ACCTG 1.

1- THE ELEMENTS OF ACCOUNTING AND ANALYSIS OF

ITS TRANSACTIONS
FINANCIAL STATEMENTS

- Are the means by which the information accumulated and processed in financial
accounting is periodically communicated to the users
- Are the end products or main output of the financial accounting process

The owners and managers can use the figures on the financial statement to plan future
operations.

BASIC FINANCIAL STATEMENTS

1.) Income Statement

2.) Statement of Owner’s equity, Partner’s Equity or Shareholder’s Equity
3.) Statement of Financial Position (Balance Sheet)
4.) Statement of Cash Flow

A complete set of basic financial statements includes the following components.

A. Income Statement - is a report which describes how the business operated over a given
period of time. (usually one year)

2 Elements:

Income- (Income Earned) increase in economic benefits during the accounting

period in the form of inflow or increase in asset or decrease in liability that results
in increase in equity other than contribution from equity participants/.

Expenses- (Incurred by the business) Decrease in economic benefits during the

accounting period in the form of outflow or decrease in asset or increase in
liability that results in decrease in equity other than contribution from equity
participants.

Equation: (Revenue – Expenses = Net Income (Loss)

SAMPLE FORMAT OF A INCOME STATEMENT FOR A SERVICE TYPE OF BUSINESS:

MOKONA SERVICE COMPANY

INCOME STATEMENT

For the Year Ended December 31, 2015

REVENUES EARNED

Service Income 2, 540,500

LESS: OPERATING EXPENSES:

Advertising Expense 1,030,000

Bad Debts Expense 283,000

Rent Expense 288, 750

Salary Expense 90, 000

Gas & Oil Expense 46, 520

Depreciation Expense 34, 000

Repair Expense 111, 500

Utilities Expense 59,000

Supplies Expense 4, 330

OPERATING EXPENSES 1,947, 100

NET INCOME 593, 400

B. Statement of Owners Equity- it explains the activities for a period of time that led to a change in
the owner’s share over the net assets of the business.

SAMPLE FORMAT OF A STATEMENT OF OWNER’S EQUITY:

MOKONA SERVICE COMPANY

STATEMENT OF OWNER’S EQUITY

For the Year Ended December 31, 2015

Gonzaga, Capital, Beg. 131,360

Add: Net Income 593, 400

Additional Investments 319,000

TOTAL P 1,043,760

Less: Withdrawals 866,300

Gonzaga, Capital, End 177,460

C. Statement of Financial Position (Balance Sheet)- gives information about the financial position of
the business by showing the list of its assets (Cash and properties) and Liabilities (debts or obligations
to pay) and from which the net worth of the business representing equity or share of the owner could be
determined.

ACCOUNTING EQUATION (ASSETS = LIABILITIES + OWNER’S EQUITY)

ASSETS- are economic resources controlled by the enterprise resulting from past events from
which future economic benefits are expected to flow to the enterprise.

CURRENT ASSETS- includes cash and cash equivalents which are not restricted in use, as
well as other assets readily convertible into cash, or to be sold or consumed within the normal
operating cycle of the business or one year.

The following are the current assets:

1. CASH – includes currencies or negotiable such as a bank check etc.

2. MARKETABLE SECURITIES- these are highly traded in securities such as the stocks
and bonds purchased by the enterprise that are to held for a short term duration.

3. RECEIVABLES- these are collectibles from customers, clients and other persons for the
goods, services, or money given by the business.

4. MERCHANDISE INVENTORY- is an account title used to represent the stock of goods

available for sale by the business.

5. PREPAID EXPENSES- this represent advance payments made for benefits or services to
be received by the business in the future. Examples: Prepaid Supplies, Prepaid Insurance
and Prepaid Rent.

6. ALLOWANCE FOR BAD DEBTS- Contra Asset Account, which represents customer,
accounts doubtful of collection. ( Other terms: Allowance for Doubtful Accounts,
Allowance for Uncollectible accounts)
NON- CURRENT ASSETS- are those assets not included as current assets such as the property,
plant and equipment.

