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Accountancy Ii: Definition of The Statement of Financial Position and Its Elements
Accountancy Ii: Definition of The Statement of Financial Position and Its Elements
ASSETS
Are the things owned by the business.
Are properties or rights on properties owned by the business. They
are items of value that belong to the business. In general, common
examples of assets are cash, tools, equipment, building, and land.
LIABILITIES
Are the debts by owed by the business to persons other than the
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owner.
CASH resulting from a previous
A liability is a debt of the entity
transaction such as loan, a purchase from a supplier, or an
agreement to assume the debt of another party.
CAPITAL
Refers to the investment or equity of the owner in the business.
Aside from assets and liabilities, capital is also reflected in the SFP.
Initially, a proprietor invests capital in the form of funds,
merchandise, equipment, orany other property to operate his or her
business. PURCHASING
COLLECTIO ACTIVITY
N ACTIVITY
Current Assets Noncurrent Assets
Cash Land
Trading Accounts Securities Building
Receivables (accounts, notes) Equipment
Merchandise Inventory Furniture and Fixtures
Prepaid Expenses Leasehold Rights
Table 1.1 Examples of Current and Noncurrent Assets
PRODUCTS OR
ACCOUNTS SERVICES
CURRENT LIABILITIES
RECEIVABLE
Are debts or obligations normally expected to be settled in the
normal course of the company's operating cycle or within one year
by using current assets or creating other current liabilities.
NONCURRENT LIABILITIES
Are long term debts which will be settled beyond one year.
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Figure 1.2 Normal Operating Cycle for a Service or Merchandising Business
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D. A double rule is placed under "total assets" and "total
liabilities" and "owners equity". As expressed in the accounting
equation, assets must equal liabilities and owners equity.
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that are necessary in the operation of the business.
7. EQUIPMENT - This refers to office equipment such as
computer set, printer, air, conditioner and delivery
equipment. (Vehicles)
8. FURNITURE AND FIXTURES - These pertain to tables,
chairs, cabinets, counters, and other types of furniture used
in the business.
9. ACCUMULATED DEPRECIATION - This is a
deduction (except for land) from property, plant, and
equipment.
10. ACCOUNTS PAYABLE - This refers to the debt of the
business due to purchases of products or services that are
to be paid on a future date.
11. NOTES PAYABLE -This cover loans obtained by the
business from financial institutions or private individuals
and entities supported by promissory notes.
12. UTILITIES PAYABLE - These refer to amounts due to
provides of water, electricity, telephone, and other basic
services.
13. MORTGAGE PAYABLE - This pertains to debt secured
from a financial institution by mortgage or lien on real
state of the business or its proprietor.
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14. OWNERS DRAWING - This covers the withdrawal of
cash or any form of assets from the business.
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2. Information on changes in financial position (e.g., changes
in equity and in changes in cash flows) is provided by the
statement of changes in equity and changes in cash flows.
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IN A CLASSIFIED STATEMENT OF FINANCIAL
POSITION:
A. Trade Receivables are presented as current assets. If they
are collectible within the normal operating cycle, even if
the normal operating cycle is longer than 12 months.
B. Nontrade Receivables are presented as current assets only
if they are collectible within 12 months from the end of
reporting period.
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sold being one.
Merchandising Business
A merchandising business (or a trading business) is a
company that buys goods and resells these goods, without
any making modifications, at a price higher than its
purchase price for the purpose of making profit. This type
of business is much common in the Philippines and can
range from small-to-large-sized entities. Examples would
be the neighborhood sari-sari store, department stores,
grocery shops, and those selling in whole sale.
Analyzing Business Transactions
The first step in accounting cycle of a Merchandising
business involves that analysis of business transactions.
This is done to determine wether the economic events will
affect the book of an entity.
Journalizing Transactions
Transactions having effects on the company's books
journal entries, since a merchandising business involves
regular and reccuring inventory transactions, when begin
studying the different events involving the said accounts.
Inventory Reporting
Companies can either use (1) perpetual or (2) periodic
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system in reporting their inventories. Perpetual Inventory
Systems keep track all changes in the inventory account.
This is more expensive as more costs are incurred to make
sure that amounts regarding inventory are available at
every point of sale.
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price of the said
merchandise is 8,000; Cost of good
sales are made on sold 4,000
account. Inventory 4,000
5. Sales worth 2,500 were Sales Returns 2,500 Sales Returns 2,500
returned by customer A/R 2,500 A/R 2,500
as wrong products have
been delivered. Inventory 1,250
Cost of good
sold 1,250
6. The remaining balance Cash 5,500 Cash 5,500
of the receivable related A/R 5,500 A/R 5,500
to the sale was collected.
