Fundamentals of Accountancy, Business, and Management

1st Semester, 1st Quarter Reviewer

Lesson 1: The Statement of processes performed
to arrive at the net
Comprehensive Income (SCI) income or net loss.

INCOME STATEMENT- shows the Lesson 1.1: A Review of

result of operations for a given
period. Single-Step Income Statement
➢​ FORMS OF INCOME
STATEMENT: Service Income/Revenue -
➔​ Single-Step Income includes revenues earned or
Statement- also generated by the business in
known as Natural performing services for a
Form or Nature of customer or client.
Expense Method. It ➢​ Laundry Income- Laundry
presents expenses Services by a laundry shop.
according to nature. ➢​ Medical Fees- Medical
This type of income Services by a doctor.
statement is ➢​ Dental Fees-Dental
commonly used in a Services by a dentist.
Service Business. It is ➢​ Consultancy Fees-Advisory
called single-step Services by a consultant.
income statement ➢​ Audit Fees-Accounting or
since there is only Auditing Services by a
one process of certified public
deducting expenses accountant.
from revenues is Other Income/Revenue -
performed to arrive includes revenues earned or
at the net income or generated from sources other
net loss. than the company’s main
➔​ Multiple-step Income business.
Statement- also ➢​ Interest Income- earned
known as the from money deposited in
Functional Form or the bank or money lent to
earn interest.
Cost of Sales
➢​ Rent Income- income from
Method, it presents
lease of company property.
expenses according
➢​ Dividend Income-income
to function. This form
received by a shareholder
of income statement
of a corporation. A
is commonly used in
shareholder is one who
Merchandising and
owns stocks of a
Manufacturing corporation.
Businesses. It is ➢​ Commissions Income-a
called the multiple percentage from the sales
step income of goods given by the
statement since there owner of the goods to the
are series of one who sold them.
 Lesson 1.2: The Multiple-Step
Utilities Expense- is an expense
related to the use of electricity,
Income Statement
fuel, water, and
telecommunications facilities. Net Sales - the first line after the
heading. This is the company’s
Supplies Expense- covers office main source of income.
supplies used by the business in
the conduct of its daily Cost of Sales - The cost of sales
operations. or cost of goods sold represents
the cost of merchandise
Insurance Expense- is the inventory sold by
expired portion of premiums the business to its customers.
paid on insurance coverage, This comprises the company's
such as premiums paid for biggest expense and is deducted
health or life insurance, motor from net sales to arrive at the
vehicles, and other properties. gross profit.

Depreciation Expense- is the Other Income - other income is

annual portion of the cost of a income derived from sources
tangible assets, such as other than the company's main
buildings, machineries, and line of business. To show the
equipment changed as expense details of this income account, it
for the year. is supported by a note to
financial statement.
Uncollectible Accounts Expense
/ Doubtful Accounts Expense / Distribution / Selling Expenses -
Bad Debts Expense- the amount are those incurred in directly
of receivables charged as selling the merchandise. This
expense for the period because includes:
they are estimated to be ➢​ salaries of sales personnel
doubtful collection. ➢​ expenses incurred in
promoting or advertising
Finance Costs/Interest Expense- the product
the amount of money charged to ➢​ commissions on sales
the borrower for the use of ➢​ store supplies used
borrowed funds. ➢​ utilities used in the store
➢​ depreciation expense of
Other Expenses- are expenses assets used in the store
that are not related to the ➢​ cost of transporting the
company’s main line of business merchandise to the
such as losses in the sale of customer's place of
company assets. business under the
account title freight-out or
delivery expense.

