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Module 10-Lesson 2

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41 views2 pages

Module 10-Lesson 2

Uploaded by

Rica Niña Letran
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Lesson 2: PREPARE AN INCOME STATEMENT AND A BALANCE SHEET

INCOME STATEMENT

This statement is one of the major financial report. Also known as profit and loss statement or statement
of comprehensive income. This statement summarizes the results of company’s operations for a specific
period of time. If the result of operation is positive, then the business earns net income otherwise, net
loss.

Ledger accounts that can be found in the income statement are called Temporary accounts of Nominal
accounts. They are called such because at the end of the accounting period, balances under these
accounts are transferred to the capital account, thus having only temporary amounts and resulting to zero
beginning balances at the beginning of the following year.(Haddock, Price, & Farina, 2012) Examples of
temporary accounts include revenues, sales, utilities expense, supplies expense, salaries expense,
depreciation expense, interest expense among others. Depicted in figure 8 below is sample format of an
income statement.

The different parts of income statement are:


• The heading or title of report
• Name of the company
• Date or period covered Major parts are:
• Income or revenues - consist of all income received within the period upon provision of services
for service-concern business and sales for merchandising
• Expenses – money spent during the conduct of business operations
• Net income / net loss – the outcome of business operations.

BALANCE SHEET

Also known as the statement of financial position. This statement summarizes the total balances of
assets, liabilities and owner’s equity. In general, it provides the financial condition of the business on a
specific date.
The balance sheet is composed of Permanent accounts. Permanent in nature because their balances
remain intact and will be forwarded from one period to another.

Contra asset are those asset account presented under the asset portion of the balance sheet such as
Allowance for Bad debts and Accumulated depreciation. Depicted in figure 9 below is sample format of a
balance sheet of a service type business presented in as an account format with contra asset account.
The different parts of balance sheet are:

• The heading or title of report


• Name of the company
• Date or period covered

Major parts are:

ASSETS (Current and Non-current)

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 Assets are arranged based on which asset can be realized first (liquidity). Current assets and
current liabilities are also called short term assets and shot term liabilities.

Noncurrent Assets – Assets that cannot be realized (collected, sold, used up) one year after yearend
date. Examples include Property, Plant and Equipment (equipment, furniture, building, land), Long Term
investments, Intangible Assets etc.

LIABILITIES (Current and Non-current)

Current Liabilities – Liabilities that fall due (paid, recognized as revenue) within one year after year end
date. Examples include Notes Payable, Accounts Payable, Accrued Expenses (example: Utilities
Payable), Unearned Income, etc.

Noncurrent Liabilities – Liabilities that do not fall due (paid, recognized as revenue) within one year after
year-end date. Examples include Loans Payable, Mortgage Payable, etc.
Noncurrent assets and noncurrent liabilities are also called long term assets and long term liabilities.

OWNER’S EQUITY OR CAPITAL

Capital is an item of balance sheet wherein the capital or interest of the owner of the business is listed.
Initial withdrawal of capital will be recorded in a drawing account of the owner and will be reflected as a
deduction to the capital balance.

Figure 9 – Balance Sheet of a Service type Business


(Account Form)

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