Financial Statements

BASIC FINANCIAL STATEMENTS

BALANCE
BALANCE SHEET
SHEET

INCOME
INCOME STATEMENT
STATEMENT

STATEMENT
STATEMENT OF
OF CHANGES
CHANGES IN
IN
OWNER’S
OWNER’S EQUITY
EQUITY

CASH
CASH FLOW
FLOW STATEMENT
STATEMENT

NOTES
NOTES TO
TO FINANCIAL
FINANCIAL STATEMENTS
STATEMENTS
BALANCE SHEET

This
This financial
financial report
report shows
shows what
what thethe business
business is
is worth
worth in
in
terms
terms ofof properties
properties itit owns
owns (i.e.
(i.e. the
the assets),
assets), the
the debts
debts itit
owes
owes (i.e.
(i.e. the
the liabilities),
liabilities), and
and the
the investment
investment of
of its
its
owner/s
owner/s(i.e.
(i.e. the
the equity).
equity).

It
It informs
informs the
the users
users of
of the
the financial
financial condition
condition of
of the
the
business
business atat aa given
given date,
date, usually
usually at
at the
the end
end of
of an
an

accounting
accountingperiod.
period.
FORMS OF BALANCE SHEET

ACCOUNT
ACCOUNT FORM
FORM

Where
Where Assets
Assets are
are listed
listed on
on the
the left
left
side
side of
of the
the report,
report, and
and Liabilities
Liabilities
and
and Equity
Equity on
on the
the right
right side.
side.

REPORT
REPORT FORM
FORM

Where
Where Assets
Assets are
are presented
presented on
on the
the
top
top section
section ofof the
the statement,
statement, and
and
the
the Liabilities
Liabilities and
and Equity
Equity on
on the
the
bottom
bottom section.
section.
 ACCOUNT FORM - Illustration
Juan
JuanCruz
CruzTrading,
Trading,Sole
SoleProprietorship
Proprietorship
Balance
BalanceSheet
Sheet
December
December 31,2008
31, 2008
ASSETS
ASSETS LIABILITIES
LIABILITIES&&OWNER’S
OWNER’SEQUITY
EQUITY
Current
CurrentAssets
Assets Current
CurrentLiabilities
Liabilities
Cash
Cash&&cash
cashequivalents(1)
equivalents(1)P20,000
P20,000 Trade
Tradeand
andOther
OtherPayables
Payables (5)
(5) P75,000
P75,000
Investment
Investment inin
Trading
TradingSecurities
Securities 10,000
10,000 Total
TotalCurrent
CurrentLiabilities
Liabilities 75,000
75,000
Trade and Other
Trade and Other
Receivables
Receivables (2)
(2) 30,000
30,000 Non-Current
Non-CurrentLiabilities
Liabilities
Prepaid Expenses
Prepaid Expenses (3) 29,000
(3) 29,000 Notes
Notes Payable––Long
Payable LongTerm
Term 70,000
70,000
Total Current Assets
Total Current Assets 89,000
89,000 Mortgage Payable – Long
Mortgage Payable – Long TermTerm 180,000
180,000
Total Non-Current Liabilities
Total Non-Current Liabilities 250,000
250,000
Non-Current
Non-CurrentAssets
Assets TOTAL LIABILITIES
TOTAL LIABILITIES P 325,000
P 325,000
Property,
Property,Plant
Plant&& OWNER’S
OWNER’SEQUITY
EQUITY
Equipment
Equipment (4)
(4) 791,000
791,000 Cruz
Cruz Capital,Ending
Capital, Ending PP555,000
555,000
Total Non-Current
Total Non-Current
Assets
Assets 791,000
791,000 TOTAL
TOTALLIABILITIES
LIABILITIESAND
AND
OWNER’S EQUITY
OWNER’S EQUITY PP 880,000
880,000
TOTAL
TOTALASSETS
ASSETS 880,000
880,000 _______
_______
_______
_______
REPORT FORM - Illustration

Juan
JuanCruz
CruzTrading
Trading
Balance
BalanceSheet
Sheet
December
December 31,2008
31, 2008
ASSETS
ASSETS
Current
CurrentAssets
Assets
Cash
Cashand
andcash
cashequivalents
equivalents (1)
(1) P20,000
P20,000
Investment
Investment in tradingsecurities
in trading securities 10,000
10,000
Trade and other receivables
Trade and other receivables (2)
(2) 30,000
30,000
Prepaid
PrepaidExpenses
Expenses (3)
(3) 29,000
29,000
Total
Total CurrentAssets
Current Assets P89,000
P89,000
Non-Current
Non-CurrentAssets
Assets
Property,
Property,Plant
Plant&&Equipment
Equipment (4)
(4) P791,000
P791,000
Total
Total Non-CurrentAssets
Non-Current Assets P791,000
P791,000
TOTAL
TOTALASSETS
ASSETS P880,000
P880,000
_______
_______
REPORT FORM - Illustration

