cost of the merchandise
which is presented under the line-item Cost of Goods Sold.

In presenting these items on the Income Statement, a service company will

separate all revenues and expenses (as seen in the single-step format) while
a merchandising company will present total sales and cost of goods sold on
the first part of the statement which will net to the company’s gross profit
before presenting the other expenses which are classified as either
administrative expenses or selling expenses (as seen in the multi-step
format).

School Logo Date Developed: Document No. NTTA-TM1-01

Month/year Issued by:
training period
BOOKKEEPING Page 42
NC III School Name
Developed by:
Trainee’s Name
Revision # 01
 Self- Check 4.1-4
Income Statement

Computation: Compute what is asked for:

1. Kape at Iba pa generated revenues amounting to Php 120,000. Expenses
for the year totaled Php 78,000. How much is the company’s net income
for the year?

2. Kape at Iba pa’s salaries to sales agents amounted to Php 20,000.

Salaries of accountants amounted to Php 25,000. No other expenses
were incurred. How much is the company’s general and administrative
expense?

3. At the end of the first month of operations for KJB’s Service Company,
the business had the following accounts: Cash, Php20,000; Prepaid Rent,
Php2,000; Equipment, Php30,000 and Accounts Payable Php5,000. By
the end of the month, KJB had earned Php 20,000 of Revenues,
Php2,500 of Utilities Expenses and Php4,000 of Salaries Expenses.
Calculate the net income to be reported by the company for this first
month.

4. For the month of June, Sarina’s Playskool had the following transactions
involving revenue and expenses. Did the firm earn a net income or incur
a net loss for the period? How much?
Paid rent Php 10,000
Provided services for cash Php 25,000
Paid telephone services Php 1,200
Provided services on credit Php 10,000
Paid salaries of employees Php 7,500
Paid for office cleaning services Php 500

5. Prepare a single-step Statement of Comprehensive Income using the

following:

Revenues Php 22,000

Rent Expense Php 4,000
Salaries Expense Php 5,000
Utilities Expense Php 1,000

You can use any business name and the end of the current year for the
heading

School Logo Date Developed: Document No. NTTA-TM1-01

Month/year Issued by:
training period
BOOKKEEPING Page 43
NC III School Name
Developed by:
Trainee’s Name
Revision # 01
 ANSWER KEY 4.1-4

Income Statement

1. Php 42,000

2. Php 25,000

3. Php 13,500

4. Net Income Php 15,800

5.

School Logo Date Developed: Document No. NTTA-TM1-01

Month/year Issued by:
training period
BOOKKEEPING Page 44
NC III School Name
Developed by:
Trainee’s Name
Revision # 01
 TASK SHEET 4.1-4
Title: How to Prepare Income Statement

Performance Objective: Given the worksheet of Just the Two of Us

LTD. from previous lesson, you should be able to
prepare Income Statement in 15 minutes.

Supplies/Materials : Columnar Sheet, Black pen

Equipment : Calculator

Steps/Procedure:
1. Prepare the heading of the statement
2. Following the Income Statement format, copy the following
from the worksheet
 Total revenue
 All expenses
3. Get the total of the expenses
4. Subtract total expenses from total revenue
5. Write net income if revenue exceeds expenses, and net loss if
the other way around
6. Double rule the net amount

Assessment Method:
Observation, Written Test

School Logo Date Developed: Document No. NTTA-TM1-01

Month/year Issued by:
training period
BOOKKEEPING Page 45
NC III School Name
Developed by:
Trainee’s Name
Revision # 01
 Performance Criteria Checklist 4.1-4
Income Statement

CRITERIA
YES NO
Did you….
 prepare the heading of the statement?
 copy revenues from the worksheet?
 copy all expenses from the worksheet?
 get the total of the expenses?
 come up with Net Income? Net loss?
 Double rule the net amount?

School Logo Date Developed: Document No. NTTA-TM1-01

Month/year Issued by:
training period
BOOKKEEPING Page 46
NC III School Name
Developed by:
Trainee’s Name
Revision # 01
 Information Sheet 4.1-5
Statement of Changes in Equity

Learning Objectives:

After reading this INFORMATION SHEET, YOU MUST be able to:

1. Discuss the different forms of business organization

2. Identify the elements of the SCI and describe each of these items for a
service business.
3. Prepare an SCI for a service business using the single-step approach.

