Table of Contents

Title Page

Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

Accounting Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

Users of Accounting Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

Branches of Accounting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

Business Organizations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

Accounting Assumptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

Accounting Equation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

Rules of Debit and Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

How to make Journal Entries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Adjusting Entries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Freight Costs and Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Inventory Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

First In, First Out . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

Financial, Liquidity, and Solvency Ratios . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

Financial Statements Introduction & Preparation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

Statement of Comprehensive Income (SCI) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

Statement of Financial Position (SFP) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

Statement of Changes in Equity (SCE) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

Statement of Cash Flows (SCF) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

Notes to Financial Statements (NFS) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

Youtube Links . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
 FABM FULL NOTES

Business (aka. Enterprise, Company, Firm)

- Organizational entity ni siya nga ga gamit (utilize) ug resources and information para ma satisfy ang
mga kailangan or mga gusto (needs or wants) sa mga customers by providing them mga goods or
services in exchange for money or lahi nga goods or services

Naay 3 MAJOR types nga business according to activities:

● Service Business
- Ang focus ani kay mag provide ug intangible products or services sa customers like
professional skills, advice, proposals, or expertise.

● Merchandise Business
- aka “Buy and Sell”
- Gitawag syag “buy and sell” kay ang mga products ani kay gipalit sa lain nga manufacturer
or merchandisers unya gihimog inventory para ibaligya AS IS pero and price is higher than
the original purchase price.

● Manufacturing Business
- Mao ni siya ang business nga gagamit ug raw materials, components, ug parts nga
i-process para maka-produce ug finished goods or new products.

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ACCOUNTING DEFINITIONS

Accounting helps businesses track events that affect them by identifying these events, recording them,
and communicating summarized results within a particular period to interested parties (Florendo, 2016).

Ang Accounting kay focused on RELEVANT ECONOMIC EVENTS.

↳ Can be identified if naay exchange or transfer or things with value.
↳ Dapat specifically identified with the business and considered separate
and distinct sa mga activities and affairs sa business owners/managers.

Naay 3 sources nga ga provide ug definition sa ACCOUNTING.

- Accounting Standards Council (ASC)
- American Institute of Certified Public Accountants (AICPA)
- American Accounting Association (AAA)

Accounting definition according to ACCOUNTING STANDARDS COUNCIL (ASC)

Accounting is a service activity which provides quantitative information, primarily financial in

nature, about economic entities, that is intended to be useful in making economic decisions.

Accounting is a service activity because it fulfills a useful function in our society. It provides to
various segments of the economic community who are directly/indirectly involved with businesses, the
information needed as a basis in making decisions.

Accounting is primarily concerned with quantitative financial information that describes the activities
of the business, rather than judgemental evaluations of those activities. In other words, business
transactions have to be measured in terms of money and all other transactions that are non-monetary are
not within the scope of accounting.
Accounting definition according to AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS
(AICPA)

Accounting is the art of recording, classifying, and summarizing in a significant manner and in terms
of money, transactions, and events which are in part at least of a financial character, and interpreting the
results thereof.

Accounting is an art because it entails creativity and skills in attaining its objectives. It makes use of
a combination of techniques and its application requires skills.

Accounting definition according to AMERICAN ACCOUNTING ASSOCIATION (AAA)

Accounting is the process of identifying, measuring, and communicating economic information to

permit informed judgements and decisions by users of the information.

Accounting is a process composed of multiple steps that lead to a common end goal which are the
financial reports.

Note:
ASC talks about accounting as a service activity and its focus on quantitative information. Ang main point
sa ila description is ang purpose, its help sa society, and kung unsa nga events ang naa sa scope of
accounting.

AICPA states nga art ang accounting. Ang ilang gi tackle is the financial statements part sa accounting (eg.
recording, classifying, and summarizing). They also mentioned the means of a successful accounting by
using techniques and skills.

AAA is all about accounting being a process. Sila ang ga hatag sa definition of accounting as a WHOLE
(identifying ->measuring->communicating). Also mentioning having multiple steps for the common goal of
producing financial reports.

