Professional Documents
Culture Documents
ACCOUNT FORM – A form of the SFP that shows assets on the left
side and liabilities and owner’s equity on the right side just like the
debit and credit balances of an account.
a. Emphasize that the two are only formats and will yield the same
amount of total assets, liabilities and equity
b. Emphasize that assets should always be equal to liabilities and
equity
CURRENT ASSETS – Assets that can be realized (collected, sold,
used up) one year after year-end date. Examples include Cash,
Accounts Receivable, Merchandise Inventory, Prepaid Expense,
etc.
CURRENT LIABILITIES – Liabilities that fall due (paid, recognized
as revenue) within one year after yearend date. Examples include
Notes Payable, Accounts Payable, Accrued Expenses (example:
Utilities Payable), Unearned Income, etc.
A service company provides services in order to generate revenue and the main cost
associated with their service is the cost of labor which is presented under the account
Salaries Expense.
On the other hand, a merchandising company sells goods to customers and the main cost
associated with the activity is the cost of the merchandise which is presented under the
line item Cost of Goods Sold.
a. Heading
i. Name of the Company
ii. Name of the Statement
iii. Date of preparation (emphasis on the wording – “for the”)
b. Sample of a Report Form SFP
i. First part is revenues - This is the total amount of revenue that the
company was able to generate from providing services to customers
ii. Second part is expenses (can be broken down into General and
Administrative and Selling Expenses)
iii. Revenues less Expenses. Net income for a positive result and net
loss for a negative result
c. Sample of a multi-step SCI
i. First part is sales - This is the total amount of revenue that the company was
able to generate from selling products
ii. Second part compose of contra revenue – called contra because it is on the
opposite side of the sales account. The sales account is on the credit side while the
reductions to sales accounts are on the debit side. This is “contrary” to the normal
balance of the sales or revenue accounts.
ii.i. Sales returns – This account is debited in order to record returns of
customers or allowances for such returns. Sales returns occur when customers return
their products for reasons such as but not limited to defects or change of preference.
ii.ii. Sales discount – This is where discounts given to customers who pay
early are recorded. Also known as cash discount. This is different from trade discounts
which are given when customers buy in bulk. Sales discount is awarded to customers
who pay earlier or before the deadline
iii. Sales less Sales returns and Sales discount is Net Sales
iv. Third part is Cost of Goods Sold – This account represents the actual cost of merchandise
that the company was able to sell during the year.
iv.i.Beginning inventory – This is the amount of inventory at the beginning of the
accounting period. This is also the amount of ending inventory from the previous period.
iv.ii.Net Cost of Purchases = Purchases + Freight In
iv.ii.i.Net Purchases = Purchases – (Purchase discount and purchase returns)
Where:
Collections = Beginning Trade and Other Receivables + Net Sales or Net
Revenues – Ending Trade and Other Receivables
Where:
Net Sales or Net Revenues is already included in the Net Income