GUESS THE

GIBBERISH
INTRODUCTION ACTIVITY
FENUNCEUL
STETIMINT
FINANCIAL STATEMENT
BELENCI
SHIIT
BALANCE SHEET
OSSUT
ASSET
LEUBELETEAS
LIABILITIES
OQEUTY
EQUITY
STATEMENT
OF FINANCIAL
POSITION
MODULE 1
FINANCIAL STATEMENT
(or financial reports) are formal
records of the financial activities
and position of a business,
person, or other entity.
STATEMENT OF FINANCIAL
POSITION
Also known as the balance sheet. This
statement includes the amounts of the
company’s total assets, liabilities, and
owner’s equity which in totality
provides the condition of the company
on a specific date. (Haddock, Price, &
Farina, 2012)
PERMANENT ACCOUNTS
As the name suggests, these accounts
are permanent in a sense that their
balances remain intact from one
accounting period to another.
(Haddock, Price, & Farina, 2012)
CONTRA ASSETS
Contra assets are those
accounts that are presented
under the assets portion of
the SFP but are reductions to
the company’s assets
Relevant financial information is
presented in a structured manner
and in a form which is easy to
understand. They typically include
four basic financial statements
accompanied by a management
• A balance sheet or statement of
financial position, reports on a
company's assets, liabilities, and
owner’s equity at a given point in
time
• An income statement—or profit
and loss report (P&L report), or
statement of comprehensive
income, or statement of revenue &
expense—reports on a company's
income, expenses, and profits over
• A statement of changes in equity
or statement of equity, or
statement of retained earnings,
reports on the changes in equity
of the company over a stated
period
• A cash flow statement reports on a
company's cash flow activities,
particularly its operating,
investing and financing activities
over a stated period.
• A comprehensive income
statement involves those other
comprehensive income items
which are not included while
determining net income.
2 forms of SFP
2 forms of SFP
• Report Form – A form of the SFP
that shows asset accounts first and
then liabilities and owner’s equity
accounts after. (Haddock, Price, &
Farina, 2012)The balance sheet
shown earlier is in report form.
 Click icon to add picture

REPORT
FORM
 Click icon to add picture

REPORT
FORM
2 forms of SFP
• Account Form – A form of the SFP
that shows assets on the left side
and liabilities and owner’s equity
on the right side just like the debit
and credit balances of an account.
(Haddock, Price, & Farina, 2012)
 Click icon to add picture

