FABM 2 Types of Financial Statements PDF

**WEST BAY LEARNING CENTER, INC.** Sangi, Toledo City 0966-520-4078 **FABM 2** **CHAPTER 1** **Types of Financial Statement** **(Product of an accountant)** 1. **Statement of Financial Position** - **Also called "balance sheet" or "statement of condition"** - **Provides *Current status...

**WEST BAY LEARNING CENTER, INC.** Sangi, Toledo City 0966-520-4078 **FABM 2** **CHAPTER 1** **Types of Financial Statement** **(Product of an accountant)** 1. **Statement of Financial Position** - **Also called "balance sheet" or "statement of condition"** - **Provides *Current status* or information on the entity's assets, liabilities, and equity** 2. **Statement of Profit or Loss and other comprehensive income** - **Income statement** - **Provides information on *income and expenses*** - **INCOME -- EXPENSES = NET INCOME/ LOSS** 3. **Statement of Changes in equity** - **Provides information on the *movements in the components of equity* during the period** - **Beginning Capital + additional investments = Total -- Withdrawals =Balance +/- Net Income/ Loss = Ending Capital** 4. **Statement of Cash flows** - **Provides information on how cash and cash equivalents were generated and used during the period** - ***Cash inflow (cash receipts) and outflow (cash payments)*** 5. **Notes** - ***provides narrative disclosures and other information* required by the standards but were *not presented in the other financial statements*** **Elements of the Statement of Financial Position** a. **Assets (lahat ng pagmamay-ari mo)** - **Resources you control (entitled to possession)** - **Resulted from past events** - **Provide you with future economic benefits** b. **Liabilities (galling sa ibang tao)** - **Present obligations resulted from past events and require you to give up resources when settling them** c. **Equity (galling sa sarili mo)** - **Assets minus Liabilities** - **"capital" and "net worth/assets"** - **Residual interest** **Presentation of Statement of Financial Position** a. **Classified (current/non-current distinction)** - **Shows information on current and noncurrent assets and liabilities** b. **Unclassified(based on liquidity\*)** - **Does not show distinction between current and noncurrent assets and liabilities** **\*easily convertible to cash** **Current and Noncurrent Assets** - **Assets are classified as *current* when they are expected to be realized within *12 months* from the end of the reporting period or *depending on the normal operating cycle*. All other assets are classified as *noncurrent*. "Realized" means converted into cash or claim for cash.** ***Note that:*** **Inventory is only for merchandising business** **Prepaid Expense is also an asset** **Current and Noncurrent Liabilities** - **Liabilities are classified as *current* when they are expected to be settled within *12 months* from the end of the reporting period or depending on the *normal operating cycle*. All other liabilities are classified as *noncurrent*.**  **Trade and Nontrade receivables** - **Trade receivables are receivables arising from the sale of goods or services in the ordinary course of business. All other receivables are nontrade.** - **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.** - **Nontrade receivables are presented as current assets only if they are collectible within 12 months from the end of reporting period.** **Normal Operating Cycle** - The normal operating cycle of an entity is the time between the acquisition of assets for processing and their realization in cash. - When the entity's normal operating cycle is not clearly identifiable, it is assumed to be 12 months. **Trade and Nontrade payables** - Trade payables are obligations arising from purchases of inventory that are sold in the ordinary course of business. All other payables are nontrade. - Trade payables are presented as current liabilities if they are payable within the normal operating cycle, even if the normal operating cycle is longer than 12 months. - Nontrade payables are presented as current liabilities only if they are payable within 12 months from the end of reporting period. **Line items** - Accounts are presented in the financial statements using "line items." A line item is a caption used to describe a group of accounts with similar nature. - Examples of line items in the balance sheet: a. Cash and cash equivalents b. Trade and other receivables c. Inventory d. Property, plant and equipment **Forms of balance sheet** *Notes to add:**\ *** usual form of balance sheet is report form 2 types of Cash: On hand and In Bank Interim -- short term period Calendar -- 1 year from Jan 1 Fiscal -- 1 year from any of the 12 months **CHAPTER 2** **Statement of Comprehensive Income** **Income statement vs. Statement of comprehensive income** **Single-statement vs. Two-statement presentation**  **Elements of the Statement of Comprehensive Income** - ***INCOME*** -- are *increases* in economic benefits during the period in the form of inflows or enhancements of assets or decreases of liabilities that result in increases in equity, other than those relating to investments by the business owners. Income includes ***both*** *revenue* and *gains*.   - ***EXPENSES* --** are *decreases* in economic benefits during the period in the form of outflows or depletions of assets or increases of liabilities that result in decreases in equity, other than those relating to distributions to the business owners. Expenses include ***both** expenses* and *losses*. - The *difference* between *income* and *expense* represents ***profit or loss***. - If income is greater than expenses, the difference is ***profit***. - If income is less than expenses, the difference is ***loss***. **Presentation of Expenses** a. Nature of expense method (single-step) b. Function of expense method (Cost of sales method or Multi-Step) a. Cost of sales (or Cost of goods sold) b. Distribution costs (or Selling expenses) c. Administrative expenses (or General and administrative expenses) d. Other expenses e. Interest expenses (or Finance cost) f. Income tax expense  *Notes to add:* 2 types of Transportation Expenses: Freight In and Out Royalties- kita sa literary works **CHAPTER 3** **Statement of Changes in Equity** **Transactions that cause changes in equity** **Solo proprietorship** - 1 person **Partnership** - **More than 2** **Corporation** - **Share capital** **Cooperative** - **Nonprofit organization** **CHAPTER 4** **Statement of Cash flows** **Presentation of Statement of Cash Flows** - **Cash inflows and outflows are presented in the statement of cash flows [according to the activities in which they have been generated or utilized], as follows:** 1. **Operating activities (transactions affecting Income and Expenses)** 2. **Investing activities (Owner's Capital)** 3. **Financing activities (Long term asset or PPE)**  **Examples of Operating activities** a. **Cash receipts from the sale of goods and the rendering of services.** b. **Cash receipts from interest income.** c. **Cash payments for purchases of inventory.** d. **Cash payments for expenses.** **Examples of Investing activities** a. **Cash payments for the acquisition of property, plant and equipment.** b. **Cash receipts from sales of property, plant and equipment.** a. **Cash receipts from investments of owner to the business.** b. **Cash payments on drawings by owner.** c. **Cash receipts on loans.** d. **Repayment of loans.** **Reporting cash flows from Operating activities** - Cash flows from *operating activities* may be presented using either: a. Direct method b. Indirect method ***Guidelines: Indirect Method*** **ADDITIONAL IN CHAPTER 1** **Financial Statements** - Accounting info is communicated through this - Purpose of accounting is to provide info that is useful for making economic decisions - Structured representation of an entity's\* a. Financial position - Resources that are controlled by entity and how the resources are generated b. Results of its operation - How well the entity performed \*entity refers to reporting entity which is the one whose financial statements are being prepared Information about financial position is provided by SOFP Information on results of operation is provided by the other components of financial statements : 1. Info about financial performance is provided by the SOPLOCI 2. Info about changes in financial position is provided by the SOCE and SOCF **Elements of Financial Statements** 1. Assets 2. Liabilities 3. Equity 4. Income 5. Expenses **Obligating event** a. A legal obligation Legal obligation arises from a. A contract b. Law c. Other operation of law b. Constructive obligation - Arises from your past business practices or published policies **ADDITIONAL IN CHAPTER 2** **SOCI** shows the ff 1. Profit or loss 2. Other comprehensive income 3. Comprehensive income **Revenue** - Arises in the course of ordinary activities - Revenue earned by a service business is called "service fees" - Revenue earned by a merchandising business is called "sales" **Gains** - May or may not arise in the course of the ordinary activities of an entity **Expenses** - arise in the course of the ordinary activities of business **Loss** - may or may not arise in the course of ordinary activities of an entity **ADDITIONALS IN CHAPTER 3** **Sole proprietorship** - Equity only has one entry (Mr. A's Capital) - Registered with DTI **Partnership** - Formed by contractual agreement - Registered with SEC - Equity has many entries depending on the number of partners (Mr. A's , Mr. B's, Mr. Lance's Capital) **Corporation** - Stockholders - Formed by operation of law - Registered With SEC - Equity has entries like share capital, retained earnings, other components of equity **Cooperative** - Members - Formed in accordance with the cooperative code - Registered with CDA - Equity has entries like share capital, donations and grants, statutory funds