FABM 2: 2nd Sem 1st Term Two acceptable Formats in the presentation of

Statement of Financial Position

Statement Of Financial Position The Account form - (mimics the General Ledger
● Referred to as Balance Sheet T-Account format)
● The balance sheet is divided into two parts. ● Assets are reported on the left
↪ claims of the company – assets ● Liabilities and equity are on the right
↪ claims of creditors – liabilities ● The total assets and total liabilities and equity
↪ claims of owners – equity are shown side by side to highlight that both
● A financial statement that reports the assets, totals are equal to balance.
liabilities, and equity of a company on a given
date
● A snapshot of the condition of the company at
a certain time in history
● Typically prepared monthly, quarterly and
annually,

Parts of the SFP – HEADING

1. First line: Name of the company– in order to The Report form – (is a simple list)
allow easy identification of the reporting entity - All Assets are listed first followed by liabilities
2. Second line: Identifies the FS which is SFP and finally the equity account
3. Third line: Date of the SFP / it states “as of the - The total assets and total liabilities and equity
year [Date]” are shown side by side to highlight that both
totals are equal to balance
Elements of the SFP Report Form sample
1. Assets
● Are resources you control that have
resulted from past events and can
provide you with the future economic
benefits
● Resources owned and controlled by
the business/company
2. Liabilities
● Are your present obligations that have
resulted from past events and can
require you give up resources when
settling them
3. Equity
● Means assets minus liabilities. Other
terms of equity are capital, net assets,
and net worth.
Statement of Comprehensive Income Accrual Concept of Accounting
Income Statement ⤷ Revenue must be reported on the accounting
■ A statement that reports the results of period that it was earned
operations of the business (“performance” and ⤷ Expenses must be reported during the same
activities of the company) for one accounting reporting period they were incurred
period ⤷ Revenue is earned upon delivery of goods and
This includes: services, not when payment is received from the
A.) revenue generated by operating the business customer (example is down payment)
B.) costs spent to generate the revenue ⤷ Sale of goods is reported on the SCI on the
C.) income, which is the excess of revenue over costs period of delivery
■ described as a “for the period” ⤷ Revenues from services are counted on the
period when services are rendered
Financial statements are a set of interconnected ⤷ Neither order from a customer nor signed contract
reports and SCI is prepared first. of service count as sales
➢ Without the SCI, the company cannot truly ⤷ Cash collections are not revenues
know if it is earning ⤷ Cash may be received from customers prior to
➢ The accounts found under the SCI are delivery such as in the case of down payments; it
temporary accounts. is liability called unearned income
➢ Examples of temporary accounts include
revenues, sales, utilities expense, supplies
expense, salaries expense, depreciation Elements of Statement of
expense, interest expense among others.
Comprehensive Income (SCI)
A. Revenue
Parts of a Statement of Comprehensive i. Service Income
Income ● used to describe revenue derived from
1. Name of the Company rendering of services / service company
2. Name of the Statement ○ examples: rental income,
3. Date of preparation/ covered period (emphasis professional fee, tuition fee
on the word – “for the period ended”) ii. Sales
● used to describe revenue derived from
Sample of a SCI selling of goods / merchandising company
● First part is the revenues ○ examples: office supplies sales,
● Second part is expenses book sales, food sales, etc
● Thirdpart is net Income = Revenues less
Expenses
Contra Sales Accounts
Income 1. Sales Returns and allowances
● This account is debited in order to record
● a transaction that increases assets and/or
returns of customers or allowances for such
decreases liabilities leading to increase in
returns.
equity resulting from the operations of the
● Sales returns occur when customers return
business and not from the owner’s contribution
their products for reasons such as but not
limited to low quality, defects or change of
Two Kinds of Income preference
a. Revenue 2. Sales discount
● income generated from the primary ● This is where discounts given to customers
operations of the business who pay early are recorded. Also known as
b. Gains cash discount.
● income derived from other activities of ● Sales discount is awarded to customers who
the business / incidental to the pay earlier or before the deadline
operation of a business which may or
may not arise in the course of the Net Sales = Gross Sales
ordinary activities of an entity
– Sales Returns and Allowances
– Sales Discount
 B. Expenses A. Service Company
I. Cost of Goods Sold (Cost of Sales) ● provides services in order to generate revenue
● This account represents the actual cost of ● main cost is the cost of labor presented under the
account salaries expense
merchandise that the company was able to sell
● uses single-step since service companies do not
during the year.
have inventories
● Freight–in
B. Merchandising company
○ shipment cost ● sells goods to customers
● main cost is the cost of the merchandise presented
Two ways of keeping records of inventory under cost of goods sold
a. Perpetual inventory system
● uses multi-step since merchandising companies
○ The inventory are cost of goods sold accounts perpetually
updated
have inventories
b. Periodic inventory system ______________________________________
○ Inventory account is only periodically updated
○ periodically means that the inventory account is updated only
at end of the year or end of the month A. Single-step SCI
● groups all revenue items together and all
Purchases expense items together
● amount of goods bought during the current ● it is called single-step SCI because net income is
accounting period computed using only one step
Contra Purchase Accounts ○ net income = total revenues
a. Purchase returns and allowances – total expenses
● returns of defective goods ● subtotal is not computed and presented on the
b. Purchase discount SCI
● discounts taken for the early payments ● this format generally used by small businesses
by the company to the suppliers of and service businesses because of its simplicity
merchandise ○ commonly used by service companies
Net Cost Purchases
of Purchases= + Freight-In
– Purchase Returns
– Purchase Discount