(CONTINUATION)
(CONTINUATION)

LIABILITIES
LIABILITIES&&OWNER’S
OWNER’SEQUITY
EQUITY
Current
CurrentLiabilities
Liabilities
Trade
Trade andOther
and OtherPayables
Payables (5)
(5) PP 75,000
75,000
Total
Total CurrentLiabilities
Current Liabilities PP 75,000
75,000
Non-Current
Non-CurrentLiabilities
Liabilities
Notes
Notes Payable––Long
Payable LongTerm
Term PP 70,000
70,000
Mortgage
Mortgage Payable – LongTerm
Payable – Long Term 180,000
180,000
Total Non-Current Liabilities
Total Non-Current Liabilities PP 250,000
250,000
TOTAL
TOTALLIABILITIES
LIABILITIES PP 325,000
325,000
OWNER’S
OWNER’SEQUITY
EQUITY
Cruz
Cruz Capital,Ending
Capital, Ending PP 555,000
555,000
TOTAL
TOTALLIABILITIES
LIABILITIESAND
ANDOWNER’S
OWNER’SEQUITY
EQUITY PP 880,000
880,000
_______
_______
NOTES TO FINANCIAL STATEMENTS

Note
Note11––Cash
Cashand
andcash
cashequivalence
equivalence
Cash
Cashononhand
hand PP 5,000
5,000
Cash in bank
Cash in bank 15,000
15,000
Total cash and cash equivalence P 20,000
Total cash and cash equivalence P 20,000
Note
Note22––Trade
Tradeand
andother
otherreceivables
receivables
Accounts
Accountsreceivable
receivable PP 20,000
20,000
Less: Allowance for doubtful accounts
Less: Allowance for doubtful accounts 1,200
1,200 PP 18,800
18,800
Notes
Notesreceivable
receivable––short
shortterm
term 7,500
7,500
Accrued
Accruedinterest
interestreceivable
receivable 700
700
Advances
Advancesto toemployees
employees 3,000
3,000
Total
Totaltrade
tradeand
andother
otherreceivables
receivables PP 30,000
30,000
Note
Note33––Prepaid
Prepaidexpenses
expenses
Office
Officesupplies
supplieson
onhand
hand PP 6,000
6,000
Prepaid insurance
Prepaid insurance 20,000
20,000
Prepaid
Prepaidadvertising
advertising 3,000
3,000
Total
Totalprepaid
prepaidexpenses
expenses PP29,000
29,000
NOTES TO FINANCIAL STATEMENTS

Note
Note44––Property,
Property,plant
plantand
andequipment
equipment
Land
Land PP 300,000
300,000
Building
Building PP450,000
450,000
Less: Accumulated depreciation – Building
Less: Accumulated depreciation – Building 70,000
70,000 380,000
380,000
Office equipment
Office equipment P 110,000
P 110,000
Less: Accumulated depreciation – Office equip.
Less: Accumulated depreciation – Office equip. 20,000
20,000 90,000
90,000
Furniture and Fixture
Furniture and Fixture P 25,000
P 25,000
Less: Accumulated depreciation – F/F
Less: Accumulated depreciation – F/F 4,000
4,000 21,000
21,000
Total property, plant and equipment
Total property, plant and equipment PP 791,000
791,000
Note
Note55––Trade
Tradeand
andother
otherpayables
payables
Accounts
Accountspayable
payable PP 20,000
20,000
Mortgage
Mortgage Payable-current
Payable- current 20,000
20,000
Notes
Notespayable
payable––short
shortterm
term 18,000
18,000
Interest payable
Interest payable 2,000
2,000
Accrued
Accruedsalaries
salariesexpense
expense 5,000
5,000
Unearned rent income
Unearned rent income 10,000
10,000
Total
Totaltrade
tradeand
andother
otherpayables
payables PP 75,000
75,000
PARTS OF BALANCE SHEET

(A)STATEMENT
(A)STATEMENT HEADING
HEADING

Includes
Includesthe
thename
nameofofthe
thebusiness,
business,tells
tellsthe
thekind
kindof
ofstatement
statementititis,
is,
and gives the date on which the report is prepared
and gives the date on which the report is prepared

(B)
(B) ASSETS,
ASSETS, LIABILITIES
LIABILITIES AND
AND OWNER’S
OWNER’S EQUITY
EQUITY

Items
Itemsare
aregrouped
groupedand
and each
each group
group of
ofitems
items is
is identified
identified by
by special
special
captions.
captions.

(C)
(C) CAPTIONS
CAPTIONS

Classification
Classification of
of each
each group
group of
of items
items appearing
appearing on
on the
the left
left margin
margin
of the statement.
of the statement.
PARTS OF BALANCE SHEET
(D)
(D) ACCOUNTS
ACCOUNTS TITLE
TITLE
Individual
Individualaccounts
accountstitle
titlein
ineach
eachclassification
classificationare
areindented.
indented.

