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MODULE 5 PACKET
AE 111 – FINANCIAL ACCOUNTING & REPORTING
MODULE 5 OVERVIEW:

Welcome to Module 5 –WORKSHEET & FINANCIAL STATEMENTS

In this module, we will discuss how to prepare the worksheet and financial statements such as the
income statement, statement of changes in equity and statement of financial position.

CONSULTATION HOURS:
Phone or Messenger:
Virtual time: Class Schedule

MODULE 5 LEARNING OBJECTIVES:

By the end of this module, the students will be able to:
1. Prepare an adjusted trial balance.
2. Prepare in good form a ten-column worksheet.
3. Prepare financial statements from the completed worksheet.

COURSE CONTENT FOR MODULE 5:

WORKSHEET & FINANCIAL STATEMENTS
ACTIVITY DESCRIPTION TIME TO COMPLETE
Lecture discussions Preparing the Worksheet 30 minutes
Preparing the Financial Statements 30 minutes
Activity 5-1 Worksheet 15 minutes
Comprehensive Problem: Worksheet &
Activity 5-2 60 minutes
Financial Statements
Quiz Summative Quiz for Module 5 60 minutes

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LECTURE DISCUSSIONS

THE WORKSHEET

Accountants often use the worksheet to help transfer data from the unadjusted trial balance
to the financial statements. This multi-column document provides an efficient way to summarize
the data for financial statements. The accountant generally prepares a worksheet when it is time
to adjust the accounts and prepare the financial statements. However, it is possible to prepare
the financial statements directly from the adjusted trial balance at the end of the accounting
period if the business has relatively few accounts.

The worksheet is not part of the ledger or the journal, nor is it a financial statement. It is a
summary device used by the accountants for his convenience.

Preparing the Worksheet

Step 1 Enter the account balances in the unadjusted trial balance columns and total the
amounts.
➢ The numbers, titles, and balances of the accounts at the end of the accounting
period are lifted directly from the ledger before the adjusting entries are prepared
➢ The accounts are listed in the worksheet in the order they appear in the ledger.
➢ Total debits must equal total credits

Step 2 Enter the adjusting entries in the adjustments columns and total the amounts
➢ As each adjustment is entered, a letter is used to identify the debit entry and the
corresponding credit entry

Step 3 Compute each account’s adjusted balance by combining the unadjusted trial balance and
the adjustment figures. Enter the adjusted amounts in the adjusted trial balance columns.
The adjusted trial balance is prepared by combining horizontally, line by line, the amount of each
account in the unadjusted trial balance columns with the corresponding amounts in the
adjustment columns. This procedure is called cross-footing.

A simple convention to observe when extending amounts from the trial balance to the adjusted
trial balance follows:
➢ Add when the type of adjustment (debit or credit) is the same as the unadjusted
balance.

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➢ Subtract when the type of adjustment (debit or credit) is different from the
unadjusted balance

Step 4 Extend the asset, liability and owner’s equity amounts from the adjusted trial balance
columns to the balance sheet columns. Extend the income and expense amounts to the
income statement columns. Total the statement columns.
➢ Every account is either a balance sheet account or an income statement account.
Asset, liability capital, and withdrawal accounts are extended to the balance
sheet columns. income and expense accounts are moved to the income statement
columns.
➢ Debits in the adjusted trial balance remain as debits in the statement columns while
credits as credits.

Step 5 Compute profit or loss as the difference between total revenues and total expenses in the
income statement. Enter profit or loss as a balancing amount in the income statement and in the
balance sheet and compute the final column totals.
➢ Profit or loss is the difference between the debit and credit columns of the income
statement. The profit or loss should always be the amount by which the debit and
credit columns for income statement, and the debit and credit columns for balance
sheet differ.

