Professional Documents
Culture Documents
Example:
5
1. The Accounting Equation
Normal Balance
A normal balance, either a debit
normal balance or a credit normal
balance, is the side where a specific
account increase.
6
2. T-Account Analysis
8
2. T-Account Analysis
Illustrative Example:
Calvo Delivery Service is owned and operated by Noel Calvo.
The following selected transactions were completed by Calvo
Delivery Service during February:
A. Received cash from owner as additional investment, P35,000.
B. Paid creditors on account, P1,800.
C. Billed customers for delivery services on account, P11,250.
D. Received cash from customers on account, P6,740.
9
2. T-Account Analysis
10
3. Nominal Accounts
11
3. Nominal Accounts
14
3. Nominal Accounts
If journalized:
15
4. The Accounting Cycle
Illustrative Example:
• N. Juna resigned from Company X.
• B. Cano purchased PHP500 cash worth of supplies at
Ace Hardware.
18
4. The Accounting Cycle
Illustrative Example:
• M. Jaya resigned from Company X.
• C. Danto purchased PHP500 cash worth of
supplies to Ace Hardware.
- Debit Supplies PHP500, Credit Cash PHP500. 20
4. The Accounting Cycle
Illustrative Example:
J. Gaya, a CPA, is an independent auditor with only two clients.
The Accounts Receivable ledger account has a balance of
PHP100,000. His two clients are A. Rania, and X. Campos. The
subsidiary ledger of A. Rania has a balance of PHP25,000. X.
Campos’s ledger balance is PHP75,000.
22
4. The Accounting Cycle
Illustrative Example:
Subsidiary Ledgers
23
4. The Accounting Cycle
24
4. The Accounting Cycle
27
4. The Accounting Cycle
29
4. The Accounting Cycle
30
4. The Accounting Cycle
Upon closing:
- If the revenues exceed expenses during an accounting
period, retained earnings will increase.
- The reverse is true which means that if the expenses
exceed revenues, the retained earnings will decrease.
31
4. The Accounting Cycle
32
4. The Accounting Cycle
33
4. The Accounting Cycle
a. Income Statement
36
4. Basic Financial Statements
37
4. Basic Financial Statements
38
4. Basic Financial Statements
39
Introduction
41
1 Income Statement
Income Statement, also known as the Profit and Loss Statement. It reports the company’s financial performance in terms of net profit or loss over a specified period. Income Statement is composed of the following two
elements:
1.
Income – What the business has earned over a period (e.g. sales revenue, interest income, etc.)
2.
Expense – The periodic costs incurred by the business to generate income (e.g. salaries and wages, depreciation, rental charges, etc.)
Net profit or loss is arrived by deducting expenses from income.
42
2
Statement of Changes in Equity
The Statement of Changes in Equity details the movement in owner’s equity over a period. The movement in owner’s equity is derived from the following components:
2.1. Additional investment from the owner
2.2. Net profit or loss during the period as reported in the income statement
2.3. Withdrawal by the owner
43
3
Statement of Financial Position
Statement of Financial Position, also known as the Balance Sheet, presents the financial position of an entity at a given date. It is comprised of the following three elements:
Assets – Something a business owns or controls (e.g. cash, inventory, plant and machinery, etc.)
Liabilities – Something a business owes to someone (e.g. creditors, bank loans, etc.)
Equity – What the business owes to its owners. This represents the amount of capital that remains in the business after its assets are used to pay off its outstanding liabilities. – Equity therefore represents the claims of the owners over the assets after
payment of the liabilities.
44
4
Cash Flow Statement
Cash Flow Statement presents the movement in cash and bank balances over a period. The cash flows are classified into the following segments:
Operating Activities – Represents the cash flow from primary activities of a business.
Investing Activities – Represents cash flow from the purchase and sale of assets other than inventories (e.g. purchase of a factory plant)
Financing Activities – Represents cash flow from raising capital and repaying debt together with the payments of interest and distribution of dividends.
45
Preparation of
Financial Statements
50
The columns of the Income Statement and the Financial Position will be the basis of preparing the
financial statements.
Examples of Financial Statements are given below:
51