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Users of Accounting Information (Stakeholders)

● External Users - not directly concerned sa day-to-day operations of the business pero they are
indirectly related to it.
- Types:
● Customers
● Creditors
● Suppliers
● Potential Investors
● Regulatory Bodies
● Tax Authorities
● Public

● Internal Users - includes all levels of management nga naa sa business

- Types:
■ Owners/Stockholders
■ Management of the Business
■ Employees
■ Labor Unions
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 BRANCHES OF ACCOUNTING

Financial Accounting
- Branch of accounting ni siya nga mo keep track sa business transactions and then i-record and
summarize into the standardized accounting reports (financial statements)
- These financial statements provide financial information about the financial performance of the
company to both internal and external users.
- These statements are more useful to the external users who have no capability to request
information from the company.
- Produces historical data.

Management Accounting
- This branch of accounting is concerned in the preparation of financial reports that the management
uses in their day-to-day operations most especially in making economic decisions.
- Because of this, the reports of management accounting are primarily intended for internal users and
can be made available daily, weekly, monthly, or quarterly, more frequently than general purpose
statements.
- While financial accounting produces historical data, management accounting produces both
historical and forecasted data to aid in management planning and decisions.

Government Accounting
- Encompasses the process of analyzing, recording, classifying, summarizing, and communication
transactions including receipts and disbursements of government funds and property and
interpreting the results thereof.
- Employed in all national and local government offices.

Auditing
- Branch of Accounting where the financial statements released by a company are examined by an
independent auditor (CPA) to determine whether or not the statements present a fair operation in
accordance with generally accepted accounting principles.

Tax Accounting
- Deals with tax planning for the business and the determination of its tax obligations.
- Taxes due are computed, assessed and collected based on pronouncements from the National
Internal Revenue Code (NIRC) and not from the guidelines laid out by the Philippine Financial
Reporting Standards (PFRS) and the Philippine Accounting Standards (PAS).
- There are differences between tax computing based on tax accounting (NIRC) and the ones based
on accounting (PFRS and PAS).
- In this branch, the Accountant is a tax specialist well versed in revenue regulations and tax laws.
↳ represents the client for any tax-related cases with the BIR.

Cost Accounting
- Focuses on production costs as a basis in decision making.
- Its output is more on the manufacturing operations which provides management with the necessary
tools to plan and control operations.

Accounting Education
- Branch of accounting responsible for training future accountants.
- They are CPAs who possess adequate professional experience and other scholarly attributes that
are deemed necessary in the successful conduct of a professional accounting program that
provides training in accounting, financial management, taxation, and other related courses.
CPAs in Specialized Areas
❖ Forensic Accounting - investigative work involving white-collar financial crimes like fraud and
misappropriation of funds.
❖ Information Technology Services - about design and implementation of customized software
information systems.
❖ Environmental Accounting - engaged in environmental compliance audits and setting up of
preventive measures/systems designed to ensure compliance to regulations in order to avoid future
environmental disputes.
❖ International Accounting - engaged in international trade and overseas transactions.
- CPAs in this field acquire the expertise in international trade rules and
regulations, can speak and understand different languages and do a
lot of travel abroad.

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4 FORMS OF BUSINESS ORGANIZATIONS

Sole Proprietorship
- Business Organization wherein usa ra kabuok and tag-iya.
- Kani nga form is not considered nga distinct and separate nga legal entity.

Partnership
- This is where 2 or more persons kay ga usa and ga contribute ug fund in order to divide the profit
among themselves
- Contribution can be through Money, Property, or Industry.
❖ Types:
➢ General Partnership - wherein all partners have unlimited liability, meaning pwede
sila mo pay sa tanan gi owe sa business in accordance sa ilang sharing agreement.
➢ Limited Partnership - this is where at least one partner/s kay naay unlimited liability
while ang uban kay limited liability ra. Limited liability meaning di sila pwede mo
bayad or answer sa mga obligations for the partnership beyond sa ilang investments,
also means nga di maka go after ang mga creditors sa ilang personal assets.
➢ Limited Liability Partnership - self explanatory nga ang liabilities for each partner is
only until sa amount nga ila gi invest sa business para di mo go after and mga
creditors sa ilang personal assets.
➢ Limited Liability Company - wala gi adopt sa Pinas and legal concept ani.

