- include the amounts collectible from any of

the following accounts:

FABM2 NOTES
Statement of Financial
Position Accounts receivable
Current Assets - amount collectible from the customer to
whom sales have been made or services
- are classified and presented according to
have been rendered on account or credit.
liquidity with the most liquid followed by
Notes receivable
those with lesser liquidity.
- promissory note issued by the client or the
An Asset is Classified as a Current Asset
customer in exchange for services or goods
when it is:
received as evidence of his/her obligation to
- expected to be realized in, or is intended
pay.
for sale or consumption in the entity’s
Interest receivable
normal operating cycle;
- amount of interest collectible on
- held primarily for the purpose of being
promissory notes received from customers
traded;
and clients.
- expected to be realized within 12 months
Advances to employees
of the balance sheet date; or
- certain amount of money loaned to
- cash or a cash equivalent unless it is
employees payable in cash or through salary
restricted from being exchanged or used to
deductions.
settle a liability for at least 12 months after
Accrued income
the balance sheet date.
- income “already earned but not yet
CLASSIFICATION OF CURRENT received”.
ASSETS Inventories
Cash - represent the unsold goods at the end of
- includes coins, currencies, checks, bank the accounting period.
deposits, and other cash items readily - applicable only to a “merchandising
available for use in the operations of the business”.
business. Prepaid Expenses
- ex: Cash on Hand, Cash in Bank, Cash Fund - include supplies bought for use in the
for Current Purposes business or services and benefits to receive
Cash Equivalents by the business in the future paid in
- are short-term investments that are readily advance.
convertible to known amounts of cash which Contra-Asset Accounts
are subject to an insignificant risk to changes - are accounts deducted from the related
in value. asset accounts.
- ex: 3-Month Treasury Bill, 3-Month Time Allowance for Bad Debts or Allowance
Deposit, 3-Month Commercial Paper for Doubtful Accounts
Marketable Securities - are losses due to uncollectible accounts.
- are stocks and bonds usually purchased - this is deducted from the accounts
when a business has excess cash, and are to receivable account to get the Net Realizable
be held for only a short span of time or Value.
duration, Accumulated Depreciation
- are short-term assets that can be sold - represents the expired cost of PPE as a
quickly and converted into cash. result of usage and passage of time.
Trade and Other Receivables
 - this is deducted from the cost of the Names, Secret Processes, Subscription Lists,
related asset account to get the carrying and Non-Competition Agreements.
value or “book value” of the asset. Accrual Principle
CLASSIFICATION OF NON- - states that income should be recognized
“at the time it is earned” such as when
CURRENT ASSETS
goods are delivered or when services have
Long Term Investments
been rendered.
- are assets held by an enterprise for the
- likewise, expenses should be recognized at
accretion of wealth through capital
the time they are incurred, such as when
distribution such as interests, royalties,
goods and services are “actually used” and
dividends, and rentals, for capital
not at the time when the entity pays for
appreciation or for other benefits to the
those goods and services.
investing enterprise such as those obtained
through trading relationships.
Property, Plant, and Equipment
LIABILITIES
- are tangible assets that are held by an
- include debts, obligations to pay, and
enterprise for use in the production or supply
claims of the creditors on the assets of the
of goods or services, or for administrative
business.
purposes.
- are classified and presented based on their
Land
maturity; Obligations presently due for
- a piece of lot or real estate owned by the
payment are listed first.
enterprise on which a building can be
CURRENT LIABILITIES
constructed for business purposes.
- an obligation expected to be settled in less
Building
than one year.
- edifice or structure used to accommodate
A Liability is Classified as Current Liability
the office, store, or factory of a business
when it is:
enterprise in the conduct of its operations.
- expected to be settled in the entity’s
Equipment
normal operating cycle;
- includes typewriters, calculators, air-
- held primarily for the purpose of being
conditioners, cabinets, computers, electric
traded;
fans, trucks and cars used by the business in
- it is due to be settled within 12 months
its office, store, or factory.
after the balance sheet date; or
- account titles used: Office Equipment,
- the entity does not have an unconditional
Store Equipment, Delivery Equipment,
right to defer settlement of the liability for at
Transportation Equipment, and Machinery
least 12 months after the balance sheet
and Equipment.
date.
Furniture and Fixtures
- include tables, chairs, curtains, lamps, CLASSIFICATION OF CURRENT
lighting fixtures, and wall decors. LIABILITIES
- account title used: Office Furniture and Trade and Other Payables
Fixtures; Store Furniture and Fixtures. - include payables from any of the following
Intangible Assets accounts:
- identifiable, non-monetary assets without Accounts Payable
physical substance held for use in the - includes debts arising from the purchase of
production or supply of goods and services, an asset or the acquisition of services on
for rental to others, or for administrative account.
purposes. Notes Payable
- include: Goodwill, Patents, Copyrights, - includes debts arising from the purchase of
Licenses, Franchises, Trademarks, Brand
an asset or the acquisition of services on - Corporate information and Authorization
account evidenced by a promissory note. for Issuance of Financial Statements
Loan Payable Note 2
- is a liability to pay the bank or other - Summary of Significant Accounting and
financing institution arising from funds Financial Reporting Policies
borrowed by the business from these - Basis of Preparation - The financial
institutions payable within 12 months or statements have been prepared on a
shorter. historical cost basis. The financial statements
Utilities Payable are presented in Philippine Peso, which is the
- is an obligation to pay utility companies for company’s functional and presentation
services received from them. currency. Amounts are rounded to the