STATEMENT OF CHANGES IN EQUITY – 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 Balance
Sheet/Statement of Financial Position to be able to obtain the ending
balance of the equity to be used in the SFP.

DIFFERENT FORMS OF BUSINESS ORGANIZATION

SINGLE/SOLE PROPRIETORSHIP –An entity whose assets, liabilities,
income, and expenses are centered or owned by only one person

PARTNERSHIP – An entity whose assets, liabilities, income, and expenses

are centered or owned by two or more persons.

CORPORATION – An entity whose assets, liabilities, income, and expenses

are centered or owned by itself being a legally separate entity from its
owners. Owners are called shareholders or stockholders of the company

School Logo Date Developed: Document No. NTTA-TM1-01

Month/year Issued by:
training period
BOOKKEEPING Page 47
NC III School Name
Developed by:
Trainee’s Name
Revision # 01
 SAMPLE STATEMENT OF CHANGES IN EQUITY

INVESTMENTS AND WITHDRAWALS

Initial Investment – The very first investment of the owner to the company.
Additional Investment – Increases to owner’s equity by adding investments
by the owner
Withdrawals –Decreases to owner’s equity by withdrawing assets by the
owner

Distribution of Income – When a company is organized as a corporation,

owners (called shareholders) do not decrease equity by way of withdrawal.
Instead, the corporation distributes the income to the Shareholders based
on the shares that they have (percentage of ownership of the company.

PARTS OF THE STATEMENT OF CHANGES IN EQUITY

a. Heading
i. Name of the Company
ii. Name of the Statement
iii. Date of preparation (emphasis on the wording – “for the”)

b. Increases to Equity
i. Net income for the year
ii. Additional investment

c. Decreases to Equity
i. Net loss for the year
ii. Withdrawals by the owner

School Logo Date Developed: Document No. NTTA-TM1-01

Month/year Issued by:
training period
BOOKKEEPING Page 48
NC III School Name
Developed by:
Trainee’s Name
Revision # 01
 STATEMENT OF CHANGES IN EQUITY OF A PARTNERSHIP AND
A CORPORATION

The Statement of Changes in Partners’ Equity is used by a partnership

instead of the Statement of Changes in Owner’s Equity. The differences
between the two are as follows:

a. Title – instead of owner’s, partners’ is used to denote that this is a

partnership

b. There are two or more owners in a partnership thus, the changes in

the capital account of each partner is presented

c. The net income is divided between partners (not always equal. Based
on the agreement. Example: 60:40, 40:60, etc.)

The Statement of Changes in Shareholders’ Equity is used by a

corporation instead of the Statement of Changes in Owner’s Equity. The
differences between the two are as follows:

a. Title – instead of owner’s, shareholders’ is used to denote that this is a

corporation

b. There are an unlimited number of shareholders but unlike the

partnership, the names of the shareholders are not indicated here.
Instead, the corporation keeps an official list with the corporate
secretary

c. The capital account is called share capital (just like owner’s being
shareholders)

School Logo Date Developed: Document No. NTTA-TM1-01

Month/year Issued by:
training period
BOOKKEEPING Page 49
NC III School Name
Developed by:
Trainee’s Name
Revision # 01
 d. Instead of additional investment, share issuances (happens when
shares are sold to shareholders) increases the share capital of a
corporation

e. Instead of withdrawals, distribution of net income to shareholders

decreases the Capital of the corporation

School Logo Date Developed: Document No. NTTA-TM1-01

Month/year Issued by:
training period
BOOKKEEPING Page 50
NC III School Name
Developed by:
Trainee’s Name
Revision # 01
 Self- Check 4.1-5
Statement of Changes in Equity

Identification:
1. Which form of business organization puts the least risk on its owners?

2. It Increases owner’s equity without additional investment

3. Decreases in equity aside from withdrawals of the owners

4. A type of business that is owned by at least 2 persons.

5. Which form of business organization is owned by only one person?

Computation

1. Ending owner’s equity amounted to P70,000. Additional investment

during the year amounted to P30,000. Withdrawals totaled P50,000.
Compute for the company’s net income for the year assuming
beginning equity is P10,000.

