FABM Reviewer PDF

FABM Operating Cycle of Merchandising Business: Cash on Hand → Buys Goods → Store Goods As Inventory → Sells Inventory —> Receives Payment From Customers Business Documents 1.​ Sales Invoice - prepared by the seller of goods and sent to the buyer; information includes the information rega...

FABM Operating Cycle of Merchandising Business: Cash on Hand → Buys Goods → Store Goods As Inventory → Sells Inventory —> Receives Payment From Customers Business Documents 1.​ Sales Invoice - prepared by the seller of goods and sent to the buyer; information includes the information regarding the sale transaction 2.​ Bill of Lading - document issued by common carrier company specifying terms of shipment 3.​ Statement of Accounts - formal notice to debtor detailing the accounts due 4.​ Official Receipts - form issued by the authorized representative of the company documenting the actual payment of cash 5.​ Validated Deposit Slip - indicates that cash and check were actually deposited or credited to the account holder​ ​ ​ ​ ​ ​ ​ 6.​ Check - a written order of payment by the depositor 7.​ Purchase Requisition Slips - document listing merchandise needed and purchased by a department of a company 8.​ Purchase Order - created by buyer to request good to supplier 9.​ Receiving Report - document containing information about goods received from a vendor 10.​Credit Memorandum - issues to customer for returns or allowances Business Transactions - transactions related to business operations Non - business Transactions - transactions that are not recorded in financial record Account Classification Normal Balance Assets Debit Liabilities Credit Owner’s Equity Credit Revenue/Income Credit Expenses Debit Note: Contra Account has an opposite normal balance Perpetual Inventory System ​ Updating inventory is done every time there are changes in quantity of good (High price - low volume products) Periodic Inventory System  ​ Inventory account is updated only when physical count of inventory is done (Low price - high volume products Journaling Purchases of Inventory Perpetual Periodic Purchase of Merchandise on cash / account Debit Credit Debit Credit Debit Credit Debit Credit Inventory xx Purchases xx Cash/AP xx Cash/AP xx Purchase Returns and Allowances (cash/on account) Cash/AP xx Cash/AP xx Inventory xx Purchase R&A xx Purchase Discount AP xx AP xx (discount) -> Purchase Purchase Discount Discount xx xx (discounted) -> Cash xx Cash xx *AP - Accounts Payable *Purchase R&A - Purchase Returns and Allowances *Note: Credit: 2/10 (if paid within 10 days there will be 2% discount), n/30 (no discount after the 10 days) Journaling Sales Revenue Perpetual Periodic Sale of Merchandise on cash / account Debit Credit Debit Credit Debit Credit Debit Credit Cash/AR xx Cash/AR xx Sales xx Sales xx COGS xx Inventory xx Sales Returns and Allowances (cash/on account)  Sales xx Sales R&A xx Cash xx Cash/AR xx Inventory xx COGS xx Sales Discount Cash xx Cash xx Sales xx Sales xx Discount Discount AR xx AR xx *AR - Accounts Receivable *Sales R&A - Sales Returns and Allowances Transportation Perpetual Periodic Payment of Freight on merchandise purchased (FOB shipping point) Debit Credit Debit Credit Debit Credit Debit Credit Inventory xx Freight-In xx Cash xx Cash xx Payment of Freight on merchandise sold (FOB Destination) Transportation xx Freight-out xx Cash xx Cash xx *FOB - free on board Cost of Goods Sold (COGS) Beginning Inventory Add: Net Purchases =Total Goods Available for Sale Less: Ending Inventory = COGS Net Purchases Purchases Add: Freight In Less: Purchase R&A Less: Purchase Discount = Net Purchases Four Phases of Accounting Recording → Classifying → Summarizing → Interpreting ​ In recording, the main book of account used is the accounting journal. ​ In classifying, it is the accounting ledger Journal ​ book of original entry. Transactions are recorded in chronological order ​ 2 types: General and Special Journal 1.