Corporation
- Artificial being created by the operation of law, having the right of succession of powers, attributes
and properties expressly authorized by law or incident to its existence.
- Easier terms: standalone company ni siya, meaning this company is legally separate from its
owners(shareholders), and naay own legal rights and responsibilities.

Cooperative
- Duly registered association of persons, with a common bond of interest who have voluntarily joined
together to achieve a lawful common social or economic end.
- Easier terms: this is run by people who work for it, or owned by people who uses it.
- May be formed by AT LEAST 15 INDIVIDUALS

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 5 ASSUMPTIONS IN ACCOUNTING (PEGAT)

● Peso (Monetary Unit)

- Dapat tanan activities sa entity is measured and reported in Philippine Peso.

● Entity
- Ang business is considered as an ENTITY that is separate & distinct from the owners.

● Going Concern
- Gi assume and business entity to remain in existence for and indeterminate period of time.

● Accrual
- Ma recognize and transactions sa records inig occur nila REGARDLESS kung kanus-a
madawat ang kwarta or kanus-a mabayran

● Time Period
- Ang life sa entity is divided into time periods para maka provide ug financial reports for that
period regularly.

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THE BASIC ACCOUNTING EQUATION

➔ Assets = Liabilities + Owner’s Equity

ASSETS LIABILITIES + OWNER’S EQUITY

own owe

Assets
- Properties owned by the entity
- (Full Description in “COA w/ Definitions”)

Equity
- Owner’s means
- The residual interest in the assets of the entity after deducting all its liabilities
- Easier terms: mao ni ang value nga ma abot sa shareholders/owners if ma liquidate tanan assets
and mabayad na tanan utang sa business.

Liabilities
- Means provided by creditors
- (Full Description in “COA w/ Definitions”)

Different Presentations sa Basic Accounting Equation:

➔ Assets = Liabilities + Owner’s Equity (A = L + OE)
➔ Owner’s Equity = Assets - Liabilities (OE = A - L)
➔ Liabilities = Assets - Owner’s Equity (L = A - OE)

Double-Entry Bookkeeping System

- Ang basis ani is the Basic Accounting Equation
- Ang point is that every transaction sa business has an impact on both sides sa equation.
- At least one debit entry (left side) and at least one credit entry (right side) are written sa book for
every transaction.
 - Naay duha ka effects kada transaction, meaning kada debit entry kay naay corresponding credit
entry.

Modified Accounting Equation

➔ Assets = Liabilities + Equity
↓ ↓ ↓ ↘
➔ Assets = Liabilities + Capital + Retained Earnings
↓ ↓ ↓ ↓ ↓ ↘
➔ Assets = Liabilities + Capital + Revenue + Expenses + Dividends

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RULES OF DEBIT AND CREDIT

(additional notes from yt)

D E A L E R

Dividends & Drawings | Expense | Asset Liabilities | Equity | Revenue

Debit Balance Credit Balance

DR. ↑ CR. ↓ CR. ↑ DR. ↓

ACCOUNT TITLE BALANCE INCREASE ↑ DECREASE ↓

Dividends & Drawings Debit Dr. Cr.

Expense Debit Dr. Cr.

Asset Debit Dr. Cr.

Liabilities Credit Cr. Dr.

Equity Credit Cr. Dr.

Revenue Credit Cr. Dr.

YT Tutorial Link will be provided at the end of the notes

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HOW TO DO JOURNAL ENTRY

(additional notes from yt)

Parts needed for Journal Entry

● Date
● Particulars - unsa nga accounts and affected sa transaction
● Debit Accounts
● Credit Accounts - indented and placement ani under sa Debit Accounts
● Amount - dapat equal ang total amount sa debit ug credit
● Description - ngano gihimo ang entry
● Reference number - para dali makitan ug ma trace

YT Tutorial Link will be provided at the end of the notes

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ADJUSTING ENTRIES
(additional notes from yt and a prof sa SU)

