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Fabm-1, Week-3

The document discusses the key financial statements used in accounting: the balance sheet, income statement, statement of changes in owner's equity, and statement of cash flows. It also defines typical account titles found on these statements, such as assets, liabilities, and owner's equity. Finally, it provides examples of accounts that are classified within assets, liabilities, and owner's equity on the balance sheet.

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Antonio Tanega
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24 views16 pages

Fabm-1, Week-3

The document discusses the key financial statements used in accounting: the balance sheet, income statement, statement of changes in owner's equity, and statement of cash flows. It also defines typical account titles found on these statements, such as assets, liabilities, and owner's equity. Finally, it provides examples of accounts that are classified within assets, liabilities, and owner's equity on the balance sheet.

Uploaded by

Antonio Tanega
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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FABM-1,

WEEK-3
THE FINANCIAL STATEMENTS
FINANCIAL STATEMENTS- are the end product reports of accounting process.

TYPES OF FINANCIAL STATEMENTS

1. Statement of Financial Position( Balance Sheet)- Shows the financial condition/ position of
a business as of a given period. It consist of the Assets, Liabilities, and Owner’s
equity/Capital.
2. Income Statement or Statement of comprehensive Income
- Shows the result of operations for a given period. It consists of the revenue, cost, and expenses.
3. Statement of Changes in Owner’s Equity or Statements of
Owners Equity- Shows the changes in the capital or owners equity as a
result of additional investment or withdrawals by the owners, plus or
minus the net income or net loss for the year.
4. Statements of Cash Flows- Summarizes the cash receipts and cash
disbursements for the accounting period.
TYPICAL ACCOUNT TITLES USED
BALANCE SHEET- Accounts namely assets, liabilities and owners equity,
are classified as real or permanent accounts.
ASSETS- Economic resources owned by the business expected for future gain.
They are property and rights of value owned by the business.
LIABILITIES- Includes debts, obligations to pay, and claims of the creditors
on the assets of the business.
OWNER’S EQUITY OR CAPITAL- Includes the interest of the owners on
the assets of the business; and the investment of the owner plus or minus the
results of operations. Sources:1. Investment of the owners 2. Earning of the
business.
THE FUNDAMENTAL ACCOUNTING
EQUATION
Assets= Liabilities + Owners Equity
1. Given liabilities of P50,000 and the owner’s equity of P150,000,
Find the value of assets.
Solution:
Assets= Liabilities + Owners Equity
P50,000+P150,000
=P200,000
2. Given assets of P180,000 and the owner’s equity of P110,000, Find
the liabilities
Solution:
Liabilities= Assets-Owner’s equity
P180,000- P110,000
= P70,000
3. Given assets of P250,000 and liabilities of P90,000, Find the owner’s
equity.
Solution:
Owner’s Equity= Assets- Liabilities
=P250,000- P90,000
=P160,000
Drill/Performance Task#1
Find the missing amount
ASSETS (P) LIABILITIES (P) OWNER’S EQUITY (P)

650,000 340,000

295,000 305,000

967,000 660,000

788,000 345,000

845,000 533,000
ASSETS
Example of current asset
1. Cash- includes coins, currencies, checks, bank deposits and other cash items
readily available for use in the business.
2. Cash equivalents- are short-term investment that are readily convertible to
known amounts of cash which are subject to an significant risk to changes in
value.
3. Marketable Securities- Are stocks and bonds purchased by the enterprises
and are to be held for only a short span of time or duration. They are usually
purchased when a business has excess cash.
4. Trade and other receivables- Include the amounts collectible from
any of the following accounts:
a. Accounts receivable- amount collectible from the customer to
whom sales have been made or services have been rendered on
account or credit.
b. Notes receivable- Promissory note issued by the client or the
customer in exchange for services or goods received as evidence of
his or her obligations to pay .
C. Interest receivable- amount of interest collectible on promissory
notes received from customers and clients.
d. Advance to employees- Certain amount of money loaned to
employee payable in cash or through salary deductions.
e. Accrued income- Income already earned but not yet received.
5. Inventories-represent the unsold goods at the end of the accounting
period.
6. Prepaid expenses- Includes supplies bought for use in the business or
services and benefits to be received by the business in the future paid in
advance.
7. Contra-asset accounts- are accounts deducted from the related asset
accounts.
a. Allowance for bad debts- losses due to uncollectible accounts.
b. Accumulated depreciation- represents the expired cost of
property,plant and equipment as a result of usage and passage of
time.
Classification of non-current asset
1. Long-term investments
2. Property, plant and equipment
a. Land
b. Building
c. Equipment
d. Furnitures and fixtures
e. Intangibles asset
LIABILITIES
Classification of Current Liabilities
Trade and other payables- Include payables from any of the following
accounts:
a.Accounts payable
b. Notes payable
c. Loan payable
d. Utilities payable
e. Unearned revenue
f. Accrued liabilities
Classification of Non-Current Liabilities
Non- current liabilities- are long term liabilities or obligations which are
payable for a period longer than one year.
Examples:
a. Mortgage payable
b. Bonds payable
OWNER’S EQUITY
• Capital- Is an account bearing the name of the owner representing the
original and additional investment of the owner of the business increased by
the amount of net income earned during the year.

• Drawing- represents the withdrawals made by the owner of the business in


cash or other assets.

• Income summary- Is a temporary account used at the end of the accounting


period to close income and expense accounts.

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