Acc 101 Ruby Bagsit

Bookkeeping (part 4)
 4. Financial

Acc 101 presented by RUBY BAGSIT

Statements

Purpose and users of financial statements

Income Statement
Statement of Changes in Equity
Balance Sheet
Statement of Cash Flows

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 Acc 101 presented by RUBY BAGSIT
Purpose and Users of Financial
Statements

The financial statements are the financial reports of

the business entity in order to provide information that
is useful for the decision-making of its users.
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 Purpose and Users of Financial

Acc 101 presented by RUBY BAGSIT

Statements
The users of the financial statements include the
following:
• Owners, investors and prospective investors
• Lenders and suppliers and prospective creditors
• Employees, customers
• Government agencies
• The general public

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 Purpose and Users of Financial

Acc 101 presented by RUBY BAGSIT

Statements
As different groups of users will use the
financial statements, it should be useful and
understandable to someone who has a
reasonable understanding of accounting and
business and who is willing to study and
analyze the information presented.
The financial statements must be relevant,
reliable and comparable. Most of all, it must
follow the applicable Philippine Financial
Reporting Standards.
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 Purpose and Users of Financial

Acc 101 presented by RUBY BAGSIT

Statements
The financial statements are prepared at least once a
year and can be presented as frequent as monthly or
quarterly. A complete set of Financial Statements
comprises the following:
1. Income Statement or Statement of Financial
Performance
2. Statement of Changes in Equity
3. Balance Sheet or Statement of Financial Position
4. Statement of Cash Flows
5. Notes to the Financial Statements
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 Acc 101 presented by RUBY BAGSIT
Income Statement
The Income Statement, also called Statement of Financial
Performance, presents the financial results of a business for a given
period of time. The statement presents the amount of revenue
generated and expenses incurred by the business during a reporting
period, as well as the resulting net income or net loss.
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 Acc 101 presented by RUBY BAGSIT
Revenue

REVENUES are increases in economic benefits

during the accounting period in the form of
inflows or enhancements of assets or
decreases of liabilities (or a combination of
both) from the delivery or production of goods,
rendering of services, or other activities that
constitute the entity’s ongoing major or central
operations.

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 Acc 101 presented by RUBY BAGSIT
Revenue

REVENUES are increases in economic benefits Examples of revenues are

as follows:
during the accounting period in the form of • Sales
inflows or enhancements of assets or • Professional fees
decreases of liabilities (or a combination of earned
both) from the delivery or production of goods, • Service revenues
rendering of services, or other activities that • Interest revenue
constitute the entity’s ongoing major or central • Dividend revenue
operations. • Rent income
• Subscription revenue
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 Acc 101 presented by RUBY BAGSIT
Expenses

EXPENSES are decreases in economic benefits

during the accounting period in the form of
outflows or using up of assets or incurrences
of liabilities (or a combination of both) from the
delivery or production of goods, rendering of
services, or other activities that constitute the
entity’s ongoing major or central operations.

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 Acc 101 presented by RUBY BAGSIT
Expenses
Examples of expenses are as
EXPENSES are decreases in economic benefits follows:
during the accounting period in the form of • Cost of sales
outflows or using up of assets or incurrences • Depreciation expense
of liabilities (or a combination of both) from the • Salaries and wages
• Utility costs
delivery or production of goods, rendering of
• Insurance expense
services, or other activities that constitute the • Permits, taxes and licenses
entity’s ongoing major or central operations. • Repair and maintenance
• Representation expenses
• Losses

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Exercise 1: Prepare the Income Statement based on the following information:

Acc 101 presented by RUBY BAGSIT

PACIOLI GENERAL SERVICES
Adjusted Trial Balance
As of January 31, 2021

Code Account Title Debit Credit

101 Cash 76,000
111 Accounts Receivable 22,000
121 Supplies 1,000
151 Equipment 30,000
152 Accumulated Depreciation - Equipment 500
201 Accounts Payable 10,500
301 Pacioli, Capital 100,000
311 Pacioli, Drawing 10,000
401 Service Revenue 50,000
601 Salaries 12,000
602 Depreciation 500
603 Supplies Expense 7,000
604 Utility Expense 2,500
TOTAL P161,000 P161,000