(E)
(E) CURRENT
CURRENT ASSETS
ASSETS
The
The individual
individual current
current assets
assets are
are usually
usually listed
listed in
in “order
“order of
of
liquidity”, with the most liquid asset “CASH
liquidity”, with the most liquid asset “CASH & CASH & CASH
EQUIVALENCE”
EQUIVALENCE”appearing
appearingfirst.
first.

(F)
(F) PROPERTY,
PROPERTY, PLANT
PLANT AND
AND EQUIPMENT
EQUIPMENT
The
The plant
plant assets
assets are
are often
often listed
listed in
in order
order of
of their
their expected
expected useful
useful
life with the longest expected useful life, “LAND”
life with the longest expected useful life, “LAND” appearing appearing
first.
first.

(G)
(G) NOTES
NOTES
The
The separate
separate schedule
schedule attached
attached to
to the
the report
report explaining
explaining in
in detail
detail
the aggregate amount presented on the face
the aggregate amount presented on the face of FS.of FS.
PARTS OF BALANCE SHEET

(H)
(H) CURRENT
CURRENT LIABILITES
LIABILITES

The
The current
current liabilities
liabilities are
are presented
presented in
in order
order of
of due
due date,
date, the
the debt
debt
with earliest due date appearing first.
with earliest due date appearing first.

(I)
(I) CAPTIONS
CAPTIONS INDICATING
INDICATING TOTALS
TOTALS
Each
Eachgroup
groupofofitems,
items,(i.e.
(i.e.total
totalcurrent
currentassets,
assets,total
totalproperty,
property,plant
plant
and equipment, total current liabilities, etc.) is
and equipment, total current liabilities, etc.) is indented indented
further.
further.

(J)
(J) SINGLE
SINGLE RULE
RULE

The
Thelast
lastfigure
figurein
ineach
eachgroup
groupof
ofitems
itemsis
isunderlined.
underlined.
PARTS OF BALANCE SHEET
(K)
(K) FINAL
FINAL TOTALS
TOTALS
The
The two
two final
final totals
totals (i.e.
(i.e. total
total assets,
assets, and
and total
total liabilities
liabilities and
and
owner’s equity) appear as the line in their respective
owner’s equity) appear as the line in their respective sections sections
and
andare
areunderlined
underlinedtwice
twice(double
(doubleruled)
ruled)totoindicate
indicateaafinal
finaltotal
total

(L)
(L) PESO
PESO SIGN
SIGN

Peso
Pesosigns
signsare
areused
used(a)
(a)to
tothe
theleft
leftof
ofthe
thefirst
firstamount
amountof ofaagroup
groupof of
amounts being combined, and (b) to the left of each final total.
amounts being combined, and (b) to the left of each final total.

(M)
(M) PESO
PESO AMOUNT
AMOUNT

The
The peso
peso amount
amount for
for the
the detailed
detailed items
items is
is shown
shown inin one
one column;
column;
the
the total of each classification is extended into the lastcolumn
total of each classification is extended into the last column
on the right side of the statement.
on the right side of the statement.
ASSETS

CURRENT
CURRENT ASSETS
ASSETS

THIS
THIS includes
includes cash
cash and
and any
any other
other assets
assets that
that are
are reasonably
reasonably
expected
expected to be converted into cash or consume during one
to be converted into cash or consume during one
year or one operating cycle, whichever is longer.
year or one operating cycle, whichever is longer.

NONCURRENT
NONCURRENT ASSETS
ASSETS

ALL
ALL other
other assets
assets which
which notnot are
are reasonably
reasonably expected
expected to
to be
be
converted into cash or consume during one year
converted into cash or consume during one year or one or one
operating
operatingcycle,
cycle,whichever
whicheveris islonger.
longer.
ALL
ALLother
otherassets
assetsnot
notclassified
classifiedas
ascurrent.
current.
A. CURRENT ASSETS

1. CASH AND CASH EQUIVALENTS

- includes currencies, coins, cash on hand, cash in bank, petty
cash fund, as well as checks that has been received from
customers and other sources that have not yet been
deposited in bank account.

