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“EXCELLENCE IS OUR BUSINESS AND OUR COMMITMENT”

FUNDAMENTALS OF ACCOUNTING
Week: 15
Topic: FINANCIAL STATEMENTS
Learning Objectives: At the end of the lesson, the learners should be able to:

1. Define Financial Statements;

2. Know the different forms of Financial Statements;
3. Appreciate the importance of Statement of Financial Position in knowing assets, liabilities and capital of a
certain business;
4. Prepare a Statement of Financial Position.
5. Prepare a Statement of Income.

I. LESSON DISCUSSION:
FINANCIAL STATEMENTS
The Financial Statements represent a formal record of the financial activities of performance and liquidity of a
company. Financial Statements reflect the financial business organization. These are written reports that quantify
the financial effects of business transactions and events on the business.

1. Statement of Financial Position

The Statement of Financial Position, also known as the Balance Sheet the financial position of an entity
as of a given date. It is comprised of the following three elements:
 Assets- something a business owns or controls (e.g. cash, inventory, plant machinery, etc.)
 Liabilities- something a business owes to someone (e.g. creditors, bank lenders, and it includes also your
payables etc.)
 Equity or Capital- what the business owes to its owners. This represents amount of capital that remains
in the business after its assets are used to pay off its outstanding liabilities. Equity or capital therefore
represents the difference between the assets and liabilities.

Illustration 1:
The trial balance of San Diego Enterprises was prepared for the period covering January 1 to June 30,
2016. As an accountant you are required to prepare a Statement of Financial Position. As of June 30, 2016.

SAN DIEGO ENTERPRISES

Trial Balance
June 30, 2016
Debit Credit
Cash 150,000.00
Accounts Receivable 25,000.00
Supplies 10,000.00
Prepaid Rent 60,000.00
Delivery Vehicle 75,000.00
Office Equipment 15,000.00
Furniture 10,500.00
Accumulated Depreciation 15,000.00
Accounts Payable 15,500.00
VAT Payable 5,000.00
 Notes Payable 45,000.00
San Diego, Capital 250,000.00
San Diego, Drawing 20,000.00
Net Income 35,000.00
Total 365,000.00 365,000.00

Solution to Illustration 1
SAN DIEGO ENTERPRISES
Statement of Financial Position
As of June 30,2016

ASSETS LIABILITIES
Currrent Assets: Current Liabilities:
Cash 150,000.00 Accounts Payable 15,500.00
Accounts Receivable 25,000.00 Vat Payable 5,000.00
Supplies 10,000.00 Total Current Liabilities 20,500.00
Prepaid Rent 60,000
Total Current Assets 245,000.00

Non-current Assets Non-current liabilities:

Deleivery Vehicle 75,000.00 Notes Payable 45,000.00
Office Equipment 15,000.00
Furnitures 10,500.00 Total Liabilities 65,500.00
Total Non-current Assets 100,500.00
Less: Accum. Depreciation 15,000.00 CAPITAL
Net Book Value 85,500.00 San Diego Capital 265,000.00

Total Assets 330,500.00 Total Liabilities & Capital 330,500.00

2. Statement of Income
Statement of Income or Income Statement, also known as the Profit and Loss Statement, reports the
company's financial performance in terms of net profit or loss over a specified period.

Income Statement is composed of the following two elements:

 Income- what the business has earned over a period (e.g. sales or service revenue, dividend income,
interest income, etc.)
 Expense- the cost incurred by the business over a period (e.g. salaries and wages, depreciation, rental
charges, etc.)
- Net profit or loss is arrived at by deducting expenses from income.

Illustration 2
Mr. A established his janitorial services business in October, 2016. The business has operated for almost a
year now and he is planning to expand it in other places. For the first quarter of 2017, he wanted to see how
the business is earning in profits and see how he can position his business in strategic locations.
The following is the trial balance lifted from the general ledger of ABC Janitorial Services for the period
covered January 1 to June 30, 2017. You are required to prepare a single-step income statement for the period
covered ending June 30, 2017.
 ABC JANITORIAL SERVICES
Trial Balance
June 30, 2017

Debit Credit
Cash 181,900.00
Accounts Receivable 20,000.00
Office Supplies 5,000.00
Prepaid Rent 45,000.00
Office Equipment 75,000.00
Furniture & Fixtures 30,000.00
Rental Deposit 30,000.00
Accounts Payable 62,500.00
Mr. A Capital 300,000.00
Mr. A Drawings 10,000.00
Service Revenue 150,000.00
Interest income 750.00
Gain on sale of assets 1,450.00
Advertising expense 10,000.00
Light and Water expense 10,300.00
Salaries, wages & benefits 70,000.00
Rent Expense 15,000.00
Representation expenses 3,000.00
Telephone expenses 7,500.00
Transportation expenses 2,000.00
514,700.00 514,700.00

Solution to Illustration 2

ABC JANITORIAL SERVICES

Statement of Income
For the Quarter Ended June 30, 2017

Revenues/Income
Service Income 150,000.00
Interest Income 750.00
Gain on sale of assets 1,450.00 152,200.00
Less: Expenses
Advertising Expense 10,000.00
Light and Water Expense 10,300.00
Salaries, wages & benefits 70,000.00
Rent expenses 15,000.00
Representation expenses 3,000.00
Telephone expenses 7,500.00
Transportation expenses 2,000.00 117,800.00
 Net Income for the period 34,400.00

II. REFERENCES:
 Fundamentals of Accountancy, Business and Management 2 by Dr. Marife Agustin-Acierto and
Benjamin A. Abarquez, CPA
 Fundamentals of Accounting by Dr. William B. Baltazar, CPA, AFB

III. REQUIREMENTS:
1. Prepare a Statement of Financial Position or Balance Sheet of Gregorio Enterprise.
The following is the trial balance of Gregorio Enterprises as of June 30, 2016:

GREGORIO ENTERPRISES
Trial Balance
30-Jun-16

Debit Credit
Cash 120,000.00
Accounts Receivable 50,000.00
Supplies 12,000.00
Prepaid Rent 35,500.00
Delivery Vehicle 165,000.00
Office Equipment 23,200.00
Furnitures 11,450.00
Accumulated Depreciation 30,000.00
Accounts Payable 26,550.00
Vat Payable 4,500.00
Notes Payable 75,000.00
Gregorio Capital 281,100.00
417,150.00 417,150.00

2. Prepare Statement of Income Darrly Manpower Services.

The following is the trial balance of Darrly Manpower Services for the period ending May 31, 2016.
DARRLY MANPOWER SERVICES
Trial Balance
May 31, 2016

Debit Credit
Cash 105,000.00
Supplies on hand 55,400.00
Office equipment 87,200.00
Furniture and fixtures 32,400.00
Accumulated Depreciation 16,853.00
Darryl Capital 236,775.00
Darrly Drawings 25,000.00
Service Income 225,000.00
Interest income 1,025.00
Gain on sale of assets 1,740.00
Advertising expense 5,000.00
Depreciation expense 4,893.00
Light and water expense 12,400.00
Salaries, wages & benefits 110,500.00
Rent Expense 30,000.00
Representation expense 2,500.00
Telephone expense 8,600.00
Transportation expense 2,500.00
481,393.00 481,393.00