- ex: Telcom Services to PLDT, Electricity to nearest peso unless otherwise indicated.
TARELCO, and Water Services to Prime - Statement of Compliance - The financial
Water. statements of the company are prepared in
Unearned revenues accordance with Philippine Financial
- represent obligations of the business Reporting Standards (PFRS).
arising from advance payments received The Statement of Changes in Owner’s
before goods/services are provided to the Equity
customer. - shows the changes in the Capital or
- will be settled when certain goods or Owner’s Equity as a result of additional
services are delivered or rendered. investment or withdrawals by the owner,
plus or minus the net income or net loss for
Accrued Liabilities or Accrued Expenses the year.
- include amounts owed to others for
expenses “already incurred but are not yet
paid”.
- ex: Salaries Payable, Utilities Payable, Solution:
Taxes Payable, and Interest Payable.
NON-CURRENT LIABILITIES
- are long term liabilities or obligations
which are payable for a period longer than
one year.
CLASSIFICATION OF NON- ACCOUN
CURRENT LIABILITIES T TITLES USED
Loan Payable, due (beyond one year) Capital
- classified as non-current liability if the loan - is an account bearing the name of the
is payable beyond 12 months. owner representing the original and
Mortgage Payable additional investment of the owner of the
- a long-term debt of business with security business increased by the amount of net
or collateral in the form of real properties. income earned during the year.
Bonds Payable - It is decreased by the cash or other assets
- is a certificate of indebtedness under the withdrawn by the owner as well as the net
seal of a corporation, specifying the terms of loss incurred during the year.
repayment and the rate of interest to be Drawing
charged. - represents the withdrawals made by the
NOTES TO FS owner of the business either in cash or other
Note 1 assets.
Income Summary
 - is a temporary account used at the end of FINANCIAL STATEMENTS
the accounting period to close income and
FINANCIAL STATEMENTS (FS)
expense accounts. The balance of this
- serves as the means by which information
account shows the net income or net loss for
accumulated and processed in financial
the period before it is closed to the capital
accounting are periodically communicated to
account.
users.
THE TWO FORMS OF There are four (4) principal FS which are the
STATEMENT OF FINANCIAL end products of accounting process:
POSITION (Balance Sheet) 1. STATEMENT OF FINANCIAL POSITION
(Balance Sheet)
Account Form
- is a financial statement showing the
- follows the accounting equation where
financial position or condition of a business
assets are listed on the left-hand of the
comprising the Assets, Liabilities and Equity
report with the liabilities and owner’s equity
as of a given date.
listed on the right-hand columns.
2. STATEMENT OF COMPREHENSIVE
Example:
INCOME (Income Statement)
- is a financial statement showing the
financial performance or the results of
operation of an entity for a given period of
time. It consists of the Revenue, Costs, and
Expenses.
STATEMENT OF CHANGES IN EQUITY
3. STATEMENT OF CASH FLOW
- is a basic financial statement that shows
the progress or changes in the elements or
components of the equity.
4. STATEMENT OF CASH FLOW
- is a financial statement that provides
Report Form information about cash inflows (cash
- shows in one straight column the assets, receipts) and cash outflows (cash
followed by liabilities and owner’s equity. disbursements) for the accounting period.
Example: + NOTES TO FINANCIAL STATEMENTS
- It comprises a summary of significant
accounting policies and other explanatory
notes.
STATEMENT OF
COMPREHENSIVE INCOME
(Income Statement)
Two (2) Forms of Statement of
Comprehensive Income:
1. Natural Form
- It presents expenses according to nature.
- This type of income statement is used in a
Service Business.
- a.k.a. Single-Step income statement, since
a single step of deducting expenses from
revenue is performed to arrive at the net
income/net loss. receivable “Charged as expense” for the
2. Functional Form period because they are estimated to be
- It presents expenses according to function. doubtful of collection.
(e.g., Cost of Sales, Selling Expenses,
Administrative Expenses).
- This type of income statement is used in a
Merchandising Business.
- a.k.a. Multiple-Step income statement,
since a series of steps is performed to arrive
at the net income/ net loss.
The following are the accounts that
compose the Single-Step Income
Statement:
1.) Service Income - includes revenues
earned or generated by the business in
performing services for a customer/ client
Examples of income: Account
Title
Medical services by a doctor Medical
fees
Advisory services by a consultant
Consultancy fees
Accounting/Auditing services by a CPA
Audit fees
2.) Salaries/ Wages expense - includes all
payments made to employees/workers for
rendering services to the company.
Examples of salaries expense:
Wages, 13th month pay, Cost of Living
Allowances (COLA)
3.) Utilities expense - expense related to
the use of electricity, water and
telecommunications facilities.
4.) Supplies expense - covers office
supplies by the business in the conduct of its
daily operations.
5.) Insurance expense - is the expired
portion of premiums paid on insurance
coverage such as premiums paid for health/
life insurance, motor vehicles/ other
properties.

6.) Depreciation expense - is the annual

portion of the cost of a tangible asset such Cost of Sales or Cost of Goods Sold -
as buildings, machineries and equipment represents the cost of merchandise inventory
charged as expense for the year. sold by the business to its customers.
7.) Uncollectible Accts. Other income - derives from sources other
Expense/Doubtful Accts. Expense/Bad than the company’s main line of business.
debts expense - means the amount of Examples:
Interest income, dividends income,
commissions income, rent income and gain
on sale of assets.
Distribution/ Selling Expenses - incurred
directly selling the merchandise.
Examples:
Salaries of Sales Personnel, advertising
expense, utilities used in store.
General/ Administrative Expenses -
expenses necessary in the management of
the Office.
Examples:
Salaries of office personnel, depreciation of
office assets and provision of bad debts.
Other Expenses - expenses not connected
to the operating activities of the business.
Examples:
loss on sale of assets and discount lost.
Finance Cost– are the interest expense paid
for the use of borrowed funds.