2. INVESTMENT IN TRADING SECURITIES

- Investment by owners on shares of stocks or debt securities
like bonds, which are acquired for the purpose of generating
profit from a SHORT-TERM period of time.
- term “MARKETABLE SECURITIES” is no longer used.
A. CURRENT ASSETS

3. TRADE AND OTHER RECEIVABLES

- Refers to claims arising from rendering services, sale of
merchandise, and from other sources in the ordinary course
of business.
- It includes:
Accounts receivable – amount owed to the business
by charge account customers, any
provision for uncollectible accounts
must be deducted.
Notes Receivable – Amount due in the immediately
succeeding business period from
persons or companies as supported
by a promissory notes.
A. CURRENT ASSETS

Interest receivable – amount of interest due as of the

balance sheet date on notes received
from customers.
Advances to employee – cash advance given to employee
in a form of “VALES” to be paid
either in cash or to be liquidated
in the form of service.
4. MERCHANDISE INVENTORY
- Purchase price of the particular line of goods the business
expects to sell to its customers for cash or on a charge
account basis.
A. CURRENT ASSETS

5. PREPAID EXPENSES
- Costs or expenses already paid but not yet consumed.
- It includes:
SUPPLIES UNUSED – cost value of supplies that are
available for use in the business
operations.
PREPAID INSURANCE – unexpired insurance premiums
regardless of the period of coverage.
PREPAID RENT – rent paid for facilities to be used after
the balance sheet date.
B. NONCURRENT ASSETS

1. PROPERTY, PLANT AND EQUIPMENT

- includes those which meet the following criteria:
(a) must have physical existence;
(b) must be more or less permanent in nature;
(c) must be used in business operations
(d) must be subject to depreciation, except land
- It includes:
LAND – cost of land which the business uses to carry on
its activities. Not subject to depreciation.
BUILDING – any structure built for the purpose of
conducting the business activities. Presented
in the balance sheet at cost less accumulated
depreciation.
B. NONCURRENT ASSETS

EQUIPMENT – cost of office equipment, delivery equipment

and/or machineries which are used by the
business. Presented at cost less accumulated
depreciation.
FURNITURE AND FIXTURE – cost of furniture such as
office tables and chairs, cabinets, display cases, etc
which are used in the business operation.
Presented at cost less accumulated depreciation.
DEPRECIATION is the allocation of the cost of a property
to its period of usefulness in order to recognize a decline
in its value due to wear and tear, obsolescence or in-
adequacy. The total amount of depreciation accumulated
over a number of years is called “ACCUMULATED
DEPRECIATION”.
B. NONCURRENT ASSETS

2. LONG-TERM INVESTMENTS
- Refers to investments in long-term bonds and other debts
instruments or equity securities intended to be held for
more than one year.
3. INTANGIBLE ASSETS
- Refers to identifiable non-monetary assets without physical
substance.
- Includes Patent, Goodwill, Franchise, Copyrights, Trade-
marks, etc.
LIABILITIES

CURRENT
CURRENT LIABILITIES
LIABILITIES

INCLUDES
INCLUDES debts
debts or
or obligations
obligations of
of aa business
business that
that are
are expected
expected to
to
be liquidated by the use of assets classified as current
be liquidated by the use of assets classified as current or by or by
the
thecreation
creationof
ofanother
anothercurrent
currentliability.
liability.

NONCURRENT
NONCURRENT LIABILITIES
LIABILITIES

INCLUDES
INCLUDESlong-term
long-termdebts
debtsororobligations
obligationsthat
thatwill
willbecome
becomedue
dueand
and
payable after one year from the balance sheet date.
payable after one year from the balance sheet date.
A. CURRENT LIABILITIES

1. TRADE AND OTHER PAYABLES

- Refers to a line items for the following:
ACCOUNTS PAYABLE – amount owed by the business as of
the balance sheet date for purchases of supplies,
merchandise, and services on a charge account
and due within one year from the BS date.
NOTES PAYABLE – amount owed by the business supported
by a promissory note which is due within one year.
INTEREST PAYABLE – amount of interest owed by the
business as of BS date for money borrowed on
interest bearing promissory note issued.
UNEARNED REVENUE – income already collected by
not yet earned.
TAXES PAYABLE – amount of taxes owed by the business
as of the BS date to the government.
B. NONCURRENT LIABILITIES

1. NOTES PAYABLE – LONG-TERM

- Refers to amount on signed formal notes due after one year
from BS date.
2. BONDS PAYABLE – LONG-TERM
- Debt instruments issued by the business to raise money,
which are to be paid beyond one year from BS date and
normally bears interests.
3. MORTGAGE PAYABLE – LONG-TERM
- Debt due after one year from BS date with collateral security
on properties owned by the business such as land and/or
buildings.
OWNER’S EQUITY

-Sometimes
-Sometimes called
called capital
capital or
or proprietorship,
proprietorship, is
is the
the
excess
excess of
of Assets
Assets over
over Liabilities
Liabilities of
of aa business.
business.
-It
-It is
is increased
increased byby Additional
Additional Investment
Investment and
and Net
Net
Income
Income resulting
resulting from
from business
business operations.
operations.
-It
-It is
is decreased
decreased byby Owner’s
Owner’s withdrawals
withdrawals and
and Net
Net
Loss
Loss resulting
resulting from
from business
business operations.
operations.
End of Discussion