The income statement primarily addresses the following

questions:
• How much is the total revenue earned by the business
during the period covered by the statement?
• What is the cost of the goods sold or the cost of the
services in earning the revenue?
• How much is the total operating expenses incurred in
realizing the revenue?
 The income statement provides
relevant information for a specific
period, whereas the balance sheet
reflects information that is valid only
on the given date. Therefore, if the
balance sheet is dated March 31, the
information displayed on it is accurate
and applicable only as of March 31.
 Balance sheet is also called the statement of financial
position. These titles, however, are used accordingly in different
contexts.
The said title is more
appropriate for large whereas the title
businesses like banks ‘business balance
and other similar sheet’ is more suited
corporations, for small businesses.

Therefore, in this discussion, the term balance sheet

will be used.
 In balance sheet, the term financial condition refers to the
liquidity and solvency or stability of the business.
*All the information is provided and described in the concept of the balance sheet only.

Liquidity Solvency or Stability

- the ability of the business to - the ability of the business to pay
currently pay maturing obligations long-term obligations while
maintaining stability. Long-term
from the date of the balance sheet.
obligations are payables whose
Currently maturing obligations are
maturity period is beyond one year
financial obligations that are
from the balance sheet date,
payable within one year from the
regardless of the normal operating
balance sheet date.
cycle of the business.
 The balance sheet has two
major parts which are the
heading and the body.
The heading includes the following
information:
• Name of the business
• Title of the statement
• Date
* The date of the balance sheet usually starts
with the words “as of.” For instance, if it is
prepared on the last day of December, the
date will have the label “As of December 31.”
Assets of the business that
are consumed, realized, or
utilized within one year, or
the normal operating cycle
of the business, whichever
is longer, from the date of
the balance sheet.
Refers to the period covered from the time cash has
been used to buy goods or raw materials until it has
been processed and converted to finished products,
the products have been sold to customers on
account, and the receivable has been collected and
converted back to cash.
Businesses, therefore, have different operating cycles. A small
convenience store may have a shorter operating cycle than a
manufacturing business engaged in making wine or liquor.

Some examples of current assets are as follows:

• Cash (on hand or in a bank)
• Accounts receivable
• Notes receivable
• Inventories (finished goods, work in progress, and raw materials)
• Supplies on hand (office or factory supplies)
• Prepaid items (prepaid insurance, or prepaid advertising)
Assets whose usefulness
and benefit extend
usually beyond one year
or beyond the normal
operating cycle of the
business from the date of
the balance sheet
Examples of noncurrent
assets of the business:
• Land
• Building
• Machinery
• Equipment
• Furniture and fixtures
Consists of the company's
debts that are due and
payable within a year of
the financial statements
date, regardless of the
business's normal
operating cycle.
 1. Account payable
2. Notes payable
3. Salaries Payable
4. SSS, Medicare, and PAG-
IBIG contributions payable
5. Advances from
customers
6. Accrued expenses
 Refers to the
business's financial
commitments with
maturities longer
than a year from the
balance sheet date.
1. The long-term bank
loan payable
2. Mortgaged payable
’
The owner’s equity section of the
balance sheet represents the residual
interest of the owner of owners on the
properties of the business. This indicates
whatever is left of the assets of the
business after all the financial
obligations are finally settled and
represents the interest of the owner.
 ’
In simple accounting equation, the equity of the owner is
computed as follows:

Owner’s Equity = Assets - Liabilities

 ’
The title used to describe the owner’s equity depends on the form
of the business organization. In sole proprietorship where there is
only one owner, the equity of the owner is usually designated or
labeled as owner’s capital. In a partnership where there are at least
two partners, the equity of the partner is normally labeled as
partners’ capital. In a corporate entity, the equity of the owner or
stockholders is usually labeled as shareholders’ equity.
 ABC COMPANY
Balanced Sheet As of [Date] Liabilities
Current Liabilities
Assets
Current Assets Accounts payable xxxxx
Cash xxxxx Notes payable xxxxx
Accounts receivable xxxxx Utilities Payable xxxxx xxxxx
Notes receivable xxxxx
Inventory xxxxx xxxxx
Noncurrent Assets Noncurrent Liabilities
Land xxxxx Bank loan payable xxxxx
Building xxxxx Mortgage payable xxxxx xxxxx
Equipment xxxxx
Furniture and fixtures xxxxx xxxxx
Total Liabilities xxxxx
Total Assets xxxxx
 In all instances, the total assets
Capital of the business must be equal
Owner’s Equity
to the total liabilities and
Princess, capital beginning xxxxx capital.
Add: Net income xxxxx
Total xxxxx
Less: Drawing xxxxx xxxxx All account titles classified
Total Liabilities and Capital xxxxx
under assets, liabilities, and
capital are considered real or
permanent accounts.
The balanced sheet data comes from the trial balance,
while net income for owner's equity comes from the
income statement. Income or loss from the statement
is transferred to the capital section of the balanced
sheet. Withdrawals made by the owner during the
year are deducted from the owner's equity section,
but this type of withdrawal is temporary and is not
charged directly to the owner's capital account.
Francheska Ronna Orillosa Precious Hazel Ng Nica Mae Malaluan
 Karl Ivan Cabanada Kenn Howell De
los Reyes

Rioross Aloysus Reginales Nagesh Leigh Prades