Comprehensive Basic Accounting

Prepared by: Nixsun D. Casuncad, CPA

 Financial Statements

The FINANCIAL STATEMENTS are the means by

which the information accumulated and
processed in financial accounting is periodically
communicated to the users.
 Financial Statements
OBJECTIVE OF FS:

To provide financial information about the

reporting entity’s assets, liabilities, equity,
income and expenses that is useful to users of FS
in assessing the prospects for future net cash
inflows to the reporting entity and in assessing
management’s stewardship of the entity’s
economic resources.
 Complete Set of FS
1. Statement of financial statement as at the end of the
period;
2. Statement of financial performance for the period;
3. Statement of changes in equity for the period;
4. Statement of cash flows for the period;
5. Notes to FS; and
6. Statement of financial position as at the beginning of the
earliest period when an entity applies an accounting policy
retrospectively or makes a retrospective restatement of
items in its FS or when it reclassifies items in its FS.
 Financial Performance
Two Types of Presentation:
1. Single statement of comprehensive income
2. Two statements: (1) income statement and
(2) other comprehensive income beginning
with profit or loss
 Financial Performance
Statement of Financial Performance Information

• Helps in assessing potential changes in the economic

resources that is likely to control in the future.

• Useful in predicting the capacity of the enterprise to

generate cash flows from its existing resource base.
 Financial Performance
Maria Clara Accounting Services
Statement of Financial Performance
For the Year Ended December 31, 2020

Revenues
Accounting Services P520,000
Other Revenues 50,000
Total 570,000
Expenses
Salaries Expenses 80,000
Rent Expenses 75,000
Supplies Expenses 50,000
Miscellaneous Expenses 25,000
Total 230,000

Profit P340,000
 Changes in Equity
• This 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 net assets during the period.
 Changes in Equity
Items affecting the owner’s capital:
 Original and additional investments – increase
 Net profit – increase
 Net loss – decrease
 Withdrawals - decrease
 Changes in Equity
Maria Clara Accounting Services
Statement of Changes in Equity
For the Year Ended December 31, 2020

Clara, Owner’s Equity, Beginning P750,000

Add: Additional investment 250,000
Net profit 340,000
Total 1,340,000
Less: Withdrawals 500,000
Clara, Owner’s Equity, Ending P840,000
 Financial Position

The information needed for this statement are

the NET BALANCES AT THE END OF THE PERIOD,
rather than the total for the period as in income
statement.
 Financial Position
Format:
(1) Report format – simply lists the assets,
followed by the liabilities then by owner’s
equity in vertical sequence.

(2) Account format – lists assets on the left and

the liabilities and owner’s equity on the right.
 Financial Position
• Liquidity – the availability of cash in the near future
after taking account of the financial commitments
over this period.
• Solvency – the availability of cash over the longer
term to meet financial commitments as they fall
due.
• Financial flexibility – the ability to take effective
actions to alter the amounts and timings of cash
flows so that it can respond to unexpected needs
and opportunities.
 Financial Position
Maria Clara Accounting Services
Statement of Financial Position
As At December 31, 2020
ASSETS LIABILITIES

Current Assets Current Liabilities

Cash P200,000 Accounts payable P45,000
Accounts receivable 120,000 Salaries payable 30,000
Office supplies 75,000 Total Liabilities P75,000
Prepaid rent 90,000
Total Current Assets 485,000
OWNER’S EQUITY
Noncurrent Asset
Transportation equipment 430,000 Clara, Owner’s Equity, Ending P840,000

Total Assets P915,000 Total Liabilities and Owner’s Equity P915,000

 Cash Flows

This statement provides information about the

cash receipts and cash payments of an entity
during the period.
 Cash Flows
 Cash Flows from Operating Activities
Involve providing services, and producing and
delivering goods.

Major Classes of Operating Cash Flows:

Cash inflows
 Receipts from sale of goods and performance of services
 Receipts from royalties, fees, commissions and other
revenues
 Cash Flows
 Cash Flows from Operating Activities
Involve providing services, and producing and
delivering goods.

Major Classes of Operating Cash Flows:

Cash outflows
 Payments to suppliers of goods and services
 Payments to employees
 Payments for taxes, interest expense, and for other
operating expenses
 Cash Flows
 Cash Flows from Operating
Activities
Two methods of presenting Cash
Flows from Operating Activities:
1. Direct Method

(Photo from:
https://www.myaccountingcourse.com/financial-
statements/cash-flow-statement-direct-method)
 Cash Flows
 Cash Flows from Operating
Activities
Two methods of presenting Cash
Flows from Operating Activities:
2. Indirect Method

(Photo from:
https://www.myaccountingcourse.com/financial-
statements/cash-flow-statement-indirect-method)
Comprehensive Basic Accounting
Step 7: Adjustments are journalized and posted

Step 8: Closing entries are journalized and posted

Closing procedure – transferring the temporary

accounts, i.e., income and expense accounts, to the
capital account

Income Summary – account used to close the income and

expense accounts
 Closing entries
1. To close income accounts:
Revenue account xxx
Income summary xxx

2. To close expense accounts:

Income summary xxx
Expense account xxx
 Closing entries
3. To close income summary (net profit):
Income summary xxx
Owner’s capital account xxx

4. To close income summary (net loss):

Owner’s capital account xxx
Income summary xxx
 Closing entries
3. To close withdrawal account:
Owner’s capital account xxx
Withdrawal account xxx
Step 9: Preparation of a post-closing trial balance (final TB)

This is prepared after temporary accounts are closed.

Only real accounts have balances, all temporary accounts
have zero balances. (Note: Temporary accounts may not
be presented in the TB.)
Step 10: Reversing entry

A journal entry which is the exact opposite of a related

adjusting entry made at the end of the period.

This is just optional.

Reference:

Ballada W. Ballada S. Basic Financial Accounting and

Reporting. Philippines 2019: Domdane Publishers & Made
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