​ Special Journal - records frequently occurring transactions in a specific amount a.​ Cash Receipt Journal - records all cash receipts (debit to cash only) b.​ Cash Disbursement Journal or Cash Payment Journal - records all cash payments c.​ Sales Journal - used in recording short-term credit sales of merchandise d.​ Purchase Journal - records all credit purchases 2.​ General Journal - simplest form of journal which looks like a two-column columnar notebook. All other business transactions which are not recorded in special journals are accounted to general journal Ledger ​ book of final entry, shows effects of individual transactions of similar nature in particular accounts ​ Posting is the process of transferring entries from journal to a particular ledger account, T- account is ​ 2 types: general and subsidiary ledger Account Title Date Explanation Debit Credit Balance Example: CASH Account Name:​ ​ ​ ​ ​ ​ ​ ​ ​ Account No. Date Explanation Debit Credit Balance June 3 Investment to company 100,000 100,000 June 7 Paid for Merchandise 20,000 80,000 June 9 Received Payment from sales 30,000 110,000 Adjusting Entries ​ Entries used to update accounts before the preparation of Financial Statements Accrual Principle - only recognize revenue upon service earned / rendered. Types: 1.​ Prepayment - expenses that are already paid but not yet incurred or used ASSET METHOD EXPENSE METHOD Debit Credit Debit Credit Debit Credit Debit Credit Expenses xx Prepaid xx Expenses Prepaid xx Expenses xx Expenses 2.​ Deferrals - unearned or deferred income is income already received but not yet rendered Debit Credit Debit Credit Unearned Income xx Income xx 3.​ Accrued Expense - expenses already incurred or used but not yet paid. Debit Credit Debit Credit Expense xx Expense Payable xx 4.​ Accrued Income - income already earned but not yet received. Debit Credit Debit Credit — Receivable xx — Income xx 5.​ Bad Debts / Doubtful Accounts / Uncollectible Accounts - losses due to uncollectible accounts. Debit Credit Debit Credit Bad Debts Expense xx Allowance for Bad Debts xx 6.​ Depreciation Expense - allocation of plant asset cost over its estimated useful life.  Debit Credit Debit Credit Depreciation Expense xx Accumulated Depreciation xx Annual Depreciation Cost Less: Salvage Value =Depreciable Cost Divide: Estimated Useful Life = Annual Depreciation *Note: to get monthly depreciation – Annual depreciation x (months used/12) 7.​ Unused Supplies EXPENSE METHOD ASSET METHOD Debit Credit Debit Credit Debit Credit Debit Credit Unused xx Supplies xx Supplies Expenses Supplies xx Unused xx Expenses Supplies Trial Balance Heading: Name of Company Unadjusted Trial Balance Date Account Title Debit Credit Cash 100,000 Capital 100,000 Total 100,000 100,000 Remember: 1.​ Account titles must be arranged by order of a.​ Current Assets – Noncurrent assets – Current Liabilities – Noncurrent liabilities – Capital – Revenue (Sales) – Purchases – Expenses 2.​ Debit must always be equal to credit  3.​ Double underline both the totals Account Titles Categories: 1.​ Assets - Current a.​ Cash, Accounts Receivable, Notes Receivable, Interest Receivable, prepayments, supplies, accrued interest receivable 2.​ Assets - Noncurrent a.​ Property, Land, Equipment, furniture and fixtures, intangible assets, truck 3.​ Liabilities - current a.​ Accounts payable, interest payable, loans payable, notes payable, unearned income, accrued interest payable, accrued salaries 4.​ Liabilities - noncurrent a.​ Mortgage payable, long-term notes payable, bonds payable 5.​ Capital a.