Accounting Adjustments
- Mao ni changes nga gihimo sa accounting records at the end of a period to make sure that all
revenues and expenses are accurately recorded in the correct period.
- Necessary ni siya because it helps in preparing accurate financial statements and ma ensure ang
compliance niya with the accounting principles
- They are usually made using journal entries
- Accrual Method is the standard method used in accounting
↳ recognizes revenues once earned and expenses once incurred.
- Types:
● Accruals
● Deferrals
● Depreciation
- allocates the cost of a tangible fixed asset over its useful life
- recorded periodically to reflect the usage and wear & tear of the asset
● Amortization
● Bad Debts/Doubtful Accounts
- estimates the amount of accounts receivable that may not be collected and records it
as expense
- ensures that the accounts receivable balance is reported at its Net Realizable Value
(NRV)
● Inventory Adjustments
● Adjustments for Estimates

2 Methods of Adjusting Entry:

● Asset method - account to be adjusted is an asset account
● Expense Method - account to be adjusted is an expense account

YT Tutorial Link will be provided at the end of the notes

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FREIGHT COSTS & TERMS

(additional notes from yt)

FOB Point
- Point of which the ownership of the item changes.
- Will be negotiated by manufacturer and store with a contract.

FOB Seller / FOB Shipping Point

- The store (buyer) will pay for the shipping fee as they now own the products before shipping.
- Ownership of goods is transferred to the buyer upon shipment.

FOB Buyer / FOB Destination

- The manufacturing company (seller) pays for the shipping fee and the ownership will only be
transferred to the buyer when the product arrives and buyer signs.
- Ownership of goods is transferred to buyer upon receipt.
FOB Seller FOB Buyer

Manufacturer Store

FREIGHT TERMS Freight Prepaid Freight Collect

FOB Destination FOB Destination, FP FOB Destination, FC

FOB Shipping Point FOB Shipping Point, FP FOB Shipping Point, FC

Legend: OWNER OF GOODS IN WHO WILL WHO PAYS FREIGHT

S - Seller TRANSIT SHOULDER THE COST?
B - Buyer FREIGHT COST?

FOB Destination S S S
Freight Prepaid

FOB Destination S S B
Freight Collect

FOB Shipping Point B B S

Freight Prepaid

FOB Shipping Point B B B

Freight Collect

THIS TERM OR PHRASE “n/n, n/n” e.g. “3/10, n/30”

n/n (3/10)
Discount Rate ↲ ↳ Amount of Days

- It means nga the customer can avail n% (3%) discount if they pay within n (10) days.

n/n (n/30)
Total Price/ Accounts Receivable ↲ ↳ Amount of Days

- It means nga the customer must pay the n amount within n (30) days.
YT Tutorial Link will be provided at the end of the notes

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INVENTORY SYSTEMS: PERPETUAL VS. PERIODIC

Inventory
- Goods held by a business that intends to sell to earn revenue.

Perpetual Inventory System

- Continuously updates inventory accounts as goods are bought & sold on a unit-by-unit basis.
- PROS:
➔ Realtime
➔ Inventory tracking
- CONS:
 ➔ High Set Up Costs
➔ Not Always Reliable

Periodic Inventory System

- Updates inventory accounts at regular intervals triggered by a physical inventory count.
- PROS:
➔ Relatively Simple
➔ Low Set Up Costs
- CONS:
➔ Delayed Results
➔ Less Control

INVENTORY CALCULATION

OPENING INVENTORY X

ADDITIONS X

COST OF GOODS AVAILABLE FOR SALE =X

COST OF GOODS SOLD (X)

CLOSING INVENTORY =X

STEPS

PERPETUAL INVENTORY SYSTEM PERIODIC INVENTORY SYSTEM

1 Last period’s closing inventory becomes this Last period’s closing inventory becomes this
period’s opening inventory period’s opening inventory

2 Records addition in inventory account Records addition in purchases account

3 Recognize revenue and cost of goods sold as Recognize revenue as sales take place
sales take place

4 Inventory updates in real time Clear total purchases to inventory account

5 - Update closing inventory and calculate cost of

goods sold
YT Tutorial Link will be provided at the end of the notes
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FIRST IN, FIRST OUT (FIFO)