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 Acc 101 presented by RUBY BAGSIT
Statement of Changes in Equity
The statement of changes in equity presents a reconciliation of the
beginning and ending balances in a company’s equity during a
reporting period. The statement starts with the beginning equity
balance, and then adds or subtracts such items as profits, capital
investments or reductions, and dividend payments to arrive at the
ending balance.
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 Acc 101 presented by RUBY BAGSIT
Statement of Changes in Equity

Changes in equity over an accounting period

include the following elements:
• Net income or loss during the accounting
period
• Increase or decrease in capital
• Capital withdrawals or dividend payments
to shareholders

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Exercise 2: Prepare the Statement of Changes in Equity based on the following
information:

Acc 101 presented by RUBY BAGSIT

PACIOLI GENERAL SERVICES
Adjusted Trial Balance
As of January 31, 2021

Code Account Title Debit Credit

101 Cash 76,000
111 Accounts Receivable 22,000
121 Supplies 1,000
151 Equipment 30,000
152 Accumulated Depreciation - Equipment 500
201 Accounts Payable 10,500
301 Pacioli, Capital 100,000
311 Pacioli, Drawing 10,000
401 Service Revenue 50,000
601 Salaries 12,000
602 Depreciation 500
603 Supplies Expense 7,000
604 Utility Expense 2,500
TOTAL P161,000 P161,000

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 Acc 101 presented by RUBY BAGSIT
Balance Sheet

A Balance Sheet, also referred to as Statement of Financial Position,

presents a company’s financial position as of a given date. It shows
the assets, liabilities and equity of the business entity.

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 Acc 101 presented by RUBY BAGSIT
Asset
An asset is a resource controlled by the entity as a result of
past events and from which future economic benefits are
expected to flow to the entity (IASB Framework). Examples
of assets include the following:
• Investments – assets for the accretion of wealth
through capital returns or capital appreciation or for
other benefits to the business.
• Property, Plant and Equipment – tangible assets used in
the production or supply of goods and services, or for
business administration purposes.
• Intangible Assets – includes identifiable, non-monetary
properties without physical substance, like licenses,
copyrights, patents, trademarks and others.
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 Acc 101 presented by RUBY BAGSIT
Asset
An asset is a resource controlled by the entity as a result of
past events and from which future economic benefits are
expected to flow to the entity (IASB Framework). Examples
of assets include the following:
• Cash – includes coins, currencies, checks, bank
deposits and other cash items ready for use in the
operations of the business.
• Accounts Receivable – amounts collectible from
customers for goods provided and services rendered on
credit.
• Merchandise Inventory – unsold goods for sale to
customers.
• Prepaid Expenses – expenses paid but not yet used.
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 Acc 101 presented by RUBY BAGSIT
Liability
A liability is a present obligation of the enterprise arising from past
events, the settlement of which is expected to result in an outflow
from the enterprise of resources embodying economic benefits
(IASB Framework). Examples of liabilities include the following
• Accounts Payable – obligations due to suppliers of goods and
services purchased on credit.
• Notes Payable - obligations due to suppliers of goods and
services evidenced by a promissory note.
• Loans Payable - obligations due to lenders as a result of
borrowing of funds.

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 Acc 101 presented by RUBY BAGSIT
Liability
A liability is a present obligation of the enterprise arising from past
events, the settlement of which is expected to result in an outflow
from the enterprise of resources embodying economic benefits
(IASB Framework). Examples of liabilities include the following
• Lease Payable – obligations due to lessors for property and
equipment used for business operations.
• Utilities Payable - obligations due to utility companies for
services rendered.
• Accrued liabilities - obligations due to others for expenses
already incurred but not yet paid.
• Unearned Revenues - obligations due to customers for goods
and services paid but not yet delivered.