1. Owner Salud invested P100,000 to start her laundry business. During

the first year of operations (2020), the company had a net income of
P15,000. Salud invested additional P100,000 to grow the business. In
2021, the business earned P50,000. As of December 31, 2021, Salud’s
capital balance is P200,000. How much is Salud’s withdrawal?

2. The following balances were retrieved from the records of Emil’s

Janitorial Services for the year ended December 31, 2021:

Capital, January 1, 2021 Php 500,000

Withdrawals 100,000
Additional Investment 50,000
Net Loss 45,000

Prepare the Statement of Changes in Equity

School Logo Date Developed: Document No. NTTA-TM1-01

Month/year Issued by:
training period
BOOKKEEPING Page 51
NC III School Name
Developed by:
Trainee’s Name
Revision # 01
 ANSWER KEY 4.1-5
Statement of Changes in Equity

Identification
1. Corporation
2. Net Income
3. Net Loss
4. Partnership
5. Single/Sole Proprietorship

Computation
1. Answer: P80,000

2. Answer: P65,000

3.

School Logo Date Developed: Document No. NTTA-TM1-01

Month/year Issued by:
training period
BOOKKEEPING Page 52
NC III School Name
Developed by:
Trainee’s Name
Revision # 01
 TASK SHEET 4.1-5
Title: How to Prepare Statement of Changes in Equity

Performance Objective: Given the worksheet of Just the Two of Us

LTD. from previous lesson, you should be able to
prepare the Statement of Changes in Equity in
15 minutes.

Supplies/Materials : Columnar Sheet, Black pen

Equipment : Calculator

Steps/Procedure:
1. Prepare the heading of the statement
2. Following the Statement of Changes in Equity format, copy the
partner’s capital from the worksheet
3. From the worksheet copy the Net Income and divide it among
the partners based on the agreed ratio of income sharing.
4. From the worksheet, copy the partner’s withdrawals
5. To the partner’s capital, add the net income and deduct the
withdrawals
6. Double rule the net capital ending.

Assessment Method:
Observation, Written Test

School Logo Date Developed: Document No. NTTA-TM1-01

Month/year Issued by:
training period
BOOKKEEPING Page 53
NC III School Name
Developed by:
Trainee’s Name
Revision # 01
 Performance Criteria Checklist 4.1-5
Statement of Changes in Equity

CRITERIA
YES NO
Did you….
 prepare the heading of the statement?
 copy the partner’s equity from the worksheet?
 copy the net income and divided it among the
partners based on their agreed ratio of income
sharing?
 copy the partner’s withdrawals?
 Add the net income and deducted the withdrawals
from the beginning capital?
 double rule the net capital ending?

Information Sheet 4.1-6

Balance Sheet/Statement of Financial Position
School Logo Date Developed: Document No. NTTA-TM1-01
Month/year Issued by:
training period
BOOKKEEPING Page 54
NC III School Name
Developed by:
Trainee’s Name
Revision # 01
 Learning Objectives:
After reading this INFORMATION SHEET, YOU MUST be able to:
1. Identify the elements of the Balance Sheet or Statement of
Financial Position and describe each of them.
2. Classify the elements of the Balance Sheet or SFP into current and
noncurrent items.
3. Prepare the Balance Sheet or SFP of a single proprietorship
4. Prepare a Balance Sheet or SFP using the report form and the
account form with the proper classification of items a current and
noncurrent.

STATEMENT OF FINANCIAL POSITION – is also known as the balance

sheet. This statement 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.

PERMANENT ACCOUNTS – As the name suggests, these accounts are

permanent in a sense that their balances remain intact from one accounting
period to another. Examples of permanent account include Cash, Accounts
Receivable, Accounts Payable, Loans Payable and Capital among others.
Basically, assets, liabilities and equity accounts are permanent accounts.
They are called permanent accounts because the accounts are retained
permanently in the SFP until their balances become zero. This is in contrast
with temporary accounts which are found in the Statement of
Comprehensive Income (SCI). Temporary accounts unlike permanent
accounts will have zero balances at the end of the accounting period.

CONTRA ASSETS – Contra assets are those accounts that are presented
under the assets portion of the SFP but are reductions to the company’s
assets. These include 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.

