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Reporting and
Preparing Financial
Statements for SK
Officers
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RAYMOND PACALDO, CPA, MSA

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Department of Accountancy
College of Business and Management
CENTRAL MINDANAO UNIVERSITY
ACCT 201
Knowing Accounting….

The basic accounting equation -

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and the definition of each of its

components
Assets =
Liabilities +
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Owners’ Equity

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Knowing Accounting….

Double-entry accounting
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Assets = Liabilities + Owners’

Equity

Debits=Credits
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Knowing Accounting….

The debit/credit rules and how

each impacts accounting.
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ncrease
Debit = “Left”
side of an account ebits
- Nothing more,
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nothing less. xpenses

Acronym:
ssets

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We Have Learned . . .

The debit/credit rules and how

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each impacts accounting.

evenue
quity Credit = “Right”
side of an account
iabilities - Nothing more,
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ncrease nothing less.

Acronym:
redits

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We Have Learned . . .
Net Income
Income
Statement
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Retained
Stmt of Earnings
Retained
Earnings
About the
basic financial
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Balance
statements and how Sheet
they interrelate.
 Knowing Accounting….
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The first five

steps in the
accounting
Prepare
cycle.
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Trial Balance
Post Transactions

Record Transactions
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Analyze Transactions

Examine Source Documents

 Preparing Financial Statements
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Financial
Prepare
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Statements
Trial Balance
Post Transactions

Record Transactions
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Analyze Transactions

Examine Source Documents

 Problems in Accounting
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Measurements

The identification of the

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accounting period.

The proper point in time to

recognize revenue.
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The appropriate moment to

record an expense.
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Identification of the
Accounting Period
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Time Period Principle

For reporting purposes, an

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organization’s life can be divided

into separate accounting periods
months,
quarters,
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years, etc.

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 Exh.

The Accounting Period

3.1

Annual
1 2
Semiannual
1 2 3 4
Quarter
1 2 3 4 5 6 7 8 9 10 11 12

Month
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The proper point in time

to recognize revenues.
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Revenue Recognition . . .

Revenues are recorded when two

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main criteria have been met:

revenue is recognized when it is
probable that economic benefits will
flow to the entity
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these economics benefits can be

measured reliably

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Revenue Recognition . . .

Revenue is generally recognized

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At the time services are

performed; or
When goods are sold and delivered
to a clients.
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The proper point in time

to recognize expenses.
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The Matching Principle

The matching principle requires

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that all expenses incurred to

generate the revenues
recognized in an accounting
period be matched with those
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revenues.

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The Matching Principle

Another view . . .
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Let the expense follow the revenue.

First the revenue . . .
Then the expense.
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Sometimes referred to as “The

Expense Recognition Principle.”
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 Accrual Basis
Accounting
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Revenue
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Accrual Basis
Recognition
Accounting
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Matching
Principle
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Yikes!! What
is Accrual
Basis
Accounting?
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Accrual Basis Accounting

Revenues are recognized

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(recorded) when earned, without

regard to when cash is received;
Expenses are recorded as
incurred without regard to when
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they are paid.

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The time period principle
Gives rise to the need for
The Revenue Recognition
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Principle and the Matching

Principle
Resulting in . . .
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The accrual basis of

accounting
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Whoa! Let’s
back up a bit
here -- this
really does
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make sense?
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Periodicity
Assumption
96 97 98 99 00 01 02 03 04 05

? ? ? ? ? ?

How do we recognize revenues?

The Revenue Recognition
Principle
How do we recognize expenses?
The Matching Principle
Accrual Basis Accounting
Accrual Accounting . . .
BOP EOP

Recognized
Revenues

Matched
Expenses

Recognized Matched Accrual Net

Revenues  Expenses  Income
 Bertha, are
there any other
bases for
accounting?

Yikes! I don’t
know Claude. We
probably better
ask the speaker!
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Absolutely.
You don’t
think we
would make it
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that easy, do
you?
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 Cash Basis
Accounting
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Cash Basis Accounting

With the cash basis . . .