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 Acc 101 presented by RUBY BAGSIT
Equity
Equity is the residual interest in the assets of the entity after deducting all the
liabilities (IASB Framework). It represents the capital investments, net of the
capital withdrawals of the owner in the entity, and the net income or loss in
the operation of the business. Equity accounts include the following:
• Capital account –the equity investment of the owner (in a single
proprietorship) or for each partner (in a partnership), and the cumulative
effect of the withdrawals of capital and business net profits and losses.
• Drawing – the equity withdrawals of the owner or for each partner.
• Common Stock, Preferred Stock – the equity of the owners of a
corporation
• Retained Earnings – the cumulative balance of the net income or losses of
the corporation, investments of the owners, less the distribution to the
owners.

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Exercise 3: Prepare the Balance Sheet based on the following information:

Acc 101 presented by RUBY BAGSIT

PACIOLI GENERAL SERVICES
Adjusted Trial Balance
As of January 31, 2021

Code Account Title Debit Credit

101 Cash 76,000
111 Accounts Receivable 22,000
121 Supplies 1,000
151 Equipment 30,000
152 Accumulated Depreciation - Equipment 500
201 Accounts Payable 10,500
301 Pacioli, Capital 100,000
311 Pacioli, Drawing 10,000
401 Service Revenue 50,000
601 Salaries 12,000
602 Depreciation 500
603 Supplies Expense 7,000
604 Utility Expense 2,500
TOTAL P161,000 P161,000

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 Acc 101 presented by RUBY BAGSIT
Statement of Cash Flows

The Statement of Cash Flows shows the cash receipts and cash
payments from the business activities of the enterprise during the
period. The business activities are classified into operating, investing
and financing activities.
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 Acc 101 presented by RUBY BAGSIT
Activities of Business Organizations

1.Operating Activities
2.Investing Activities
3.Financing Activities

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 Acc 101 presented by RUBY BAGSIT
Operating activities
Operating activities are the principal activities of the enterprise.
They are the transactions and events that enter into the
determination of profit or loss. Operating Activities include the
following:
1. Cash receipts from sales of goods and rendering of services.
2. Cash receipts from interests, royalties, commissions, fess
and other sources.
3. Cash payments to suppliers of goods and services.
4. Cash payments to employees for salaries and other
employee expenses.
5. Cash payments for operating expenses such as advertising,
supplies, utilities, taxes, and others.
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 Acc 101 presented by RUBY BAGSIT
Operating activities
Investing activities include the acquisition and disposal of
non-current assets of the business. Examples of investing
activities are
1. Cash payments in purchasing land, constructing a
building, buying furniture and equipment, acquiring
intangible and other long-term assets.
2. Cash receipts in selling property and equipment,
intangible and other long-term assets.
3. Cash payments in investing in equity and debt
instruments of other companies.
4. Cash receipts from selling investments in equity and
debt instruments of other companies.

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 Acc 101 presented by RUBY BAGSIT
Financing activities
Financing activities include equity transaction of the
business and the owners, as well as borrowing of
funds from financial institutions. Examples are

• Investment and withdrawal of capital of the owners

• Cash proceeds from bank loans and repayment of
the loans.

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Exercise 4: Prepare the Statement of Cash Flows based on the following
information:

Acc 101 presented by RUBY BAGSIT

PACIOLI GENERAL SERVICES
Adjusted Trial Balance
As of January 31, 2021

Code Account Title Debit Credit

101 Cash 76,000
111 Accounts Receivable 22,000
121 Supplies 1,000
151 Equipment 30,000
152 Accumulated Depreciation - Equipment 500
201 Accounts Payable 10,500
301 Pacioli, Capital 100,000
311 Pacioli, Drawing 10,000
401 Service Revenue 50,000
601 Salaries 12,000
602 Depreciation 500
603 Supplies Expense 7,000
604 Utility Expense 2,500
TOTAL P161,000 P161,000

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 Acc 101 presented by RUBY BAGSIT
CLASS ASSIGNMENT

Do Exercises 1, 2, 3, and 4 of this presentation.

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 Acc 101 presented by RUBY BAGSIT
Thank you

Ruby Bagsit • _

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