Steps:
1. Draw an Inventory Cost Flow Table
DATE DESCRIPTION QUANTITY COST PER UNIT TOTAL COST
(UNITS) (P/UNIT) (P)
 2. Enter what you know
DATE DESCRIPTION QUANTITY COST PER UNIT TOTAL COST
(UNITS) (P/UNIT) (P)

11|01 Opening Inventory 220 2

11|05 Additions 400 1,200

Goods Available For Sale

11|12 Goods Sold (500)

11|30 Closing Inventory

3. Fill in the blanks

- Can ignore the cost per unit of Goods Available for Sale, Goods Sold, & Closing Inventory.
- For Goods Sold, Sold 500 units but different costs
↳ under FIFO, the first units to come in are the first to be sold.
↳ we have 220 units from the first one, but we still need to sell 280 units to reach 500 units.
↳ the next 280 units comes from the additions
↳ 220 units x P2 per unit = P440
↳ 280 units x P3 per unit = P840
↳ P440 + P840 = P1,280
DATE DESCRIPTION QUANTITY COST PER UNIT TOTAL COST
(UNITS) (P/UNIT) (P)

11|01 Opening Inventory 220 2 440

11|05 Additions 400 3 1,200

Goods Available For Sale 620 1,640

11|12 Goods Sold (500) (1,280)

11|30 Closing Inventory 120 360

4. Calculate your total cost of goods sold and closing inventory

Add up all of goods sold for each sale ↲
DATE DESCRIPTION QUANTITY COST PER UNIT TOTAL COST
(UNITS) (P/UNIT) (P)

11|01 Opening Inventory 220 2 440

11|05 Additions 400 3 1,200

Goods Available For Sale 620 1,640

11|12 Goods Sold (500) (1,280)

11|30 Closing Inventory 120 360

YT Tutorial Link will be provided at the end of the notes

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 FINANCIAL RATIOS

Return on Owners’ Investment (ROI)

- Return on owners’ equity (ROE)
- Shows relationship of net income or net profit after tax to the total equity.
ROI = Income after Income Tax / Total Equity

Profit Margin / Return on Sales (ROS)

- Ratio of net income to net sales
Profit Margin = Net Income / Net Sales

Return on Assets (ROA)

- Measure of how effective the utilization of the company’s assets is
- Operating income is used instead of net income because asset utilization pertains to operation
ROA = Operating Income / Total Assets

LIQUIDITY RATIOS

Current Ratio
- Shows how much current assets is available to meet current liabilities
- Ex. 2:1 means P2 worth of assets is available to pay off every P1 of current liabilities
Current Ratio = Current Assets / Current Liabilities

Quick Ratio
- More stringent measure of liquidity
- Inventories and prepaid expenses are excluded from current assets because it takes longer to be
converted to cash.
- Quicks assets to be used are those that can easily be converted to cash
Quick Ratio = Quick Assets / Current Liabilities

Working Capital / Net Working Capital

- Not a ratio
- Considerable excess of current assets over current liabilities would mean a comfortable enough
allowance or leeway in the payment of current obligations.
Working Capital = Current Assets - Current Liabilities

SOLVENCY RATIOS

Debt Ratio
- Shows the relationship of creditors’ claim on total assets as compared to the claims of both creditors
and owners on the same value of assets
Debt Ratio = Total Liabilities / Total Assets

Stockholders’ Ratio
- Shows the relationship of stockholders’ claims on the total assets of the firm
Stockholders' Ratio = Total Stockholders’ Equity / Total Assets
Stockholders’ Ratio = 100% - Debt Ratio

Debt - Equity Ratio

- Ratio of total liabilities to total stockholders or owners’ equity
- Shows extent of creditors hold in the assets of the business entity with reference to the owners.
Debt - Equity Ratio = Total Liabilities / Total Stockholders’ Equity
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 FINANCIAL STATEMENTS INTRODUCTION AND PREPARATION

Financial Statements
- Records of a company's financial performance.
- Any presentation of financial data derived from accounting records.
- Formal record of financial activities of a business, person, or entity.
- Written records that convey the business activities and the financial performance of a company.