School Logo Date Developed: Document No. NTTA-TM1-01

Month/year Issued by:
training period
BOOKKEEPING Page 55
NC III School Name
Developed by:
Trainee’s Name
Revision # 01
School Logo Date Developed: Document No. NTTA-TM1-01
Month/year Issued by:
training period
BOOKKEEPING Page 56
NC III School Name
Developed by:
Trainee’s Name
Revision # 01
 The Report Form and Account Form

Report Form – A form of the Balance Sheet that shows asset accounts first
and then liabilities and owner’s equity accounts after. The balance sheet
shown earlier is in report form.

Account Form – A form of the Balance Sheet that shows assets on the left
side and liabilities and owner’s equity on the right side just like the debit
and credit balances of an account.

a. Emphasize that the two are only formats and will yield the same
amount of total assets, liabilities, and equity
b. Emphasize that assets should always be equal to liabilities and equity

Groups of accounts
Current Assets – Assets that can be realized (collected, sold, used up) one
year after year-end date. Examples include Cash, Accounts Receivable,
Merchandise Inventory, Prepaid Expense, etc.

Current Liabilities – Liabilities that fall due (paid, recognized as revenue)

within one year after year-end date. Examples include Notes Payable,
Accounts Payable, Accrued Expenses (example: Utilities Payable), Unearned
Income, etc.

Current Assets are arranged based on which asset can be realized first
(liquidity). Current assets and current liabilities are also called short term
assets and shot term liabilities.

Noncurrent Assets – Assets that cannot be realized (collected, sold, used

up) one year after year-end date. Examples include Property, Plant and
Equipment (equipment, furniture, building, land), Long Term investments,
Intangible Assets etc.

Noncurrent Liabilities – Liabilities that do not fall due (paid, recognized as

revenue) within one year after year-end date. Examples include Loans
Payable, Mortgage Payable, etc.
Noncurrent assets and noncurrent liabilities are also called long term
assets and long-term liabilities.

School Logo Date Developed: Document No. NTTA-TM1-01

Month/year Issued by:
training period
BOOKKEEPING Page 57
NC III School Name
Developed by:
Trainee’s Name
Revision # 01
 The different parts of the Statement of Financial Position

School Logo Date Developed: Document No. NTTA-TM1-01

Month/year Issued by:
training period
BOOKKEEPING Page 58
NC III School Name
Developed by:
Trainee’s Name
Revision # 01
 Difference of the Statement of Financial Position of a Service Company
and of a Merchandising Company

The main difference of the Statements of the two types of business lies on
the inventory account. A service company has supplies inventory classified
under the current assets of the company. While a merchandising company
also has supplies inventory classified under the current assets of the
company, the business has another inventory account under its current
assets which is the Merchandise Inventory, Ending.

Self- Check 4.1-6

School Logo Date Developed: Document No. NTTA-TM1-01
Month/year Issued by:
training period
BOOKKEEPING Page 59
NC III School Name
Developed by:
Trainee’s Name
Revision # 01
 Balance Sheet

Computation

1. KJB Kape at Iba pa had current assets amounting to Php 250,000.

Noncurrent assets for the year totaled Php 130,000. How much is the
company’s total assets?

2. Café de Leepa’s total liabilities amounted Php 75,000. Total equity had
an ending balance of Php 20,000. How much is total assets? 95,000

3. Maxima Labandera had the following accounts at year end: Cash-

300,000, Accounts Payable-90,000, Prepaid Expense-30,000.
Compute for the company’s current assets.

4. KJB Kape at Iba pa has Accounts Receivable amounting to Php

500,000. Prepaid Expense and Unearned Income totaled Php 30,000
and Php 10,000 respectively. Cash balance amounted to Php 100,000
while Accounts Payable and Inventory totaled to Php 20,000 and Php
10,000 respectively. How much is the company’s current assets?
Current liabilities?

5. Company’s Total Liabilities and Equity amounted to Php 285,000.

Total noncurrent assets ended at Php 85,000. Cash totaled
Php50,000. Inventory amounted to Php100,000. Assuming the
company had no other assets, how much is Accounts Receivable?