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Del Mundo Landscape Specialist

Worksheet
For the Year Ended December 31, 2020
Step 1 Step 2 Step 3 Step 4
Account No. Accounts Unadjusted Trial Balance Adjustments Adjusted Trial Balance Income Statement Balance Sheet
Debit Credit Debit Credit Debit Credit Debit Credit Debit Credit
110 Cash 182,250 182,250 182,250
120 Account Receivable 7,500 i. 2,500 10,000 10,000
130 Supplies 1,000 c. 500 500 500
140 Prepaid Rent 21,000 a. 7,000 14,000 14,000
150 Prepaid Insurance 24,000 b. 2,000 22,000 22,000
160 Vehicle 300,000 300,000 300,000
165 Accumulated Depreciation - Vehicle d. 4,500 4,500 4,500
170 Equipment 54,000 54,000 54,000
175 Accumulated Depreciation - Equipment e. 1,000 1,000 1,000
210 Notes Payable 100,000 100,000 100,000
220 Accounts Payable 1,000 1,000 1,000
230 Salaries Payable g. 1,600 1,600 1,600
240 Interest Payable h. 1,400 1,400 1,400
250 Unearned Revenues 13,500 f. 2,250 11,250 11,250
310 Del Mundo, Capital 450,000 450,000 450,000
320 Del Mundo, Withdrawals 5,000 5,000 5,000
410 Landscaping Revenues i. 2,500 2,500 2,500
420 Lawn Cutting Revenues 37,500 f. 2,250 39,750 39,750
510 Salaries Expense 4,000 g. 1,600 5,600 5,600
520 Supplies Expense c. 500 500 500
530 Rent Expense a. 7,000 7,000 7,000
540 Insurance Expenses b. 2,000 2,000 2,000
550 Gas Expense 1,500 1,500 1,500
560 Advertising Expense 1,750 1,750 1,750
570 Depreciation Expense - Vehicles d. 4,500 4,500 4,500
580 Depreciation Expense - Equipment e. 1,000 1,000 1,000
590 Interest Expense h. 1,400 1,400 1,400
TOTALS 602,000 602,000 22,750 22,750 613,000 613,000 25,250 42,250 587,750 570,750
Net Profit 17,000 17,000
TOTALS Step 5 42,250 42,250 587,750 587,750

REMEMBER
If NET PROFIT Debit in IS Credit in BS
If NET LOSS Credit in IS Debit in BS

You may watch this video from YouTube : https://youtu.be/25b1eir8SVY

ESSENCE OF FINANCIAL STATEMENTS

There are questions that the owner of the business periodically asks – How much did the
business entity earn? What is the financial condition of the business? How much is the owner’s
interest in the entity today? What happened to the cash receipts? Where did cash go? Investors,
creditors, taxing authorities and other users have their own questions about the business which
need to be answered.

The financial statements are the means by which the information accumulated and
processed in financial accounting is periodically communicated to the users. Without accounting
information embodied in financial statements, users may not be able to arrive at sound economic
decisions. The objective of financial statements is to provide information about the financial
position, financial performance, and cash flows of the entity that is useful to a wide range of
users in making economic decisions.

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PREPARING THE FINANCIAL STATEMENTS (Step 6)

Once the worksheet is completed, it is easy to prepare the financial statements for the
account balances have been extended to the appropriate income and balance sheet columns.
Most of the information needed to prepare the income statement, statement of changes in equity
and balance sheet are available from the worksheet. Note that financial statements shall be
presented at least annually.

Income Statement
The income statement is a formal statement showing the performance of the enterprise for a
given period of time. It summarizes the revenues earned and expenses incurred for that period
of time. The income statement for Del Mundo Landscape Specialist (refer to Excel File) is
prepared directly from the income statement columns of the worksheet.

Del Mundo Landscape Specialist

Income Statement
For the Year Ended December 31, 2020

Revenues
Landscaping Revenues ₱ 2,500
Lawn Cutting Revenues 39,750
Total Revenues 42,250

Less: Expenses
Salaries Expense ₱ 5,600
Supplies Expense 500
Rent Expense 7,000
Insurance Expenses 2,000
Gas Expense 1,500
Advertising Expense 1,750
Depreciation Expense - Vehicles 4,500
Depreciation Expense - Equipment 1,000
Interest Expense 1,400
25,250
Profit ₱ 17,000

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Statement of Changes in Equity

The statement of changes in equity summarizes the changes that occurred in owner’s
equity. Changes in an enterprise’s equity between two balance sheet dates reflect the increase
or decrease in its assets during the period.