General / Administrative
Expenses - General or
administrative expenses are
expenses necessary in the
management of the office.
This includes:
 ➢​ the salaries of office important to various
personnel stakeholders before making any
➢​ office supplies used business economic decision.
➢​ utilities used in the office
➢​ depreciation of office PERMANENT ACCOUNTS-
assets accounts are permanent in a
➢​ provision for bad debts or sense that their balances remain
uncollectible accounts intact from one accounting
period to another. They are
Note: If the business has a small called permanent accounts
office, does not maintain a store, because the accounts are
and sales are also made in the retained permanently in the SFP
office, operating expenses need until their balances become zero.
not be categorized under selling
CURRENT ASSETS
and administrative expenses.
➢​ are classified and
Other Expenses - are expenses presented according to
not connected to the operating liquidity with the most
activities of the business. An liquid followed by those
example of this is loss on sale of
with lesser liquidity. ​
assets and discount lost.
Discount lost is a discount not IAS 1 classify asset as
availed by the company in the current asset when it is:
acquisition of assets. ➔​ expected to be
realized in the entity’s
Finance Cost - are the interest
normal operating
expense paid for the use of
borrowed funds. cycle (12 months))
➔​ expected to be
Lesson 2: The Statement of realized within twelve
Financial Position months of the
balance sheet date.
➢​ CLASSIFICATION OF
Statement of Financial Position- CURRENT ASSETS
shows the financial condition of
a company as of a given time. It ➔​ Cash- coins,
is a clear representation of the currencies, checks,
accounting equation Assets = bank deposits, and
Liabilities + Owner's Equity. The other cash items.
first element of the statement of ➔​ Cash Equivalents-
financial position is the asset. short term
delivers financial information
about the firm’s investments that are
assets(resources), liabilities convertible to cash.
(obligations of the firm), and ➔​ Marketable
equity (residual claims of the Securities/Investmen
owners) at the end of the t in Trading
accounting period normally one
year. The Financial information Securities- stocks
provided in the statement is very and bonds
 purchased for a or through
short period of time. salary
Usually purchased deductions.
when a business has ◆​ Accrued
excess cash. Income -
➔​ Trade and Other income already
Receivables-amount earned but not
collectible from any yet received.
of the following ➔​ Merchandise
accounts: Inventory- represent
◆​ Accounts the unsold goods at
receivable-amo the end of the
unt collectible accounting period.
FROM This is applicable to
customers on merchandising and
account. manufacturing
◆​ Notes businesses.
Receivable - is ➔​ Prepaid Expenses-
a promissory are expenses paid in
note issued by advance, including
clients or supplies bought for
customers as use in the business
evidence of or services and
their obligation benefits to be
to pay for received by the
services or business in the
goods received. future.
◆​ Interest ➔​ Contra-Asset
Receivable - Accounts- are
amount of accounts deducted
interest from the related
collectible on asset accounts. This
promissory includes:
notes received ◆​ Allowance for
from customers Bad Debts-are
and clients. estimated
◆​ Advances to losses due to
Employees - uncollectible
certain amount accounts. This
of money is deducted
loaned to from the
employees accounts
payable in cash receivable to
 get the net within one year. They are
realizable also called long-term
value. This is in assets because they have a
line with the service potential for more
financial than one year
statements' ➢​ CLASSIFICATION OF NON-
qualitative CURRENT ASSETS
characteristic ➔​ Long-term
of Investments- are
conservatism assets held by an
wherein no enterprise with
profits would be expected returns
anticipated but such as those
all probable or obtained through
estimable trading relationships
losses should which are intended to
be provided. be held for more
◆​ Accumulated than one year.
Depreciation(to ➔​ Property, Plant, and
gether with Equipment- are
non-current)- tangible assets that
represents the are held by an
expired cost of enterprise for use in
property, plant, the production or
and equipment supply of goods or
as a result of services, or for
usage and administrative
passage of purposes and which
time. This is are expected to be
deducted from used for more than
the cost of the one period
related asset (International
account to get Accounting
the carrying Standards No. 16).
value or book Examples of Property,
value of the Plant, and Equipment
asset. are:
◆​ Land-is a piece
NON-CURRENT ASSETS of lot or real
➢​ These are assets which are estate owned
NOT expected to be by the
converted to cash, enterprise on
consumed or used up which a
 building can be include tables,
constructed for chairs, carpets,
business curtains, lamp
purposes. and lighting
◆​ Building - is an fixtures, and
edifice or wall decors.
structure used Specific
to account titles
accommodate maybe used
the office, store, such as Office
or factory of a Furniture and
business Fixtures and
enterprise in Store Furniture
the conduct of and Fixtures.
its operations.
➔​ Intangible Assets-
◆​ Equipment -
are identifiable,
typewriter,
nonmonetary assets
air-conditioner,
without physical
calculator, filing
substance held for
cabinet,
use in the production
computer,
or supply of goods or
electric fan,
services, for rental to
trucks, and
others, or for
cars used by
administrative
the business in
purposes. These
its office, store,
include goodwill,
or factory.
patents, copyrights
Specific
licenses, franchises,
account titles
may be used trademarks, brand
such as Office names, secret
Equipment, processes,
Store subscription lists
Equipment, and noncompetition
Delivery agreements
Equipment (International
Accounting
Transportation
Standards No. 38).
Equipment,
LIABILITIES
Machinery and
➢​ are either current liabilities
Equipment. or non-current liabilities.
◆​ Furniture and Liabilities are classified
Fixtures - and presented based on
 their maturity. Obligations promissory
presently due for payment note.
are listed first. ◆​ Utilities
CURRENT LIABILITIES Payable - is an
➢​ IAS 1.69 classify liability as obligation to
a current liability when it pay utility
is: companies for
➔​ expected to be the use of
settled in the entity's electricity,
normal operating water and
cycle; normal telecommunica
operating cycle (12 tion services.
months) Examples are
➔​ expected to be the obligations
settled within twelve to pay Meralco
months of the for the use of
balance sheet date. electricity,
➢​ CLASSIFICATION OF Maynilad for
CURRENT LIABILITIES providing water,
➔​ Trade and Other and PLDT for
Payables- include telecommunica
payables from any of tion services.
the following ◆​ Unearned
accounts: Revenues-
◆​ Accounts represent
Payable-include obligations of
s obligations the business
arising from arising from
purchase of an advance
asset or payments
availment of received before
services on goods or
account. services are
◆​ Notes Payable - provided to the
includes customer. This
obligations will be settled
arising from when certain
purchase of an goods or
asset or services are
availment of delivered or
services on rendered.
account ➔​ Accrued Liabilities-
evidenced by a include amounts
 owed to others for rate of interest to be
expenses already charged.
incurred but not yet ➔​ Loan Payable - is a
paid. Examples of liability to pay the
these are salaries bank or other
payable, utilities financing institutions
payable, taxes arising from funds
payable, and interest borrowed by the
payable. business from these
institutions payable
within twelve months
NON-CURRENT LIABILITIES
➢​ These are long-term or shorter. Note: If
liabilities or obligations loan is payable within
which are payable for a twelve months, then it
period longer than one is classified under
year: Examples of current liabilities.
Non-current Liabilities are
as follows: Lesson 3: The Statement of
➢​ CLASSIFICATION OF NON- Changes in Owner’s Equity
CURRENT LIABILITIES
➔​ Mortgage Payable- is
a long-term debt of FORMS OF BUSINESS
the business with ORGANIZATION
security or collateral ➢​ Sole Proprietorship-An
in the form of real entity whose assets,
properties. In case liabilities, income and
the business fails to expenses are centered or
pay the obligation, owned by only one person.
the creditor can ADVANTAGES:
foreclose or cause ➔​ Retention of all
the mortgaged asset the profits to
to be sold and the the owner
proceeds of the sale ➔​ Ease of
to be used to settle formation
the obligation. ➔​ Ownership
➔​ Bonds Payable- is a flexibility
certificate of DISADVANTAGES
indebtedness under ➔​ Retention of all
the seal of a the profits to
corporation, the owner
specifying the terms
➔​ Ease of
of repayment and the
formation
 ➔​ Ownership ➔​ Specialized
flexibility management skills
➢​ Partnership-An entity ➔​ Expanded financial
whose assets, liabilities, capability
income and expenses are
centered or owned by only DISADVANTAGES
two or more persons with
an agreement to ➔​ Taxes
contribute money, property ➔​ More government
or services for the purpose control
of dividing profits among ➔​ It is costly to
themselves. organize