The following are the non-current assets:

7. LAND- lot or real estate owned and used by the business on which a building could be
constructed.

8. BUILDING- structure used to house the office, store or factory.

9. EQUIPMENT- typewriter, air-conditioner, calculator computer, electric fan, trucks, cars

used in the business. Specific titles may be used such as: Office Equipment, Store
Equipment and Delivery Equipment

10. FURNITURE AND FIXTURE- tables, chairs, curtains, filing cabinet, lighting fixtures
and wall decors: Specific titles may be used such as: Office Furniture and Fixtures and
Store Furniture and Fixtures.

11. ACCUMULATED DEPRECIATION- contra asset account representing expired cost of

the property, plant and equipment as a result of usage and passage of time.

LIABILITIES- are present obligations resulting from past events and whose settlement will
cause an outflow from the resources of the enterprise.

CURRENT LIABILITIES- are those debts or obligations reasonably expected to be liquidated

in the normal course of the enterprise’s operating cycle or paid within 1 year.

The following are the current liabilities:

12. ACCOUNTS PAYABLE- Purchase of goods and services on credit supported by the oral
or implied promise of the business.

13. LOAN PAYABLE- is a liability to pay a bank or a financing institution for amount of
money borrowed by the business

Note: Loans Payable can be classified as part of Non- Current Liabilities if it is payable
beyond 1 year. Example: Housing Loan, Car Loan

14. UTILITIES PAYABLE- is a liability to pay utility companies like PLDT. Meralco,
Telephone, electricity and water services received from them.

15. OTHER PAYABLES- Interest Payable, Salaries Payable.

NON- CURRENT LIABILITIES- are long term liabilities or obligations which are payable longer
than one year.

The following are the non-current liabilities:

16. NOTE PAYABLE- which is issued to creditor and evidenced by promissory note.

Note: Note Payable can be classified as part of Current Liabilities if it is payable within 1
year.

17. MORTGAGE PAYABLE- which is an obligation secured by real property of the

debtor-business.

18. BOND PAYABLE- which is a long term promise usually five to ten years supported by a
formal contract containing the face value of the bonds.
SAMPLE FORMAT OF A STATEMENT OF FINANCIAL POSITION FOR A SERVICE
TYPE OF BUSINESS

MOKONA SERVICE COMPANY

BALANCE SHEET

December 31, 2015

ASSETS

Current Assets:

Cash P 85,000

Accounts Receivable 152,500

Office Supplies 18,630

Merchandise Inventory 25,910

Total Current Assets: 282,040

Non-Current Assets:

Cars 330,000

Less: Accumulated Depreciation-Cars 40,000 290,000

Equipment 30,000

Less: Accumulated Depreciation-Equipment 1,000 29,000

Furniture and Fixtures 25,000

Less: Accumulated Depreciation- F & F 1,500 23,500

Total Non Current Assets 342,500

TOTAL ASSETS: 624,540

LIABILITIES AND OWNER’S EQUITY

Current Liabilities:

Accounts Payable 240, 580

Loans Payable 185, 000

Utilities Payable 21, 500

Total Current Liabilities: 447,080

Owner’s Equity:

Gonzaga, Capital 177,460

TOTAL LIABILITIES AND OWNER’S EQUITY 624,540

 a.) Statement of Cash Flow- is a basic component of the financial statements which
summarizes the operating, investing and financing activities of an entity.

b.) Notes to Financial Statements- are used to report information that does not fit
into the body of the statements in order to enhance the understandability of the
statements.
c.)
FINANCIAL STATEMENT PRESENTATION
KALA TSU TSI Meat Shop opened a new business and has the following data

KALA TSU- TSI

TRIAL BALANCE

AUGUST 31, Year 2

ACCOUNT TITLE DEBIT CREDIT

Cash P 831,450

Accounts Receivable 166,290

Allowance for Bad Debts 8,315

Meat Supplies 315, 229

Prepaid Insurance 116, 280

Office Equipment 416, 450

Accumulated Depreciation-OE 83,290

Accounts Payable 386,420

Tsi, Capital 1,167,900

Tsi, Withdrawal 175,185

Revenue from Food Services 528,312

Salaries Expense 37, 830

Rent Expense 15,000

Meat Supplies Expense 31,523

Taxes & Licenses Expense 50,520

Utilities Expense 18, 480

TOTAL 2, 174,237 2, 174,327