ACCOUNT
FORM
 Click icon to add picture

ACCOUNT
FORM
Contents of
Statement of
Financial Position
Assets are what the
business owns.
• 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.
• • Noncurrent Assets – Assets that cannot be realized
(collected, sold, used up) one year after year-end date.
Examples include Property, Plant and Equipment
(equipment, furniture, building, land), Long Term
investments, Intangible Assets etc.
Liabilities are what the business owes
or claims against assets.
• 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.
Owner’s equity is what the
business is worth.
The accounts in the balance sheet
are called permanent accounts or
real accounts. Their balances are
forwarded as beginning balances in
the next accounting period.
The Statement of Financial Position or
balance sheet contains the following:
A. The heading
1. Name of Business
2. Title of the report
3. Date of the report (specific date)
4. Currency
The Statement of Financial Position or
balance sheet contains the following:
Example:
DMT Trading
Statement of Financial Position
December 31, 20X5
(in Philippine Peso)
B. The Asset Section
C. The Liability Section
D. The Owner’s Equity Section
Accounting Equation
The components of the accounting equation
are (1) Assets, (2) Liabilities and (3)
Owners’ Equity.
The analysis of transactions and events will
always yield results in at least two effects in
the accounting equation.
Accounting Equation
The components of the accounting equation
are (1) Assets, (2) Liabilities and (3)
Owners’ Equity.
The analysis of transactions and events will
always yield results in at least two effects in
the accounting equation.
STATEMENT OF
COMPREHENSIVE
INCOME
MODULE 2
STATEMENT OF
COMPREHENSIVE INCOME
• Also known as the income statement.
Contains the results of the company’s
operations for a specific period of time
which is called net income if it is a net
positive result while a net loss if it is a net
negative result. This can be prepared for a
month, a quarter or a year. (Haddock,
Price, & Farina, 2012)
STATEMENT OF
COMPREHENSIVE INCOME
• 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)
STATEMENT OF
COMPREHENSIVE INCOME
• Examples of temporary accounts
include revenues, sales, utilities
expense, supplies expense,
salaries expense, depreciation
expense, interest expense
among others.
STATEMENT OF
COMPREHENSIVE INCOME
• The income statement, also
called profit and loss statement,
presents an entity’s result of
operations for a period of time.
For example, the following
should be displayed prominently:
STATEMENT OF
COMPREHENSIVE INCOME
1. The name of the reporting entity
2. Title of the report
3. The period of time covered by the
report
4. The currency
The income statement of a sole
proprietorship shall include the following:
1. Revenue
2. Costs and Expenses
a. Cost of service or
b. Cost of goods sold
c. Selling expenses
d. Administrative expenses; and
3. Net income or net loss.
Elements of
Income Statement
SCI
Revenues
• Sales or Service Income-These
are revenues or gross income
from sale of company products
and services.
Cost of Sales and Expenses
• Cost of Sales or Cost of
Services- Direct cost of the
products sold or the services
rendered.
Cost of Sales and Expenses
• Salaries Expense
• Utilities Expense
• Rent Expense
• Supplies Expense
Cost of Sales and Expenses
• Transportation Expense
• Depreciation Expense
• Representation Expense
• Interest Expense
2 steps for INCOME
STATEMENT
SCI
Single-Step Income
Statement (Service Business)
• All revenues are listed down in
one section while all expenses
are listed in another. Net income
is computed using a “single-
step” which is Total Revenues
minus Total Expenses.
These are the steps in preparing the
single-step income statement.
1. Start with a clean paper by writing the heading.
a. Name of company
b. Income Statement
c. For the _____ ended _____ (period maybe a year or
less)
2. List the income account, and on rightmost section
of the paper, the amounts.
3. List the cost and expense accounts on another
amounts column on the left of (2)
These are the steps in preparing the
single-step income statement.
4. Compute the total cost and expense
5. Deduct total cost and expenses from the
income to arrive at the net income or net loss.
Write the net income on the debit column or
the net loss on the credit column to balance Debits
and Credits.
6. Write the peso sign on the first amount in the
amounts column and on the totals. Draw double
lines below the totals.
Multistep Income Statement
(Merchandising Business)
There are several steps needed in order to
arrive at the company’s net income. (Haddock,
Price, & Farina, 2012)
a. Emphasize that the two are only formats and
will yield the same amount of net income/loss
b. Discuss that single-step SCI is more
commonly used by service companies while multi-
step format is more commonly used by
merchandising companies
Multistep Income Statement
(Merchandising Business)
The main difference of the Statements of
the two types of business lies on how they
generate their revenue.
• A service company provides services in order
to generate revenue and the main cost
associated with their service is the cost of
labor which is presented under the account
Salaries Expense.
Sample parts of a multi-step SCI
1. First part is sales - This is the total
amount of revenue that the company
was able to generate from selling
products
Sample parts of a multi-step SCI
2. Second part compose of contra
revenue – called contra because it is
on the opposite side of the sales
account. The sales account is on the
credit side while the reductions to
sales accounts are on the debit side.
Sample parts of a multi-step SCI
2.2 Sales discount – This is
where discounts given to
customers who pay early are
recorded.
2.3 Sales less Sales returns and
Sales discount is Net Sales
Sample parts of a multi-step SCI
3. Third part is Cost of Goods
Sold – This account represents
the actual cost of merchandise
that the company was able to sell
during the year. (Haddock, Price,
& Farina, 2012)
Sample parts of a multi-step SCI
4. Beginning inventory – This is the amount
of inventory at the beginning of the
accounting period. This is also the amount of
ending inventory from the previous period.
Net Cost of Purchases = Purchases +
Freight In
Net Purchases = Purchases – (Purchase
discount and purchase returns)
Sample parts of a multi-step SCI
Purchases – amount of goods bought
during the current accounting period
Contra Purchases –An account that is
credited being “contrary” to the
normal balance of Purchases account.
Sample parts of a multi-step SCI
Purchase discount – Account
used to record early payments by
the company to the suppliers of
merchandise
Sample parts of a multi-step SCI
Purchase returns – Account used
to record merchandise returned
by the company to their suppliers
Sample parts of a multi-step SCI
Freight In – This account is used
to record transportation costs of
merchandise purchased by the
company.
Sample parts of a multi-step SCI

Add Beginning inventory and

Net cost of Purchases to get Cost
of Goods Available for Sale
Sample parts of a multi-step SCI
Ending inventory – amount if
inventory presented in the
Statement of Financial Position.
Total cost of inventory unsold
at the end of the accounting
cycle
Sample parts of a multi-step SCI
5. Sales less Cost of Goods Sold is Gross
Profit
6. Fourth Part is General and
Administrative Expenses –These expenses
are not directly related to the
merchandising function of the company but
are necessary for the business to operate
effectively. (Haddock, Price, & Farina, 2012)
Sample parts of a multi-step SCI
7. Fifth Part is Selling Expenses – These
expenses are those that are directly related
to the main purpose of a merchandising
business: the sale and delivery of
merchandise. This does not include cost of
goods sold and contra revenue accounts.
(Haddock, Price, & Farina, 2012)
Sample parts of a multi-step SCI
8. Gross Profit less General and
Administrative Expenses less
Selling Expenses is Net Income
for a positive result while Net
Loss for a negative result.
ACTIVITY 2
STATEMENT OF
COMPREHENSIVE
INCOME
PAGE 13 IN OUR
MODULE
ACTIVITY 1: IDENTIFICATION
From the given illustration of Rey Lantin Services for the calendar year 20x1. Make
a single-step income statement for the year.