TYPES OF FINANCIAL STATEMENTS

Statement of Financial Position or Balance Sheet – shows the financial condition/position of a

business as of a given period.
Assets 2. Liabilities 3. Capital
Income Statement or Statement of Comprehensive Income – it shows the result of
operation for a given period.
1. Revenue 2. Cost 3. Expenses
Statement of Changes in Owner’s Equity or Statement of Owner’s Equity – shows the
changes in the capital or owner’s equity as a result of additional investment or withdrawals by
the owner, plus or minus the net income or net loss for the year.
Statement of Cash Flows – summarizes the cash receipts and cash disbursements for the
accounting period. It summarizes the cash activities of the business by classifying cash inflows
and cash outflows into operating, investing, and financing activities.

ASSETS
Assets – economic resources owned by the company by the business expected for future gain.
They are property and rights of value owned by the business.
Classification of Current Assets
Classify an asset as current asset when it is:
1. Expected to be realized in or in intended for sale or consumption in the entity normal
operating cycle;
2. Held primarily for the purpose of being traded;
3. Expected to be realized within twelve months of the balance sheet date; or
4. Cash or a cash equivalent unless it is restricted from being exchanged or used to settle a
liability for at least twelve months after the balance sheet date.

Examples of current assets are as follows:

1. Cash includes coins, currencies, checks, bank deposits, and other cash items readily available
for use in the operations of the business.
2. Cash equivalents are short-term investments that are readily convertible to known amounts of
cash which are subject to an insignificant risk to changes in value.
3. Marketable securities are stocks and bonds purchased by the enterprise and are to be held for
only a short span of time or duration. They are usually purchased when a business has excess
cash.
4. Trade and other receivables include the amounts collectible from any of the following
accounts:
a. accounts receivable – amount collectible from the customer to whom sales have been made or
services have been rendered on account or credit.
b. notes receivable – promissory note issued by the or the customer in exchanged for services
or goods received as evidence of his/her obligation to pay.
c. interest receivable – amount of interest collectible on promissory notes received from
customers and clients.
d. advances to employees – certain amount of money loaned to employees payable in cash or
through salary deductions.
e. accrued income – income already earned but not yet received.

5. Inventories represent the unsold goods at the end of the accounting period. This is applicable
only to a merchandising business.
6. Prepaid Expenses – include supplies bought for use in the business or services and benefits to
receive by the business in the future paid in advance.
7. Contra-Asset Accounts are accounts deducted from the related asset accounts.
a. Allowance for bad debts- losses due to uncollectible accounts. This is deducted from the
accounts receivable account to get the net realizable value. This is in line with the financial
statements qualitative characteristic of conservatism wherein no profits would be anticipated but
all probable or estimable losses should be provided.
b. Accumulated depreciation- represents the expired cost of property, plant, and equipment as
a result of usage and passage of time. This is deducted from the cost of the related asset account
to get the carrying value or book value of the asset.

Classification of Non-Current Assets

1. Long -term investments are assets held by an enterprise for the accretion of wealth through
capital distribution such as interest, royalties, dividends and rentals, for capital appreciation or
for other benefits to the investing enterprise such as those obtained through trading relationships.
Investments are classified as long-term when they are intended to be held for an extended period
of time.
2. Property, plant and equipment are tangible assets that are held by an enterprise for use in
the production or supply of goods or services, or for administrative purposes. These assets are
expected to be used for more than one period.
a. land- a piece of lot or real estate owned by the enterprise on which a building can be
constructed for business purposes.
b. building- edifice or structure used to accommodate the office, store, or factory of a business
enterprise in the conduct of its operations.
c. equipment- includes typewriter, air-conditioner, calculator, filing, cabinet, computer, electric
fan, trucks, and cars used by the business in its office, store, or factory. Specific account titles
maybe used such as office equipment, store equipment, delivery equipment, transportation
equipment, and machinery equipment.
d. furniture and fixtures- include table, chairs, carpets, curtains, lamp and lighting fixtures, and
wall decors. Specific account titles may be used such as office furniture and fixtures, and store
furniture and fixtures.

Liabilities – include debts, obligations to pay, and claims of creditors on the assets of the
business.
Trade and Other Payables – include payables from any of the following accounts:
a. Accounts payable – includes debts arising from the purchase of an asset or the
acquisition of services on account.
b. Notes payable – includes debts arising from the purchase of an asset or the acquisition of
services on account evidenced by a promissory note.
c. Loan Payable – is a liability to pay the bank or other financing institution arising
from funds borrowed by the business from these institutions payable within twelve months or
shorter.
d. Utilities payable – is an obligation to pay utility companies for services
received from them.
e. Unearned revenues - represent obligations of the business arising from advance
payments received before goods or services are provided to the customer. This will be settled
when certain goods or services are delivered or rendered.
f. Accrued liabilities – include amounts owed to others for expenses already incurred
but are not yet paid.
Non-current liabilities are long term liabilities or obligations which are payable for a period
longer than one year.
Mortgage payable – is a long term debt of the business with security or collateral in the
form of real properties.

Bonds payable – is a certificate of indebtedness under the seal of a corporation,

specifying the terms of repayment and the rate of interest to be charged.

OWNER’S EQUITY – includes the interest of the owners on the business; claims of the owners
on the assets of the business, and the investment of the owner plus or minus the results of
operations. Owner’s equity or capital comes from two main sources: investment of owners and
earnings of the business.
CAPITAL – is an account bearing the name of the owner representing the original and
additional investment of the owner of the business increased by the amount of net income
earned during the year.
DRAWING – represents the withdrawals made by the owner of the business in cash or
other assets.
INCOME SUMMARY – is a temporary account used at the end of the accounting period
to close income or expense accounts. The balance of this account shows the net income or
net loss for the period before it is closed to the capital account.

INCOME STATEMENT –shows the result of operation for a given period. It consist of the
revenue, cost, and expenses and are classified as nominal or temporary account.
a. Service Income – includes revenues earned or generated by the business in performing
for a customer or client. The following are different examples of income and the
accounting term used to describe the income.
 Laundry services by a laundry shop (Laundry Income)
 Medical services by a doctor (Medical Fees)
 Dental services by a dentist (Dental Fees)
 Legal services by a lawyer (Legal Fees)
 Advisory services by a consultant (Consultancy Fees)
 Accounting or auditing services by a certified public accountant (Audit Fees)
b. Salaries or wages expense – include all payment made to employees or workers for
rendering services to a company. Examples are salaries or wages, 13 th month pay, cost of
living allowances, and other benefits given to the employees.
c. Utilities expense – is an expense related to the use of electricity, fuel, water, and
telecommunication facilities.
d. Supplies expense – covers office supplies used by a business in the conduct of its daily
operations.
e. Insurance expense – is the expired portion of premiums paid on insurance coverage such
as premiums paid for health or life insurance, motor vehicle, or other properties.
f. Depreciation expense – is the annual portion of the cost of tangible assets such as
buildings, machineries, and equipment charged as expense for the year.
g. Uncollectible accounts expense/ doubtful accounts expense/ bad debts expense –
means the amount of receivables charged as expense for the period because they are
estimated to be doubtful of collection.
h. Interest expense – is the amount of money charged to the borrower for the use of
borrowed funds.