In the case of sole proprietorships, increases in owner’s equity arise from additional
investments by the owner and profit during the period. Decreases result from withdrawals by the
owner and from loss for the period.

Del Mundo Landscape Specialist

Statement of Changes in Equity
For the Year Ended December 31, 2020

Del Mundo, Capital, Beginning ₱ 450,000

Add: Additional Investments -
Net Profit 17,000
Total ₱ 467,000
Less: Withdrawals 5,000
Del Mundo, Capital, Ending ₱ 462,000

Statement of Financial Position

The statement of financial position is a statement that shows the financial position or
condition of an entity by listing the assets, liabilities, and owner’s equity as at a specific date.
This statement is also called the balance sheet.

Users of financial statements analyze the balance sheet to evaluate an entity’s liquidity, its
financial flexibility, and its ability to generate profits, and its solvency.

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Del Mundo Landscape Specialist

Statement of Financial Position
As of December 31, 2020

ASSETS
Current Assets
Cash ₱ 182,250
Account Receivable 10,000
Supplies 500
Prepaid Rent 14,000
Prepaid Insurance 22,000 ₱ 228,750
Noncurrent Assets
Vehicle ₱ 300,000
Less: Accumulated Depreciation 4,500 ₱ 295,500

Equipment ₱ 54,000
Less: Accumulated Depreciation 1,000 53,000 348,500
TOTAL ASSETS ₱ 577,250

LIABILITIES
Current Liabilities
Notes Payable ₱ 100,000
Accounts Payable 1,000
Salaries Payable 1,600
Interest Payable 1,400
Unearned Revenues 11,250
TOTAL LIABILITIES ₱ 115,250

OWNER'S EQUITY
Del Mundo, Capital, Ending 462,000
TOTAL LIABILITIES AND OWNER'S EQUITY ₱ 577,250

Statement of Cash Flows

The statement of cash flows provides information about the cash receipts and cash
payments of an entity during a period. It is a formal statement that classifies cash receipts
(inflows) and cash payments (outflows) into operating, investing, and financing activities. The
statement shows the net increase or decrease in cash during the period and the cash balance at
the end of the period. It also helps project the future net cash flows of the entity.

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Cash Flows from Operating Activities

Cash flows from operating activities are generally the cash effects of transactions and other
events that enter into the determination of profit or loss

Cash Inflows
• receipts from sale of goods and performance of services
• receipts from royalties, fees, commissions, and other revenues

Cash outflows
• payments to suppliers of goods and services
• payments to employees
• payments for taxes
• payments for interest expense
• payments for other operating expenses

Cash Flows from Investing Activities

Investing activities include making and collecting loans, acquiring, and disposing of investments
in debt or equity securities; and obtaining and selling of property and equipment and other
productive assets.

Cash Inflows
• receipts from sale of property and equipment
• receipts from sale of investments in debt and equity securities
• receipts from collections on notes receivable

Cash outflows
• payments to acquire property and equipment
• payments to acquire debt and equity securities
• payments to make loans to others generally in the form of notes receivable

Cash Flows from Financing Activities

Financing activities include obtaining resources from owners and creditors.

Cash Inflows
• receipts from investments by owners
• receipts from issuance of notes payable

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Cash outflows
• payments to owners in the form of withdrawals
• payments to settle notes payable

Del Mundo Landscape Specialist

Statement of Cash Flows
For the Year Ended December 31, 2020

Cash flows from Operating Activities

Cash received from clients ₱ 43,500
Payments to employees (4,000)
Payments for office rent (21,000)
Payments for insurance (24,000)
Payments for advertising (1,750)
Payments for other operating expenses (1,500)
Net cash provided by (used in)operating activities (8,750)

Cash flows from Investing Activities

Payments to acquire vehicle (200,000)
Payments to acquire equipment (54,000)
Net cash provided by (used in) investing activities (254,000)

Cash flows from Financing Activities

Cash received as investments by owner 450,000
Payments for withdrawals by owner (5,000)
Net cash provided by (used in)financing activities 445,000

Net increase (decrease) in Cash ₱ 182,250

Cah balance at the beginning of the period 0
Cah balance at the end of the period ₱ 182,250

