FUNDAMENTALS OF

ACCOUNTING AND
BUSINESS
MANAGEMENT
2
 Financial Statements
 Reading and using the financial
statements to evaluate the operations
and financial position of a company.
 The Bank Account and Income and
Business Taxation
Financial Statement
• Statement of Financial Position
• Statement of Comprehensive Income
• Statement of Changes in Equity
• Cash Flow Statement
 Steps in The Accounting Cycle
1. Journalizing. Journalize the economic transactions and events.
2. Posting. Post the journal entries in number 1 to the general
ledgers.
3. Trial Balance. Prepare the trial balance from the general ledgers.
4. Adjusting. Adjust the ledger balances.
5. Financial Statement. Make income statement and balance sheet
from the adjusted trial balance.
6. Closing. Close or transfer the income and expense accounts to
“income and expense summary account” and the latter account to
owner’s drawing and the owner’s drawing to owner’s equity.
7. Post Closing Trial Balance. Make a trial balance of all assets,
liabilities, and owner’s equity.
WORKSHEET
 Statement of Financial Position

Objectives:
1. Identify the elements of the SFP and describe each
of them
2. Prepare an SFP using the report form with proper
classification of items as current and non-current
Statement of Financial Position

- Provides the owner with an understanding of the

financial position of the business.
Status of financial
well-being
regarding a
company

- The balances reported on the SFP is the net effect of

all transactions related to the specific account from
the date of the establishment of the company up to
the date of the SFP
 Elements of the SFP

 Assets are resources with future benefits that are within

the control of the company
 Liabilities are the debts owed by the business to persons
other than the owner.
 Equity claims of owners
 Liabilities
Assets Equity
Figure 1. The Accounting Equation

ASSETS = LIABILITIES + OWNERS EQUITY

 ASSETS
(1) Cash – refers to funds readily available to be spent for the
company’s operation. It is the money owned by the company.

(2) Receivables – refers to the company’s right to collect or claim

payment.
(a)Accounts Receivable – this pertains to claims of the business
from customers for sales of products or rendering of services.
(b)Notes Receivable – this includes claims of the business from
customers and third parties that are evidenced by formal
instruments of credit such as promissory notes.

(3) Inventory – where the cost of unsold merchandise is recorded.

(4) Prepaid Expense – refers to the future expenses that the
company had paid for in advance.

(5) Property, Plant, and Equipment – are long-term assets that are
used in the operations of the company. This may include land and
building

(6) Intangible Assets – assets that you cannot touch.

Ex. Brand name and trademark
 Liability
(1) Payables – are obligations to make payments to creditors.
(a) Accounts Payable – this refers to the debt of the business due to
purchases of products or services that are to be paid on a future
date.
(b) Notes Payable – refers to an obligation evidenced by a
promissory note.
(2) Accrued Liabilities - other accounts which the company should
pay arising from from the normal course business.
(3) Unearned Income – a liability payable in goods or services.
 Equity

Capital is the investment of a proprietor in the form of funds,

merchandise, equipment, or any other property to operate his or her
business.

Note: The Capital will grow when the business earns profits, but will
decrease when the business incurs loss.

Capital
=
Balance from the previous accounting period + Contribution during the
year + Net Income - Drawings
 Basis of Classifying Assets and Liabilities
ASSETS
Current asset – not restricted in use, readily convertible to cash, or to
be sold or consumed within the normal operating cycle of the
business, or one year, whichever is longer.

Noncurrent asset – those assets that do not qualify as current.

Current Assets Noncurrent Assets
Cash Property, Plant and
Equipment
Receivables (accounts, notes) Intangible Assets
Inventory
Prepaid expense
 Basis of Classifying Assets and Liabilities
LIABILITIES
Current liabilities – are debts or obligations normally expected to be
settled in the normal course of the company’s operating cycle or
within one year
Noncurrent liabilities – are long-term debts which will be settled
beyond one year.
Current Liabilities Noncurrent Liabilities
Payables (Accounts, Notes)
Accrued Expenses
Unearned Income (if the
delivery of good or services
is within one year)
 Preparation of Statement of Financial Position
Heading
Name of the business
Title of the report
Data covered by the report

Statement of Financial Position

Report Form
Mr. N, the owner of Summit Driving Range, gave you a disorganized trial balance as
of 31 December 2018 as shown below. Your task is to prepare the SFP in report
form.

Hint: Get the net income. If its net balance is a debit, deduct the result from Mr. N,
Capital. If the net balance is a credit, add the result to Mr. N, Capital.
 Natural Balances
ASSETS Debit Balance
LIABILITIES Credit Balance
OWNER’S EQUITY Credit Balance
REVENUE or INCOME Credit Balance
COST and EXPENSES Debit Balance