According to International Accounting Standards (IAS)

Financial Statements are a structured representation of the financial position and financial
performance of an entity. The objective of these accounts is to provide information about the financial
position, financial performance, and cash flows of an entity that is useful to a wide range of users in making
economic decisions. These accounts to a certain extent also show the results of the management’s
stewardship of the resources entrusted to it.

2 Classifications of Financial Statements:

General Purpose Financial Statements
- Those intended to serve users who are not in a position to require financial reports tailored to their
particular information needs (external group).

Special Purpose Financial Statements

- Those intended for presentation to a limited group of users (internal group) or for a specific purpose
like tax reporting, bank reporting, and industry specific reporting.

Components of Financial Statements

- A statement of financial position (balance sheet) at the end of the period
- A statement of profit or loss and other comprehensive income for the period
- A statement of changes in equity for the period
- A statement of cash flows for the period
- Note compromising a summary of significant accounting policies and other explanatory notes
- Comparative information prescribed by the standard

Accrual Basis of Accounting

- An entity prepares its financial statements, except for CASH FLOW information, using the accrual
basis of accounting. (IAS 1)

Consistency of Presentation
- The presentation and classification of items in the financial statements shall be retained from one
period to the next unless a change is justified either by change in circumstances or a requirement of
a new IFRS. (IAS 1)

Comparative Information
- IAS 1 requires the comparative information to be disclosed with respect to the previous period for all
amounts reported in the financial statements.
- Provided for narrative and descriptive purposes where it is relevant to understanding the financial
statements of the current period.

Structure and content of financial statements in general

- IAS 1 requires an entity to clearly identify the financial statements, which must be distinguished from
other information in a published document, each financial statement and the notes to the financial
statements.
- In addition, the ff. Information must be displayed prominently, and reported as necessary:
 ● The name of the reporting entity and any change in the name
● Whether the FS are a group of entities or an individual entity
● Information about the reporting period
● The presentation currency
● Level of rounding used (thousands, millions…)

Reporting Period
- The presumption is that the FS will be prepared at least annually.

The Qualitative Characteristics:

Comparability
- Enables users to identify and understand similarities and dissimilarities among items
↳ Horizontal or Intracomparability allows comparison from one accounting period to the next.
↳ Intercomparability or Dimensional Comparability allows comparison between two or more
entities engaged in the same industry.

Consistency
- Uniform application of accounting method from period to period within an entity.

Timeliness
- Means that financial information must be available or communicated early enough when a decision
is to be made.
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STATEMENT OF COMPREHENSIVE INCOME (SCI)

Profit or Loss
- Total of income less expenses, excluding the components of other comprehensive income.

Other Comprehensive Income

- Items of income and expense including reclassification adjustments that are not recognized in profit
or loss as required or permitted by the Philippine Financial Reporting Standards (PFRS).

Comprehensive income components:

1. Profit or loss / income statement
2. Other comprehensive income

Comprehensive Income
- The change in equity during a period resulting from transaction and other events, other than
changes resulting from transactions with owners in their capacity as owners.

Profit or Loss / Income Statement

- Formal report which shows the results of operation or the financial performance of the business for
a given period of time, usually for a year or given portion of a year.

How to Construct the Income Statement

1. Title of the Statement or Heading
● Name of Company
● Title of Report
● Period Covered
ABC Company
Income Statement
For the Year Ended December 31, 2020
 2. Gross Sales / Gross Revenue
Net Sales = Gross Sales - Sales Returns, Allowances, & Discounts
Sales = Total Units Sold x Sale Price Per Unit

Gross Sales P100,000.00

Less: Sales Return P 5,000.00
Sales Discount P 10,000.00
Net Sales P 85,000.00

3. Cost of Sales
● Merchandise Inventory Beginning - amount of stocks on hand at the beginning of the
period.
● Purchases - amount of stocks bought for sale from the beginning to the end of the period.
● Freight In - amount paid for delivery cost of stocks purchased from point of origin to
destination.
● Merchandise Inventory End - amount of stocks on hand at the end of the reporting period.
Merchandise Inventory Beginning P 150,000.00
Add: Purchases P 1,000,000.00
Freight In P 7,500.00
Goods Available for Sale P 1,157,500.00
Less: Merchandise Inventory End P 95,000.00
Cost of Sales P 1,062,500.00