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Revenues are recognized in the

period cash is received; and

Expenses are recognized in the

period when cash is paid out.
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Cash Basis Accounting . . .
BOP EOP

Revenue (Cash)

Expenses (Cash)

Revenue Expenses Cash Basis

(Cash)  (Cash)  Net Income
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Ahhh, but
there is yet
another one!
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Fun! Fun!
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Modified Cash
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Basis Accounting
 Modified Cash Basis
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Accounting

With the Modified Cash Basis . . .

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Current period revenues and

expenses are treated exactly as in
the cash basis;
Expenses covering more than one
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accounting period are allocated

over the useful life of the asset.
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 Exh.

Summary of Adjustments and

3.18

Financial Statement Links

Before Adjusting Adjusting
Category
B/S I/S Entry
Dr. Expense
Prepaid Expense Asset Expense
Cr. Asset
Dr. Liability
Unearned Revenue Liability Revenue
Cr. Revenue
Dr. Expense
Accrued Expenses Liability Expense
Cr. Liability
Dr. Asset
Accrued Revenues Asset Revenue
Cr. Revenue

Overstated

Understated
 FastForward Exh.
Trial Balance 3.19

December 31, 2018

Unadjusted Adjusted
Trial Balance Adjustments Trial Balance
Dr. Cr. Dr. Cr. Dr. Cr.
Cash 3,950
Accounts receivable -
Supplies 9,720
Prepaid insurance 2,400
Equipment 26,000
Accum. depr. - Equip. - First, the
Accounts payable
Salaries payable
6,200
-
initial
Unearned revenue
Common Stock
3,000
30,000
unadjusted
Retained Earnings
Consulting revenue
600
5,800
amounts are
added to the
Rental revenue 300
Depr. expense - worksheet.
Salaries expense 1,400
Insurance expense -
Rent expense 1,000
Supplies expense -
Utilities expense 230
Totals 45,300 45,300
 FastForward Exh.
Trial Balance 3.19

December 31, 2018

Unadjusted Adjusted
Trial Balance Adjustments Next,
Trial Balance

Cash
Dr.
3,950
Cr. Dr. Cr.
FastForward’s
Dr. Cr.

Accounts receivable - f 1,800 adjustments

Supplies 9,720 b 1,050 are added.
Prepaid insurance 2,400 a 100
Equipment 26,000
Accum. depr. - Equip. - c 375
Accounts payable 6,200
Salaries payable - e 210
Unearned revenue 3,000 d 250
Common Stock 30,000
Retained Earnings 600
Consulting revenue 5,800 d 250
f 1,800
Rental revenue 300
Depr. expense - c 375
Salaries expense 1,400 e 210
Insurance expense - a 100
Rent expense 1,000
Supplies expense - b 1,050
Utilities expense 230
Totals 45,300 45,300 3,785 3,785
 Finally, the totals FastForward Exh.
Trial Balance 3.19
are determined. December 31, 2018
Unadjusted Adjusted
Trial Balance Adjustments Trial Balance
Dr. Cr. Dr. Cr. Dr. Cr.
Cash 3,950 3,950
Accounts receivable - f 1,800 1,800
Supplies 9,720 b 1,050 8,670
Prepaid insurance 2,400 a 100 2,300
Equipment 26,000 26,000
Accum. depr. - Equip. - c 375 375
Accounts payable 6,200 6,200
Salaries payable - e 210 210
Unearned revenue 3,000 d 250 2,750
Common Stock 30,000 - 30,000
Retained Earnings 600 600
Consulting revenue 5,800 d 250 7,850
f 1,800
Rental revenue 300 300
Depr. expense - c 375 375
Salaries expense 1,400 e 210 1,610
Insurance expense - a 100 100
Rent expense 1,000 1,000
Supplies expense - b 1,050 1,050
Utilities expense 230 230
Totals 45,300 45,300 3,785 3,785 47,685 47,685
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 Preparing Financial
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Statements