ANSWER KEY 4.1-6

Balance Sheet
School Logo Date Developed: Document No. NTTA-TM1-01
Month/year Issued by:
training period
BOOKKEEPING Page 60
NC III School Name
Developed by:
Trainee’s Name
Revision # 01
 1. Current Assets P 250,000
Non-Current Assets 130,000
Total Assets P 380,000

2. Assets = Liabilities + Equity

95,000 = 75,000 + 20,000

3. Current Assets
Cash P 300,000
Prepaid Expense 30,000
Total Current Assets P 330,000

4. Current Assets
Cash P 100,000
Accounts Receivables 500,000
Inventory 10,000
Prepaid Expense 30,000
Total current assets P 640,000

Current Liabilities
Unearned Income P 10,000
Accounts Payable 20,000
Total current liabilities P 30,000

5. Current Assets
Cash P 50,000
Inventory 100,000
Accounts Receivables 50,000
Total current asset 200,000

Non-Current Assets P 85,000

Total Assets P 285,000

Total Liabilities and Equity P 285,000

Task sheet

School Logo Date Developed: Document No. NTTA-TM1-01

Month/year Issued by:
training period
BOOKKEEPING Page 61
NC III School Name
Developed by:
Trainee’s Name
Revision # 01
 Prepare a Statement of Financial Position using the following accounts (one
in report form and one in account form): Cash – 5,000

Loans Payable – 77,500 Accounts Receivable – 2,600 Supplies – 2,300

Equipment – 17,000 Owner’s equity – 40,000 Accounts Payable – 22,400
Building – 113,000

Learners can use any business name and the end of the current year for the
heading.

NAME OF COMPANY
STATEMENT OF FINANCIAL POSITION
AS OF (YEAR-END)

Assets Liabilities and Owner’s Equity

Current Assets Current Liability

Cash P 5,000.00 Accounts Payable P 22,400.00

Accounts Receivable 2,600.00 Noncurrent Liability

Supplies 2,300.00 Loans Payable 77,500.00

Total Current Assets P 9,900.00 Total Liabilities P 99,900.00

Noncurrent Assets Owner’s Equity 40,000.00

Building P 113,000.00 Total Liabilities and Owner’s Equity P 139,900.00

Equipment 17,000.00

Total Noncurrent Assets P 130,000.00

Total Assets P 139,900.00

TASK SHEET 4.1-6

Title: Balance Sheet
School Logo Date Developed: Document No. NTTA-TM1-01
Month/year Issued by:
training period
BOOKKEEPING Page 62
NC III School Name
Developed by:
Trainee’s Name
Revision # 01
 Performance Objective: Given the worksheet of Just the Two of Us
LTD. from previous lesson, you should be able to
prepare the Balance Sheet in 30 minutes.
Supplies/Materials : Columnar Sheet, Black pen
Equipment : Calculator
Steps/Procedure:
1. Use the account format of Balance Sheet
2. Prepare the heading of the statement
3. On the left side of the statement, list the current assets first and
get the total.
4. Below the current assets list the non-current assets and get the
total.
5. Add current and non-current assets to get the total assets.
6. On the right side of the statement, list the current liabilities and
get the total.
7. Below the current liabilities, list the non-current liabilities and get
the total.
8. Add current and non-current liabilities to get the total liabilities.
9. Below liabilities, list the partner’s capital and get total for partner’s
equity.
10. Add total liabilities and partner’s equity.
11. The right side of the statement “Total Assets” should balance with
the right side of the statement “Total liabilities and Partner’s
Equity.”
12. Double rule the right and left side totals.

Assessment Method:
Observation, Written Test

Performance Criteria Checklist 4.1-5

School Logo Date Developed: Document No. NTTA-TM1-01
Month/year Issued by:
training period
BOOKKEEPING Page 63
NC III School Name
Developed by:
Trainee’s Name
Revision # 01
 Statement of Changes in Equity

CRITERIA
YES NO
Did you….
 use the account form of the statement?
 prepare the heading of the statement?
 list the current assets and got the total?
 list the non-current assets and got the total?
 get the total of the Assets?
 list the current liabilities and got the total?
 list the current liabilities and got the total?
 get the total liabilities?
 list the partner’s capital and got total for partner’s
equity?
 add total liabilities and partner’s equity?
 check if total assets is balanced with the total
liabilities and total partner’s equity?
 Double rule the totals?

Information Sheet 4.1-7

Statement of Cash Flow
School Logo Date Developed: Document No. NTTA-TM1-01
Month/year Issued by:
training period
BOOKKEEPING Page 64
NC III School Name
Developed by:
Trainee’s Name
Revision # 01
 Learning Objectives:
After reading this INFORMATION SHEET, YOU MUST be able to:
1. Discuss the components and structures of a Statement of Cash
Flow
2. Prepare a Statement of Cash Flow

CASH FLOW STATEMENT – Provides an analysis of inflows and/or outflows

of cash from/to operating, investing, and financing activities This statement
shows cash transactions only compared to the SCI which follows the accrual
principle.