4. Gross Profit on Sales

= Net Sales - Cost of Sales

5. Operating Expenses
- Expenses related to business but not directly involved with production or goods and
services.
● Selling Expenses - directly related to selling, advertising, website maintenance, spending
on social media and delivery of goods to customers
● Administrative Expenses - not directly related to a specific business function.

6. Income Before Tax

= Gross Profit - Operating Expenses

7. Income Tax Expense

Amount of percentage of Income Before Tax mandated by government.

8. Net Income (or Net Loss)

= Income Before Tax - Income Tax
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STATEMENT OF FINANCIAL POSITION (SFP)
SFP
- Formal statement generally showing three elements of utmost importance:
➢ What and How Much the business owns at a specific point in time; assets
➢ How Much does the business owe to creditors at a specific point in time; liabilities
➢ How Much is the residual interest of the owners in the assets after paying all liabilities;equity

2 Ways of Presenting Statement of Financial Position

● Report Form
- Shows three major sections corresponding to the three major elements of assets, liabilities,
and equity in a downward sequence.
 ● Account Form
- Shows sections in a T account form with assets at the left and liabilities & equity at the right.

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STATEMENT OF CHANGES IN EQUITY (SCE)

SCE
- Shows the movements in the elements or components of the equity (owner, partner, stockholder)
- Explains changes in a company’s share capital, reserves, and retained earnings over the period.

IFRS Requirements
- Requires a business entity to present a separate statement of changes in equity (SCE) as one of
the components of financial statements.

The Statement Shall Show:

● Total comprehensive income for the period
● Effects of retrospective application
● Reconciliations between carrying amounts at the beginning and the end of the period for
each component of equity, separately disclosing: profit or loss, other comprehensive income,
transactions with owners.

Preparing the Statement of Changes in Equity

1. Draft the Heading
Similar to SCI
ABC Corporation
Statement of Changes in Equity
For The Year Ended December 31, 2020

2. Determine Capital Beginning Balance

Capital Stock, December 31, 2019 xxxxxxx

3. Determine Changes in Stockholdings

Additional Paid-In Capital xxxxxxx

4. Determine if there are Treasury Stocks (xxxxxx) xxxxxxx

5. Determine Retained Earnings Beginning Balance xxxxxxx

6. Determine the Amount of Net Income from SCI xxxxxxx

7. Determine if there were dividend payments (xxxxxx) xxxxxxx

Stockholders’ Equity, December 31, 2020 xxxxxxx

—-------------------------------------------------------------------------------------------------------------------------------------------

STATEMENT OF CASH FLOWS (SCF)

SCF
- Presents the movement of cash in the operation of the business.
- Provides information about cash receipts and cash payments of an entity within a period.
- Presents sources of funds and the manner in which these funds are used.
3 MAJOR SECTIONS:
● Operating Activities - items affecting profit and loss
- Primary revenue-generating activity of the business.
➔ Sale of goods and rendering of service
➔ Royalties, fees, commission, other revenue
➔ Payments to suppliers of goods and services
➔ Payments to employees
➔ Payments for taxes
➔ Interest paid and received
➔ Dividends received

● Investing Activities - items affecting non-current assets

- Acquisition and disposal of non-current assets.
➔ Acquiring property, plant, and equipment
➔ Sale of property, plant, equipment
➔ Acquire intangible assets
➔ Sale of intangible assets
➔ Sale of long-term assets

● Financing Activities - items affecting non-current liability and equity

- Changes in non-current liabilities and owner’s equity.
➔ Investments from owners
➔ Proceeds from bank loans
➔ Distributions to owners
➔ Repayment of bank loans

Preparing the Statement of Cash Flows

1. Draft the Heading - Similar with the other statements
ABC Corporation
Statement of Cash Flows
For the Year Ended December 31, 2020

2. Analyze the Cash Transactions

3. Prepare the Operating Activities Section
4. Prepare the Investing Activities Section
5. Prepare the Financing Activities Section
6. Determine the Ending Cash Balance

2 Methods in presenting the SCF

● Direct Method
- Presentation is by major classification of gross receipts and gross payments for operating
activities.