II. Operating Expenses

● refer to all other expenses related to the
operation of the business, other than cost of
sales
● examples: salaries of employees, supplies,
utilities (electricity, telephone and water bills),
gasoline expense, representation, bad debts
expense, depreciation and amortization
● bad debt expense – estimated operating
expense related to accounts receivable /
uncollectible accounts / represent using
percentage of sales

C. Other Expenses and Other Income

● line items included under this section are
interest income from investments of excess
cash, interest expense from borrowings and
gain or loss from sale of equipment
○ proceeds from sale less net book
value of PPE on date of sale

D. Net Income / Net Loss

● the result of operation
● Net income = revenue > expense
● Net loss = revenue < expense
B. Multi-step SCI ● Purchase discount – account used to record
● there are several steps needed in order to early payments by the company to the
arrive at the company’s net income suppliers of merchandise
● several subtotals are presented until net ● Purchase returns – account used to record
income is determined merchandise returned by the company to their
● commonly used by merchandising companies suppliers.
● Freight In – account used to record
transportation costs of merchandise
Subtotals purchased by the company
● give readers more understanding of the
operations of the business
Cost of Goods Available for Sale =
A. Gross Profit Beginning Inventory + Net Cost of Purchases
= Net Sales – Cost of Goods Sold
3. Ending Inventory – total cost of inventory
B. Income from Operations unsold at the end of the accounting cycle
=Gross Profit – Operating Expenses /amount of inventory presented in the
Statement of Financial Position
Cost of Goods Sold =
C. Net Income
Cost of Goods Available for Sale
=Adding Other Income (i.e. interest income)
– Ending Inventory
and deducting other expenses (i.e. interest
expenses) from income from operations
Gross Profit = Net Sales – Cost of Goods Sold

Parts Of Multi – Step Statement Of D. Operating Expenses

Comprehensive Income Classification of Operating Expenses
● General and Administrative Expenses -
A. Sales refer to those incurred in the daily operations
and management of the business
● total amount of revenue that the company was
○ Example: utilities for home office,
able to generate from selling products
salaries of admin personnel
● Selling Expense – cost related to marketing,
B. Contra Revenue
selling and distributing the company’s
● Sales returns – this account is debited in
merchandise example: sales commissions,
order to record returns of customers for
delivery expenses, advertising expenses
reasons such as but not limited to defects or
Net Income / Net Loss =
change of preference.
Gross Profit – GAE – SE
● Sales discount – discounts given to
customers who pay early or before the
Notes Receivables
deadline / known as cash discount
● It is the amount due in the near future from
persons or companies on the basis of formal
C. Cost of Goods Sold/ Cost of Sales
and written promises to pay cash on the date
● represents the actual cost of merchandise that
specified
the company was able to sell during the year
Service Income
1. Beginning Inventory - amount of inventory
● Generally used to refer any kind of income
at the beginning of the accounting period
from services rendered
2. Net Cost of Purchases = Net Purchases +
Freight In
Dividend Income
○ Net Purchases = Gross Purchases
● It is the income earned in investing cash
– (purchase discount
stocks of other business
and purchase returns)
● Purchases – amount of goods bought during
Interest Income
the current accounting period
● It is the revenue to the payee for loaning out a
● Contra Purchases - account that is credited
principal amount to a borrower or the income
being “contrary” to the normal balance of
earned from money deposited in the bank
purchases account
Expense Accounts Gross Sales Php 70,000
● The cost of goods or services that are used or Less: Sales Returns and Allowances (20,000)
Net Sales Php 50,000
consumed in the operation of the business
Cost of Goods Sold
Property, Plant, and Equipment (PPE) Beginning Inventory Php 15,000
Add: Net Purchases 17,000
● A decline in its value because of wear and tear Cost of Good available for sale Php 32,000
Less: Ending Inventory (12,000)
Cost of Goods Sold (Php 20,000)
Owner’s Drawing
Gross Profit 30,000
● A removal of funds form an account
Operating Expenses
Sales General and Administrative Expense Php 10,000
Selling Expense 20,000
● Used to describe revenue from selling of Total Operating Expenses (Php 30,000)
merchandise Income from Operations 0

Sales Returns Non-operating Income and Expenses

Interest Income Php 5,000
● Goods delivered to customer but are defective Gain on sale of PPE 7,000
Total non- operating Income and Expenses Php 12,000
Sales Discount Net Income Php 52,000
● A cash discount awarded to customers who (maybe 11k)
pay earlier or before the deadline

Cash
● The most liquid asset and the medium of
exchange for business transactions

Inventory
● It is refer to unsold goods or merchandise that
the company purchased or manufactured for
the purpose of reselling it to the customers

Account Receivable
● The total amount owed to the business for
goods or services they have received but not
yet paid
● Balance of money due to a firm for goods or
services delivered or used but not yet paid for
by customers

Owner’s Capital
● It is composed of owner’s investments and
accumulated net income of the company

Income
● Represents the amount of services or from
sale of merchandise for a period of time

Salaries Expense
● The cost of services rendered by the
employees and/ or labourers of business firms