​ Capital, drawings Financial Statements -​ Written records that convey the business activities and the financial performance of a company -​ 3 types -​ Statement of Financial Performance/Income Statement - focuses on company’s revenues and expenses – temporary accounts -​ Statement of Changes in Equity - referred to as Statement of Retained Earnings; movement of components of shareholder’s equity over an accounting period -​ Statement of Financial Position/Balance Sheet - focuses on company’s assets, liabilities and shareholder’s equity - permanent accounts Income Statement Udrick Legaspi Adonis Corporation Income Statement For the period ended December 31, 2024 Revenue Professional Fees Income ​ ​ ​ ​ ​ ​ ​ P80,000 Less Expenses Salary Expenses ​ ​ ​ ​ ​ ​ ​ ​ P36,000 Doubtful Accounts Expense ​ ​ ​ ​ ​ ​ ​ P5,000 Supplies Expense ​ ​ ​ ​ ​ ​ ​ ​ P4,000 Depreciation Expense ​ ​ ​ ​ ​ ​ ​ P15,000 Net Income ​ ​ ​ ​ ​ ​ ​ ​ ​ P20,000 *Note: Double underline the net income/ net loss Statement of Changes in Equity YN Bautista Company Statement of Changes in Equity As of December 31, 2024 N. Bautista, Capital ​ ​ ​ ​ ​ ​ ​ ​ ​ P391,000 Add: Additional Investment​ ​ ​ ​ ​ ​ ​ ​ - Net Income ​ ​ ​ ​ ​ ​ ​ ​ ​ P20,000 Less: N. Bautista, Drawings​ ​ ​ ​ ​ ​ ​ ​ P5,000 Net Loss ​ ​ ​ ​ ​ ​ ​ ​ ​ - N. Bautista, Capital ​ ​ ​ ​ ​ ​ ​ ​ ​ P406,000 *Note: Double line the ending capital Balance Sheet (Report Format) Interoil Corporation Balance Sheet As of December 31, 2024 Assets: Current Assets Cash ​ ​ ​ ​ ​ ​ ​ ​ ​ P900,000 Accounts Receivable ​​ ​ ​ ​ ​ ​ P700,000 Total Current Assets ​ ​ ​ ​ ​ ​ ​ ​ ​ P1,600,000 Non - Current Assets Property, Plant and Equipment ​ ​ ​ ​ ​ P900,000 Total Non-Current Assets ​ ​ ​ ​ ​ ​ ​ ​ P900,000 Total Assets ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ P2,500,000 Liabilities: Current Liabilities Accounts Payable ​ ​ ​ ​ ​ ​ ​ P750,000 Unearned Revenues​ ​ ​ ​ ​ ​ ​ P300,000 Total Current Liabilities ​ ​ ​ ​ ​ ​ ​ ​ P1,050,000 Non-Current Liabilities Mortgage Payable ​ ​ ​ ​ ​ ​ ​ P450,000 Total Non-Current Liabilities ​ ​ ​ ​ ​ ​ ​ ​ P450,000 Total Liabilities ​ ​ ​ ​ ​ ​ ​ ​ ​ P1,500,000 Owner’s Equity J. Tiu, Capital 12/31/2024 ​ ​ ​ ​ ​ ​ P1,000,000 Total Owner’s Equity ​ ​ ​ ​ ​ ​ ​ ​ ​ P1,000,000 Total Liabilities and Owner’s Equity ​ ​ ​ ​ ​ ​ ​ P2,500,000 *Note: Double underline: total assets, and total liabilities and owner’s equity. They also must be equal Sales Less: Sales Discount Less: Sales Returns and Allowances =Net Sales Less: COGS =Gross Profit Less: Total Expenses (OPEX) = Net Income/Net Loss Total Expenses / Operating Expenses 1.​ Selling Expenses a.​ Salaries, advertising, depreciation (for products and services) 2.​ Administrative Expense a.​ Depreciation (for building), utilities Accounting Cycle 1. Analyzing business transaction 2. Recording business transactions to the journal 3. Posting the journal entries to the ledger 4. Preparing the trial balance 5. Journalizing and posting the adjusting entries 6. Preparing the adjusted trial balance 7. Preparing the financial statements 8. Journalizing and posting closing entries 9. Preparing post-closing trial balance 10. Preparing reversing journal entries Closing Entry -​ Written at the end of the accounting period to transfer temporary accounts (revenue, expenses and drawing) to permanent accounts -​ Transfer the revenue and expenses to the income summary, then transfer the closed Income Summary to Owner’s Equity Account Closing Revenue Account DR Revenue CR Income Summary Closing Expense Account DR Income Summary CR Expenses Closing Income Summary DR Income Summary (difference of the two Income Summary Accounts from the Revenue and Expense) CR Name, Capital Closing Drawings DR Name, Capital CR Name, Drawings Post - Closing Trial Balance -​ Listing of real accounts after closing entries, these accounts involve only the permanent accounts, no revenue or expense accounts -​ Basically another trial balance Reversing Journal Entries -​ Made from the adjusting entries, to prevent double counting of revenues or expenses -​ Reversal of the adjusting entries made within the accounting period Sole Proprietorship - solo business owner Partnership - 2 or more business owner Corporation 5 or more stakeholders