● Indirect Method
- Reports cash flow from operating activities by beginning with net income and adjusting it for
revenues and expenses that do not involve the receipt or payment of cash.
- Its primary advantage is that it reconciles the differences between net income and net cash
flow from operations.
- Preferred by practitioners precisely because it is near to impossible and it is too costly in
terms of professional fees to track down all transactions involving cash.
- Only requires presentation of a comparative income statement and balance sheet to
determine the movement of cash in a company.
—-------------------------------------------------------------------------------------------------------------------------------------------
 NOTES TO FINANCIAL STATEMENTS (NFS)

NFS
- Provide narrative description of items presented in the financial statements.
- Contain information in addition to what is presented in the financial statements.
- Used to report information that does not fit into the body of the FS in order to enhance the
understandability of the FS.

IAS 1.112 provides that the notes must:

➔ Present information about the basis of preparation of the FS and the specific accounting policies
used
➔ Disclose any information required by IFRSs that is ot presented elsewhere in the FS
➔ Provide additional information that is not presented in the FS but relevant to understanding them

IAS 1.113 provides that the notes must

➔ Be presented in a systematic manner & cross-referenced from the face of FS to the relevant note

IAS 1.114 suggests that the notes should

➔ Should normally be presented in the ff. order
❖ Statement of compliance with IFRSs
❖ Summary of significant accounting policies applied: the measurement basis & accounting
policies relevant to the understanding of FS
❖ Supporting information for items presented on the face of the FS in the same order the
statements and lines are presented
❖ Contingent liabilities and unrecognized contractual commitments, non-financial disclosures
like financial risk management objectives and policies

💜
—-------------------------------------------------------------------------------------------------------------------------------------------
YT LINKS

Double Entry Bookkeeping :

https://youtu.be/xwhljsg8KZI?si=yTAfuBOuD3EnKafY

Rules of Debit and Credit :

https://youtu.be/JVUk3gSlcuA?si=Pqq6llmMZB5QvggA

Adjusting Entries :
https://youtu.be/6g783QQK7Iw?si=yCSnp6ZyyobI6EuV

https://youtu.be/5FKr5pP403k?si=ua0oiPcPP48xXHxr

SCI :
https://youtu.be/OKEAf49_VYM?si=Al05Re-icWsFs1hb

https://youtu.be/lp1ZlL-LkmU?si=6WBSK0RlcTGUB7ND

SFP :
https://youtu.be/l1PbKYpKj6g?si=cgve-4CLWmBTlTy0

SCF :
https://youtu.be/-0FeENIS1oo?si=fhFZ-VMCH05LUeC8

SCE :
https://youtu.be/V3HzlDKWDUk?si=BzgnH0c0iN07r_67
Accounting Equation:
https://youtu.be/RJjlL60g6s0?si=mBTI9SnwVK1JjIJt

Freight Costs and Terms:

https://youtu.be/ZmeRxwY2EcI?si=ZmvB31u06oux27Qz

https://youtu.be/fWi7YOumBKg?si=D2CHTf2LbQAUzftW

Inventory Systems:
https://youtu.be/tAJ8mRfffJ8?si=Hlqm5InL1QC0r1q5

https://youtu.be/hEQIXxgGtqM?si=_EUPMHshPKT16eKm

First In First Out:

https://youtu.be/Hvul1enbwjk?si=FyLNlhsf6LVp6IR0

Ratios:
https://youtu.be/bmZVPks4yQg?si=pPkaQBqTzX_9-C1x

https://youtu.be/3W_LwpeG8c8?si=QQHlfril5stW95cC

https://youtu.be/4_GoWaMLGHI?si=l7Rp86I0KOCjsayx

https://youtu.be/exe3jcra6Xw?si=EgmngkJ5I54gWM1Q