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Activity 5-1 Using the following list of accounts a, enter the type of account and its normal
balance into the table below. Please answer in the Neo LMS

Type of Account Normal

Balance
Asset Liability Equity Debit Credit
Homer, Capital
Interest Payable
Land
Homer, Withdrawals
Fees Earned
Prepaid Rent
Advertising Expense
Unearned Rent Revenue
Commissions Earned
Notes Receivable

Activity 5-2 Comprehensive Problem: Worksheet & Financial Statements

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Rosalina Besario Surveyors

Trial Balance
May 31, 2020

Cash 210,000
Account Receivable 930,000
Prepaid Advertising 360,000
Engineering Supplies 270,000
Survey Equipment 1,890,000
Accumulated Depreciation - Survey Equipt. 640,000
Accounts Payable 190,000
Unearned Survey Revenues 120,000
Notes Payable 500,000
Salaries Payable
Interest Payable
Besario, Capital 1,120,000
Besario, Withdrawals 700,000
Survey Revenues 6,510,000
Salaries Expense 3,270,000
Supplies Expense
Rent Expense 960,000
Insurance Expenses 250,000
Utilities Expense 160,000
Advertising Expense
Depreciation Expense
Interest Expense
Miscellaneous Expense 80,000
TOTALS 9,080,000 9,080,000

The following information pertaining to the year-end adjustments is available:

a. The P360,000 prepaid advertising represents expenditure made on Nov. 1, 2019
for monthly advertising over the next 18 months.
b. A count of engineering supplies at May 31, 2020 amounted to P90,000
c. Depreciation on the surveying equipment amounted to P160,000.
d. One third of the unearned survey revenues has been earned at year-end.
e. Salaries of P140,000 have accrued.
f. Interest of P60,000 on the notes payable has accrued at year-end.

REQUIRED: 1. Prepare the adjustments on the worksheet and complete the worksheet.
2. Prepare the income statement, statement of changes in equity, and
statement of financial position.

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Activity 5-3 Summative Quiz for Module 5

REFERENCES:

Aliling, Leonardo E. (2013). Fundamentals of basic

accounting. Quezon City: Rex Printing Company, Inc.

Ballada, Win Lu, Susan Ballada (2019). Basic

financial accounting & reporting. Manila, Philippines:
Made Easy & Domdane Publisher.

Cabrera, Ma. Elenita B., Cabrera, Gilbert Anthony B.

(2019) Financial accounting and reporting
fundamentals.. Manila, Philippines: GIC Enterprises
& Co., Inc.

Cabrera, Ma. Elenita B. (2018). Financial accounting

and reporting -comprehensive edition.
Manila, Philippines: GIC Enterprises & Co. Inc.
Printed Learning Resources
Mroczkwowski, Nicholas, David Flanders. (2015).
Accounting basic reports. 10th ed. Australia: Cengage
Learning Australia.

Valix, Conrado T., Christian Aris M. Valix. (2017).

Theory of accounts. Manila, Philippines: GIC
Enterprises & Co.

Weygandt, Jerry J., Paul D. Kimmek Donald E.

Kieso. (2016) Accounting principles. International
Student Version. 12th ed. Hoboken, NJ: John Wiley &
Sons.

Wild, John, et al. (2015) Principles of accounting.

International edition. New York: Mc Graw Hill.

Adjusting Entries. Retrieved from

https://www.youtube.com/watch?v=B02hG5B38Hk
Web and Other Learning Resources https://www.youtube.com/watch?v=WfqStMsLwis
https://www.youtube.com/watch?v=T8OWLNYd9No

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Preparation of Worksheet. Retrieved from

https://www.youtube.com/channel/UC5na0U982ACiL
zHLVGKSp6Q

https://www.youtube.com/watch?v=r_o0jCvthto
https://www.youtube.com/watch?v=BTuH7C0g87o&t
=36s

https://www.youtube.com/watch?v=BTuH7C0g87o

https://www.youtube.com/watch?v=xq-RPrpw9ro

Preparation of Financial Statements. Retrieved from

https://www.youtube.com/watch?v=myNAkXT9XgY

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