Let’s use
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FastForward’s
adjusted trial
balance to prepare
the company’s
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financial
statements.
Dr. Fred Barbee 44
 Exh.
Step One: 3.20
Adjusted
Trial Balance
Prepare the Statement
Dr. Cr. of Financial
Cash ₱ 3,950
Accounts receivable 1,800 Performance.
Supplies 8,670
Prepaid insurance 2,300
Equipment 26,000
FastForward
Accum. depr. - Equip. $ 375 Statement of Financial Performance
Accounts payable 6,200 For the Month Ended December 31, 2018
Salaries payable 210
Revenues:
Unearned revenue 2,750
Common Stock 30,000 Consulting revenue ₱ 7,850
Retained Earnings 600 Rental revenue 300
Consulting revenue 7,850 Operating expenses:
Rental revenue 300
Depr. expense 375
Depr. expense - Equip. ₱ 375
Salaries expense 1,610 Salaries expense 1,610
Insurance expense 100 Insurance expense 100
Rent expense 1,000
Rent expense 1,000
Supplies expense 1,050
Utilities expense 230 Supplies expense 1,050
Totals ₱ 47,685 ₱ 47,685 Utilities expense 230
Total expenses 4,365
Net income ₱ 3,785
 Exh.
FastForward Step Two: 3.20
Statement of Financial Performance
For the Month Ended December 31, 2018 Prepare the Statement
Revenues: of Changes in Equity.
Consulting revenue ₱ 7,850
Rental revenue 300
Operating expenses: Note: The Net Income
Depr. expense - Equip. ₱ 375
Salaries expense 1,610 from the Statement of
Insurance expense 100 Financial Performance
Rent expense 1,000
Supplies expense 1,050 carries to the Statement
Utilities expense 230 Changes in Equity
Total expenses 4,365
Net income ₱ 3,785
FastForward
Statement of Retained Earnings
For the Month Ended December 31, 2018

Retained Earnings 12/1/18 ₱ -

Add: Net income 3,785
Less: Dividends (600)
Retained Earnings 12/31/18 ₱ 3,185
 Adjusted FastForward
Trial Balance Statement of Financial Position
Dr. Cr. December 31, 2018
Cash ₱ 3,950 Assets
Accounts receivable 1,800 Cash ₱ 3,950
Supplies 8,670 Accounts receivable 1,800
Prepaid insurance 2,300 Supplies 8,670
Equipment 26,000 Prepaid insurance 2,300
Accum. depr. - Equip. ₱ 375 Equipment 26,000
Accounts payable 6,200 Less: accum. depr. (375) 25,625
Salaries payable 210 Total assets ₱ 42,345
Unearned revenue 2,750
Liabilities
Common Stock 30,000
Accounts payable ₱ 6,200
Retained Earnings 600
Salaries payable 210
Consulting revenue 7,850
Unearned revenue 2,750
Rental revenue 300
Total liabilities ₱ 9,160
Depr. expense 375
Salaries expense 1,610
Owner's Equity
Insurance expense FastForward100 Common Stock 30,000
Rent expense Statement of Retained Earnings
1,000 Retained Earnings 3,185
SuppliesForexpense
the Month Ended December
1,050 31, 2018 Total liabilities and equity ₱ 42,345
Utilities expense 230
Totals
Retained Earnings 12/1/18 $ 47,685 $ 47,685
₱ -
Add: Net income 3,785 Step Three:
Less: Dividends (600)
Retained Earnings 12/31/18 ₱ 3,185 Prepare the Statement
of Financial Position.
 Financial Statements for
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Barangay
Financial Performance
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Financial Position

Changes in Equity

Cash Flows
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Comparison of Budget and Actual Amounts

(SCBAA)

Notes to Financial Statements

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 Statement of Financial
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Performance
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 Statement of Financial
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Position
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 Statement of Changes in
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Equity
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 Statement of Cash Flows
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Statement of Comparison of Budget
and Actual Amounts (SCBAA)
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