ADVANTAGES: Statement of Changes in

Owner’s Equity- Shows the
changes in the Capital or
➔​ Ease of formation Owner’s Equity as a result of
➔​ Complementary additional investment or
managerial skills withdrawals by the owner, plus or
➔​ Expanded financial minus the net income or net loss
for the year.
capability
Capital- is an account bearing
DISADVANTAGES the name of the owner
representing the original and
additional investment of the
➔​ Unlimited financial
owner of the business increased
liability by the amount of net income
➔​ Interpersonal earned during the year.
conflicts
➔​ Lack of continuity Initial Investment- The very first
investment of the owner to the
➢​ Corporation-An entity company.
whose assets, liabilities,
income and expenses are Additional Investment -
centered or owned by an Increases to owner’s equity by
artificial being created by adding investments by the owner.
operation of law having Drawings- represents the
right of succession and the withdrawals made by the owner
powers, attributes and of the business either in cash or
properties expressly other assets. Decreases to
authorized by law. owner’s equity by withdrawing
assets by the owner.
ADVANTAGES

➔​ Limited financial
risks
 Lesson 3: The Statement of and sale of property and
equipment, investment in
Cash Flows debt, lending money and
The Statement of Cash Flows-It collection of principal
summarizes the cash receipts amount of the money
and cash disbursements for the loaned.
accounting period. It also ➢​ FINANCING ACTIVITIES
summarizes the cash activities of [NON-CURRENT
the business by classifying cash LIABILITIES AND OWNER’S
inflows and cash outflows into EQUITY]-The cash inflows
operating, investing and (receipts) and the cash
financing activities. outflows (payments) arising
from the owners and
➢​ OPERATING ACTIVITIES creditors of the business.
[OPERATING INCOME AND RECEIPTS
EXPENSES]-The cash
inflows (receipts) and the ➔​ Original and
cash outflows (payments) additional
arising from the normal investments by owner
operations of the business. ➔​ Proceeds of loan
RECEIPTS
PAYMENTS
➔​ Collections from the
customers for the ➔​ Cash withdrawals of
performance of owner
services or sale of ➔​ Payment for the
goods principal balance of
➔​ Royalties, fees, loan
commissions
received
➔​ Interest, dividends,
and other income
received

PAYMENTS

➔​ To suppliers for
services and goods
acquired
➔​ Employees’ salaries
➔​ Government licenses
and taxes
➔​ Interest expense
➔​ Other operating
expenses
➢​ INVESTING ACTIVITIES
[NON-CURRENT
ASSETS]-The cash inflows/
proceeds (receipts) and the
cash outflows (payments)
arising from the purchase