Importance: The CFS provides the net change in the cash balance of a
company for a period. This helps owners see if their revenues are translated
to cash collections or if they have enough cash inflows in order to pay any
maturing liabilities.

Sample Statement of Cash Flow

SARINA’S PLAYSKOOL
CASH FLOW STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 2016

Cash flows from Operating Activities

Receipts from Customers P 1,000,000
Payments to Suppliers and Employees (700,000)
Net Cash generated by Operating Activities P 300,000
Cash flows from Investing Activities
Purchases of Property and Equipment (P 150,000)
Net Cash used in Investing Activities (P 150,000)
Cash flows from Financing Activities
Long term loan from a bank P 300,000
Additional investment from owner 100,000
Withdrawals by owner (80,000)
Net cash generated by Financing Activities P 320,000
Net increase in cash and cash equivalents P 470,000
Cash, January 1, 2016 100,000
Cash, December 31, 2016 P 570,000

Direct and Indirect Approach of the CFS

School Logo Date Developed: Document No. NTTA-TM1-01
Month/year Issued by:
training period
BOOKKEEPING Page 65
NC III School Name
Developed by:
Trainee’s Name
Revision # 01
 Direct – The operating cash flow section of the CFS under the direct
method would show each major class of gross cash receipts and gross
cash payments

Indirect – The operating cash flow section of the CFS under the indirect
method will reconcile the net income/loss of the company with the total
cash flows generated/used in operating activities by adjusting the net
income/loss for effects of non-cash transactions

The two are only approaches and will yield the same amount of cash flow
from operating activities. Note that the Investing and Financing sections
of the CFS are the same under the two approaches.

The different parts of the Cash Flow Statement

Operating Activities – Activities that are directly related to the main

revenue-producing activities of the company such as cash from customers
and cash paid to suppliers/employees

Investing Activities – Cash transactions related to purchase or sale of non-

current assets.

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 balance plus the net
change in cash for the current period.

School Logo Date Developed: Document No. NTTA-TM1-01

Month/year Issued by:
training period
BOOKKEEPING Page 66
NC III School Name
Developed by:
Trainee’s Name
Revision # 01
 a. Heading
i. Name of the Company
ii. Name of the Statement
iii. Date of preparation (emphasis on the wording – “for the”)
b. Sample of the Direct Method
i. First part is operating activities
ii. Second part is investing activities
iii. Third part is financing activities

School Logo Date Developed: Document No. NTTA-TM1-01

Month/year Issued by:
training period
BOOKKEEPING Page 67
NC III School Name
Developed by:
Trainee’s Name
Revision # 01
 Self- Check 4.1-7
Statement of Cash Flow

Multiple Choice. Write the letter of the correct answer.

1. Sale of property and equipment is part of what activity in the CFS?

2. Changes in long term liabilities is part of what activity in the CFS?

3. The company presented the following in order to aid the accountant in

preparing the CFS:

← Sale of property and equipment: P 100,000

← Receipts from customers: P 170,000
← Purchase of property and equipment: P 200,000
← Payment of loan from bank: P 150,000

Compute for the cash generated/used in financing activities.

4. Based on the given above, compute for the net change in cash for the
year.

5. If ending balance of cash account is P500,000, prepare the CFS for

the year.

School Logo Date Developed: Document No. NTTA-TM1-01

Month/year Issued by:
training period
BOOKKEEPING Page 68
NC III School Name
Developed by:
Trainee’s Name
Revision # 01
 ANSWER KEY 4.1-7
Statement of Cash Flow

1. Investing Activity
2. Financing Activity
3. Payment of loan from bank: P150,000
4.

5.

School Logo Date Developed: Document No. NTTA-TM1-01

Month/year Issued by:
training period
BOOKKEEPING Page 69
NC III School Name
Developed by:
Trainee’s Name
Revision # 01
 References

School Logo Date Developed: Document No. NTTA-TM1-01

Month/year Issued by:
training period
BOOKKEEPING Page 70
NC III School Name
Developed by:
Trainee’s Name
Revision # 01