FUNDAMENTALS OF ACCOUNTING

AND REPORTING

The Statement of Financial Position

ROX RENTAL SERVICE The Statement of Financial Position

Statement of Financial Position (SFP) or Balance Sheet shows the
As of December 31, 200x financial condition of the business at
Assets any given time. Observe that the date
Current Assets: of the business starts with the words
Cash P 566, 500 “as of”. This means that the SFP can
Accounts receivable 50,000 be prepared anytime even if the
Notes receivable 150,000 P 766,000 operation of the business has not
Non-Current Asset: started yet.
Equipment 60,000
Total Assets P 826, 500

Liabilities and Owner’s Equity

Current Liabilities:
Accounts payable P 500
Notes payable 36,000
SSS payable 20,000
Withholding tax payable 30,000 P 86,000
Owner’s Equity:
Rox, Capital, December 31 740,000
Total Liabilities and Owner’s Equity P 826,500

The Statement of Cash Flows

The Statement of Cash flows (SCF) depicts the sources and uses of cash for a certain period. The amount
of ending cash reflected in the statement of cash flows should be equal to the cash as reflected in the
Statement of Financial Position.

Activities:

 Operating activities—are taken from the statement of comprehensive income.

 Financing activities—show the sources of business financing which generally consists of equity
from the owners and creditors.
 Investing activities—show how management uses the excess available cash of the business so
that there would be no idle cash.

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Reference: Valencia and Roxas, BASIC ACCOUNTING, 4th Edition
 FUNDAMENTALS OF ACCOUNTING
AND REPORTING

Direct Method Cash Flows

ROX RENTAL SERVICE

Statement of Cash Flows
For the Year Ended December 31, 200x

Operating Activities:
Collections from:
Cash services P 200,000
Notes receivable 100,000
Rent income 50,000
Interest income 1,000
Payments of:
Salary (200,000)
Interest expense ( 500)
Net cash from operations P 100,500

Financing Activities:
Owner’s contribution P 500,000
Owner’s withdrawals ( 10,000)
Net cash from financing P 490,000

Investing Activities:
Purchase of Equipment (P 24,000)
Net cash from investing (P 24,000)
Net increase in cash P 566,500
Add: Cash, beginning 0
Cash, December 31, 200x P 566,500

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Reference: Valencia and Roxas, BASIC ACCOUNTING, 4th Edition
 FUNDAMENTALS OF ACCOUNTING
AND REPORTING

The Asset Accounts

Assets are resources or things of value owned by an enterprise. Generally, they are recorded in the
books of accounts with a normal debit balance. The asset accounts are classified into current and
noncurrent assets.

Current Assets

1. Cash
2. Accounts receivable
3. Notes receivable
4. Accrued interest receivable
5. Inventories
6. Prepaid supplies

Noncurrent Assets

1. Land
2. Building
3. Furniture and Fixture
4. Equipment

Contra-Valuation Accounts

1. Allowance for Doubtful Accounts

2. Accumulated Depreciation

The Liability Accounts

Liabilities are present obligations to pay cash or cash equivalents by an entity. In other words, they
represent claims against the assets of the business. Liability accounts have a normal credit balance. They
are classified into current and non-current liabilities.

Current Liabilities

1. Accounts payable
2. Notes payable
3. Accrued Interest Payable
4. SSS Premium Payable
5. Withholding Tax Payable

Noncurrent Liability

1. Loan Payable
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Reference: Valencia and Roxas, BASIC ACCOUNTING, 4th Edition
 FUNDAMENTALS OF ACCOUNTING
AND REPORTING

*noncurrent liability comprises the portion payable beyond one year of a long-term liability.

The Owner’s Equity Accounts

Owner’s Equity

Withdrawals/Drawing

Nominal Accounts

Revenue Accounts

1. Sales
2. Service Income
3. Professional Fees
4. Interest Income
5. Rent Income
6. Gain on sale of Other Assets

The Expense Accounts

1. Cost of Sales
2. Supplies Expense
3. Salaries and Wages Expense
4. Insurance Expense
5. Taxes and Licenses Expense

Estimated Expenses

1. Doubtful accounts expense

2. Depreciation expense

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Reference: Valencia and Roxas, BASIC ACCOUNTING, 4th Edition