ANALYSIS

1. Why do we need to prepare financial statements?

- Financial statements are a key source of information on a company's operations,
financial position, and cash flows. Readers utilize financial statement
information to make resource allocation decisions. On a larger scale, each of the
financial statements serves a specific role. Financial statements are important to
investors because they can reveal a lot of information about a company's
revenue, expenses, profitability, debt load, and ability to meet short- and long-
term financial obligations.

2. What elements can be found in Balance Sheet? Income Statement?

- Assets, liabilities, and equity, as well as other considerations, are all included in
the balance sheet. Revenues and costs or expenses are included in the income
statement. The cash flow statement is used to track changes in these parameters.

3. What useful information does an income statement provide to the business owner?
- The income statement shows a company's expenses, income, gains, and losses,
which may be used to compute net profit or loss for a certain time period using a
mathematical formula. This information allows you to make informed decisions
in order to keep your business on a sound financial footing.

APPLICATION

Mr. Joy Gomez, CPA

Income Statement
December 31, 2019

Revenue
Auditing Fees Income P85,000
Other Income 5,000
Total Revenue 90,000
 LIABILITIES

Current Liabilities
Accounts Payables P27,000
Loans Payables P30,000
Notes Payables P5,000
Total Current Liabilities P62,000

OWNER’S EQUITY

Gomez, Capital 143,000

Total Liabilities and Owner’s Equity P205,00

Mr. Joy Gomez, CPA

Statement of Changes in Owner’s Equity
For the month-ended December 31, 2019

Gomez Owner’s Equity, 01/01/19 P91,300

Add: Additional Investment
Profit 61,700 61,700

Total P153,000
Less: Withdrawals 10,000

Gomez, Owner’s Equity, 12/31/19 P143,000