CONCEPTUAL FRAMEWORK

AND ACCOUNTING
S TA N D A R D S

F I N A N C I A L S TAT E M E N T S
 LEARNING OUTCOMES
1. Differentiate the significant features and elements of the five
principal financial reports in various types of business.
2. Explain the importance and relationship of the financial
statements.
3. Compare and contrast the owner’s equity section of the financial
statements of a sole proprietorship, partnership and corporation.
 FIVE PRINCIPAL REPORTS
1. Statement of Financial Position or Balance Sheet Statement
2. Income Statement
3. Statement of Changes in Equity
4. Statement of Cash Flows and
5. Notes Comprising a Summary of Significant Accounting Policies
and Other Explanatory Notes
Illustrative Financial Statements of a Service
Company (Sole Proprietorship)
DAHLIA’S BUSINESS
Income Statement
For the Year Ended December 31, 2017

Service Revenue P2,690

Rent Income 900
Total Revenue P3,680
Less: Expenses
Wages Expense 1,630
Utilities Expense 310
Miscellaneous Expense 120
2,060
Net Income P1,620
Illustrative Financial Statements of a Service
Company (Sole Proprietorship)
DALIA’S BUSINESS
Statement of Changes in Owner’s Equity
For the Year Ended December 31, 2017

Dalia, Capital, January 1, 2017 P5,000

Add: Net Income 1,620
Total P6,620
Less: Drawings (500)
Dalia, Capital, December 31, 2017 P6,120
 DALIA’S BUSINESS
Statement of Financial Position
December 31, 2017

Assets Liabilities and Owner’s Equity

Current Assets: Liabilities:

Cash P7,120 Notes Payable P1,000

Owner’s Equity:
Dalia, Capital 6,120
Total Assets P7,120 Total Liabilities and Owner’s Equity P7,120
 Proprietorship Equity Accounts
a) Capital, (owner’s name)
Transactions that increase this are:
 Initial investment by the owner
 Additional investment
 Operating profit from the business for the accounting
period. If the net loss, the account is decreased.

a) Withdrawal, (owner’s name)

It is a temporary account used to accumulate the owner’s
drawings (cash, inventory or other assets) from the business. The
effect of these drawings is to reduce his or her financial interest in
the business.
Basic Accounting Equation
(Financial Structure of a Proprietorship)

ASSETS LIABILITIES OWNER’S EQUITY

Cash and Other Claims of Capital

Items Owned Creditors Withdrawal
Illustrative Financial Statements of a Trading
or Merchandising Company (Partnership)
YLLJUANE TRADING COMPANY
Income Statement
For the Year Ended December 31, 2017

Net Sales P720,000

Less: Cost of Merchandise Sold 525,000
Gross Profit P195,000
Less: Selling and Administrative Expenses 122,000
Income from operations 73,000
Add (Deduct) Other Income (Expenses)
Interest Income P5,000
Interest Expense (2,000) 3,000
Net Income P70,000
IIlustrative Financial Statements of a Trading
or Merchandising Company (Partnership)
YLLJUANE TRADING COMPANY
Statement of Changes in Partners’ Equity
For the Year Ended December 31, 2017

Sheryll Cruz John Santos

Capital Balance, January 1, 2017 P165,000 P165,000
Add: Share in 2017 income 35,000 35,000
Total P200,000 P200,000
Less: Drawings 25,000 25,000
Dalia, Capital, December 31, 2017 175,000 175,000
 YLLJUANE TRADING COMPANY
Statement of Financial Position
December 31, 2017
Assets Liabilities and Owner’s Equity
Current Assets: Current Liabilities:
Cash P150,000 Accounts Payable P100,000
Accounts Receivable 50,000 Wages Payable 20,000
Merchandise Inventory 200,000 Total current liabilities 120,000
Total current assets 400,000
Non-current liabilities:
Delivery Equipment 300,000 Note Payable (due 2020) 180,000
Less: Accumulated Total Liabilities P300,000
Depreciation 50,000 Owner’s Equity
Total non-current assets 250,000 Sheryll Cruz, Capital P175,000
John Santos, Capital 175,000
Total Assets P650,000 Total Owner’s Equity 350,000
Total Liabilities & Owner’s Equity 650,000
Partnership Equity Accounts

ASSETS LIABILITIES OWNER’S EQUITY

Cash and Other Claims of Capital, Partner A

Items Owned Creditors Capital, Partner B
Withdrawal, Partner A
Withdrawal, Partner B
Illustrative Financial Statements of a
Manufacturing Company (Corporation)
ABC MANUFACTURING COMPANY
Income Statement
For the Year Ended December 31, 2017

Net Sales P2,000,000

Less: Cost of Goods Sold
Finished goods inventory, Jan 1 200,000
Add: Cost of goods manufactured 2,300,000
Total Available for sale 2,500,000
Less: FG inventory, Dec 31 1,500,000
Cost of Goods Sold 1,000,000
Gross Profit 1,000,000
Less: Selling and Administrative Expenses 400,000
Income from Operations 600,000
(to be continued)
Illustrative Financial Statements of a
Manufacturing Company (Corporation)
ABC MANUFACTURING COMPANY
Income Statement
For the Year Ended December 31, 2017

Income from operations 1,000,000

Add (Deduct) Other income (expenses)
Interest Income 10,000
Interest Expense (60,000)
Net income before taxes 550,000
Less: Provision for income tax 192,500
Net income after taxes 357,500
 Illustrative Financial Statements of a Manufacturing
Company (Corporation)
ABC MANUFACTURING COMPANY
Statement of Financial Position
December 31, 2017

Assets
Current Assets
Cash P350,000
Investment in trading securities 100,000
Accounts Receivable 150,000
Finished goods inventory 1,500,000
Goods in process inventory 100,000
Raw materials inventory 150,000
Factory supplies inventory 80,000
Prepaid Insurance 50,000
Total current assets P2,480,000
 ..continued

Assets
Non-Current Assets
Property, plant and Equipment
Land 300,000
Building P800,000
Less:Accumulated Depreciation 600,000 200,000
Factory Equipment 500,000
Less:Accumulated Depreciation 200,000 300,000
Delivery Equipment 300,000
Less:Accumulated Depreciation 150,000 150,000
Office equipment, furniture & fixtures 200,000
Less:Accumulated Depreciation 80,000 120,000
Total 1,070,000
Total Assets 3,550,000
 ..continued

Liabilities and Shareholder’s Equity

Liabilities
Current Liabilities
Accounts Payable P450,000
Note Payable 350,000
Accrued Expenses Payable 72,000
Income Taxes Payable 48,000
Total current liabilities 920,000
Non-current Liabilities
Mortgage Note Payable (due in 2020) 500,000
Total Liabilities 1,420,000
 ..continued

Liabilities and Shareholder’s Equity

Liabilities
Total Liabilities P1,420,000

Shareholder’s Equity
Share Capital, ordinary, par value, P100, Authorized,
Issued and outstanding, 10,000 shares P1,000,000
Additional Paid-in capital
Excess over par value 600,000
Total contributed capital 1,600,000
Retained Earnings 530,000
Total shareholder’s Equity 2,130,000
Total Liabilities and Shareholder’s Equity P3,550,000
Corporation Equity Accounts

ASSETS LIABILITIES OWNER’S EQUITY

Cash and Other Claims of Share Capital

Items Owned Creditors Additional Paid-in
Capital
Accumulated Profits