SAN PEDRO COLLEGE

12 C. Guzman Street, 8000 Davao City, Philippines

Master of Arts in Hospital Administration

Third Trimester, SY 2019-2020

SEMINAR IN ACCOUNTING

LESSON 4 – FINANCIAL STATEMENTS (INCOME STATEMENT & BALANCE

SHEET)

NATURE OF FINANCIAL STATEMENTS

After the accounts have been adjusted and worksheet has been constructed, financial
statements are prepared.

The two most common basic financial statements are:

a. Income statement (statement of profit or loss/ financial performance) – contains

revenues and expense accounts. The income statement has two forms: single step
form and the multiple step form.

The single step is commonly used by service concern. In this form, all expenses
incurred are deducted from the income earned in order to obtain the net income of
the period.

The multiple step form presents a more detailed alternative to the single step income
statement and uses multiple equations to calculate profit or loss.

b. Balance sheet (statement of financial position) - contains the assets, liabilities and
capital of the business. It shows the financial condition of the business. The
balance sheet has two forms: account form and report form.

SINGLE STEP INCOME STATEMENT (pro forma)

Under this step, revenues are grouped together and presented after the heading.
Expenses are grouped together, deducted and presented below the revenues.

Name of Company
Income statement
For the year ended _________
Service income xx
Less: Expenses:
Advertising xx
Salaries and wages xx
Utilities expense xx
Rent expense xx
Repairs expense xx
Fuel expense xx
Depreciation expense xx
Interest expense xx xx
Net income before income tax xx
Less: Income tax expense xx
Net income xx
MULTIPLE STEP INCOME STATEMENT (pro forma)

Under this step, revenues are grouped together and presented after the heading.
Expenses are aggregated according to functions such as cost of sales, operating
expenses, and interest expense (if any). Operating expenses may even be presented as
selling (distribution costs) expenses, and general and administrative expenses.

Name of Company
Income statement
For the year ended _________

Sales xx
Less: Cost of sales xx
Cost of sales xx
Less: Operating expenses:
Advertising xx
Salaries and wages xx
Utilities expense xx
Rent expense xx
Repairs expense xx
Fuel expense xx
Depreciation expense xx xx
Net operating income xx
Less: Interest expense xx
Net income before income tax xx
Less: Income tax expense xx
Net income xx

ACCOUNT FORM BALANCE SHEET (pro forma)

The account form shows the assets on the left side and liabilities and equity are on the
right side. Assets and liabilities can be current and/ or non-current. Equity is the
residual interest between assets and liabilities.

* Equity or capital presentation depends on the business form of ownership. For single
proprietorship and partnership, the components are:

Beginning capital xx
Add: Additional investment xx
Net profit xx xx
Total xx
Less: Drawings xx
Net loss xx xx
Ending capital xx
 For corporation, the components are:

Share capital xx
Share premium xx
Retained earnings xx
Revaluation surplus xx
Total xx
Less: Treasury shares xx
Total shareholders’ equity xx

REPORT FORM BALANCE SHEET (pro forma)

The report form shows the assets, liabilities and owner’s equity in vertical order.
QUIZ – FINANCIAL STATEMENTS (INCOME STATEMENT & BALANCE SHEET)

Multiple Choice:

1. Information containing in the financial statements is useful to the

a. Owner’s of the firm
b. Creditors and clients of the firm only
c. Owners of the firm, creditors and clients of the firm
d. None of the above

2. The income statement provides information about

a. The results of the business operation
b. The resources acquired by the firm, including where the resources come from
c. The functioning of the accounting system
d. None of the above

3. The balance sheet provides information about

a. The results of the business operation
b. The resources acquired by the firm, including where the resources come from
c. The functioning of the accounting system
d. None of the above

4. What financial statements are prepared as of the end of the accounting period?
a. Balance sheet
b. Income statement
c. All of the above
d. None of the above

5. Which of the following items would not have any effect on the income statement?
a. Revenues
b. Salary expense
c. Drawings
d. None of the above

6. The normal reporting practice in the balance sheet for an asset such as delivery equipment
is to:
a. Subtract the accumulated depreciation from the cost of the asset
b. Add the accumulated depreciation to the cost of the asset
c. Report only the cost of the asset
d. None of the above

7. Information about the earning power of the firm is reported on the:

a. Income statement
b. Statement of owner’s capital
c. Balance sheet
d. None of the above

8. The sources of the firm’s assets are reported on the:

a. Income statement
b. Statement of owner’s capital
c. Balance sheet
d. None of the above

9. An item not usually found on a balance sheet:

a. Accounts receivable
b. Allowance for bad debts
c. Interest expense
d. Accumulated depreciation

10. Preparation of financial statements will be made easier with the aid of a:
a. Trial balance
b. Worksheet
c. Ledger
d. Journal
CASE PROBLEMS – FINANCIAL STATEMENTS (INCOME STATEMENT &
BALANCE SHEET)

The following accounts were taken from the adjusted trial balance of Dr. Perez for the
period ending December 31, 2019, in alphabetical order:

Accumulated depreciation – automobile P30,000

Accumulated depreciation – medical
equipment and instrument 18,000
Accumulated depreciation – furniture
and fixtures 8,000
Allowance for uncollectible fees 2,500
Accounts payable 4,000
Attendant’s salary expense 30,000
Automobile 250,000
Car driver’s wages expense 15,000
Cash 35,000
Dr. Perez, capital 500,000
Dr. Perez, drawing 10,000
Fees receivable 16,500
Furniture and fixtures 120,000
Gas and oil expenses 5,000
Medical equipment and instruments 180,000
Medical supplies on hand 9,800
Prepaid insurance 5,500
Prepaid rent 10,000
Professional fees income 170,800
Rent expense 27,000
Repairs and maintenance expenses 5,000
Taxes and licenses expenses 2,500
Utilities expense 12,000

Required: Prepare the following:

a. Income statement
b. Balance sheet