7. Year-end inventory No entry. Year-end Inventory 5,750
count shows that 5,250 amounting to 5,750 can be Cost of good sold 2,750
worth of inventory is still computed from the Purchase return 2,000
within company premises movements on the
inventory account title. Purchases 10,000
Freight-In 500
*COGS is determined by
BEG inventory + Net
Purchases - Inventory
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Journal Page No. 1
DATE ACCOUNT TITLES AND PR DEBIT CREDIT
EXPLANATION
Apr 1 Cash 101 P39 000
Lopez,Capital 301 P39 000
to record initial investment
2 Equipment 105 P10 000
Cash 101 P10 000
to record purchase of equipment on
cash basis
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Cash 101 P14 400
to record purchases on cash basis
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Advertising 503 P1 000
Rent 504 P3 500
Cash 101 P6 400
Ledgers
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101 Cash Balance
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Date Explanation JR Debit Credit Debit Credit
4 GJ-1 15 200 15 200
13 GJ-1 15 200 -
30 GJ-3 13 700 13 700
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Date Explanation JR Debit Credit Debit Credit
3 GJ-1 700 700
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104 Equipment Balance
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Date Explanation JR Debit Credit Debit Credit
2 GJ-1 10 000 10 000
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105 Merchandise Inventory Balance
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Date Expalanation JR Debit Credit Debit Credit
13 GJ-1 304 304
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Date Explanation JR Debit Credit Debit Credit
2 GJ-1 15 900 15 900
4 GJ-2 14 400 30 300
18 GJ-2 14 200 44 500
26 GJ-3 12 300 56 800
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Date Explanation JR Debit Credit Debit Credit
6 GJ-1 300 300
17 GJ-2 500 500
23
Date Explanation JR Debit Credit Debit Credit
11 GJ-1 312 312
24
Date Explanation JR Debit Credit Debit Credit
20 GJ-1 700 700
25
Date Explanation JR Debit Credit Debit Credit
15 GJ-1 1 500 1 500
30 GJ-1 1 500 3 000
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Date Explanation JR Debit Credit Debit Credit
2 15 900 15 900
6 300 15 600
11 15 600 -
18 14 200 14 200
27 9 000 5 200
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Date Explanation JR Debit Credit Debit Credit
16 GJ-2 12 000 12 000
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Date Explanation JR Debit Credit Debit Credit
1 GJ-2 39 000 39 000
39 000
39 000
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Date Explanation JR Debit Credit Debit Credit
28 GJ-3 2 008 2 008
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Date Explanation JR Debit Credit Debit Credit
4 GJ-1 15 200 15 200
23 GJ-3 16 400 31 600
30 GJ-3 13 700 45 300
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Date Explanation JR Debit Credit Debit Credit
29 GJ-3 900 900
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Date Explanation JR Debit Credit Debit Credit
30 GJ-3 3 500 3 500
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Date Explanation JR Debit Credit Debit Credit
30 GJ-3 400 400
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Date Explanation JR Debit Credit Debit Credit
30 GJ-1 1 000 1 000
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Date Explanation JR Debit Credit Debit Credit
5 GJ-1 200 200
Trial Balance
Dole Distributors
Trial Balance
30-4-10
Account Account Titles Debit Credit
No.
101 Cash 9 400
102 Accounts Receivables 13 700
103 Supplies 700
104 Merchandise Inventory
105 Equipment 10 000
201 Accounts Payable 5 200
202 Notes Payable 12 000
301 Lopez, Capital 39 000
302 Lopez, Drawings 2 008
401 Sales 45 300
402 Sales returns and Allowances 900
403 Sales Discount 304
501 Purchases 56 800
502 Purchase returns and Allowances 800
503 Purchase Discount 312
504 Freight In 700
601 Salaries Expense 3 000
602 Rent Expense 3 500
603 Utilities Expense 400
604 Advertising Expense 1 000
605 Freight out 200
Balance 102 612 102 612
Dole Distributors
Cost of Goods Sold
30-4-10
Beginning Inventory -
Add: Purchases 56 800
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Less: Purchase return and Allowances 800
Purchase Discount 312 1 112
Net cost of Purchases 55 688
Add: Freight In 700
Less: Ending Inventory 25 000
Goods available for resale 31 388
Dole Distributors
Statement of Financial Performance
30-4-10
Gross sales 45 300
Less: Sales returns and Allowances 900
Sales Discount 304 1 204
Net Sales 44 096
Less: Cost of goods sold 31 388
Gross Profit 12 708
Less: Expenses
Salaries 3 000
Rent 3 500
Utilities 400
Advertising 1 000
Freight out 200 8 100
Net Profit 4 608
Dole Distributors
Of Changes in Equity
30-4-10
Lopez Capital 4/1/10 39 000
Add: Add'l Investment 0
Net Profit 4 608
Total 43 608
Less: Withdrawal 2 008
Lopez Capital 4/30/10 41 600
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Financial Position
30-4-10
Asset
Current Asset
Cash and Cash Equivalent 9 400
Trades and other Receivable 13 700
Supplies 700
Inventories 25 500
Total Current Asset 48 000
Dole Distributors
Cash Flow
30-4-10
Cash Flow from Operaring Activities
Cash Receipt sale of goods 14 896
Cash receipt from refund 500
Cash receipt from sale 16 400 31 796
Purchase of supplies -700
Payment of Freight -200
Payment of Purchases -15 288
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Purchases of goods -14 400
Payment of salaries -15 000
Payment of Freight -700
Payment of purchases -12 300
Payment of Purchases -9 000
Payment of refund -900
Payment of various expense -6 400 61 388
Dole Distributors
Post Costing Trial Balance
30-4-10
Account Account Titles Debit Credit
No.
101 Cash 9 400
102 Accounts Receivables 13 700
103 Supplies 700
104 Merchandise Inventory 25 000
105 Equipment 10 000
201 Accounts Payable 5 200
202 Notes Payable 12 000
301 Lopez, Capital 41 600
Balance 58 000 58 000
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