FABM 2 Financial Statements PDF

Accountancy, Business, and Management Strand Fundamentals of Accountancy, Business, and Management 2 S.Y. 2024-2025 PREPARATION AND PRESENTATION OF FINANCIAL STATEMENTS THE ACCOUNTING...

Accountancy, Business, and Management Strand Fundamentals of Accountancy, Business, and Management 2 S.Y. 2024-2025 PREPARATION AND PRESENTATION OF FINANCIAL STATEMENTS THE ACCOUNTING EQUATION should always be balanced. ASSETS = LIABILITIES + CAPITAL CURRENT ASSET CURRENT LIABILITIES CAPITAL NONCURRENT ASSET NONCURRENT LIABILITIES 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. A liability is a present obligation of the entity arising from past events, the settlement of which is expected to result in an outflow from the entity of resources embodying economic benefits. Capital is the residual interest in the assets of the entity after deducting all its liabilities. FINANCIAL STATEMENT Financial statements are a structured representation of the financial position and financial performance of an entity. The objective of financial statements is to provide information about the financial position, financial performance and cash flows of an entity that is useful to a wide range of users in making economic decisions. (International Accounting Standard 1) PRESENTATION THE FINANCIAL STATEMENT A complete set of financial statements comprises: A statement of financial position (or balance sheet) as the end of the period; A statement of comprehensive income for the period; A statement of changes in equity for the period; A statement of cash flows for the period; Notes, comprising a summary of significant accounting policies and other explanatory information; and A statement of financial position as at the beginning of the earliest comparative period when an entity applies an accounting policy retrospectively or makes retrospective restatement of items in its financial statements or when reclassifies items its financial statements. STATEMENT OF COMPREHENSIVE INCOME An entity shall present all items of income and expense in a period: In a single statement of comprehensive income, or in two statements: a statement displaying components of profit and loss (separate income statement) and a second statement beginning with profit or loss and displaying components of other comprehensive income (statement of comprehensive income). The income statement is a statement showing the performance of the enterprise in a given period of time. It summarizes the revenues earned, gains, expenses, and losses incurred for that period of time. 1st Semester 2024 – 2025 FABM 2 Page 1 of 6  Accountancy, Business, and Management Strand Fundamentals of Accountancy, Business, and Management 2 S.Y. 2024-2025 PREPARATION AND PRESENTATION OF FINANCIAL STATEMENTS STATEMENT OF CHANGES IN EQUITY The statement of changes in equity summarizes the changes that occurred in owner's equity. In the case of sole proprietorships, increases in owner's equity a rise from additional investments by the owner and profit during the period. Decreases result from withdrawals by the owner and from loss during the period. 1st Semester 2024 – 2025 FABM 2 Page 2 of 6  Accountancy, Business, and Management Strand Fundamentals of Accountancy, Business, and Management 2 S.Y. 2024-2025 PREPARATION AND PRESENTATION OF FINANCIAL STATEMENTS STATEMENT OF FINANCIAL POSITION The statement of financial position is a statement that shows the financial position or condition of an entity by listing the assets, liabilities and owner's equity as at specific date. The information needed for this statement are the net balances at the end of the period. This statement is also called the balance sheet. The balance sheet can be presented in either the report format or the account format. The report format simply lists the assets, followed by the liabilities then by owner's equity in vertical sequence. The account format lists the assets on the left and the liabilities and owner's equity on the right. 1st Semester 2024 – 2025 FABM 2 Page 3 of 6  Accountancy, Business, and Management Strand Fundamentals of Accountancy, Business, and Management 2 S.Y. 2024-2025 PREPARATION AND PRESENTATION OF FINANCIAL STATEMENTS STATEMENT OF CASH FLOWS The statement of cash flows provides information about the cash receipts and cash payments of an entity during the period. It is a formal statement that classifies cash receipts (inflows) and cash payments (outflows) into operating, investing, and financing activities. Operating activities Investing activities Financial activities Activities of an entity related to Activities of an entity related to Activities of an entity related to their main revenue generating sale and purchase of long-term acquisition of funding for use of activities of providing goods and assets and other investments. the entity. services. Where to see in the FS usally? Income Statement Balance Sheet – noncurrent Balance Sheet – current asset Balance Sheet – noncurrent asset liabilities Balance Sheet – current liabilities Equity Cash flows from operating activities: Receipts from sale of goods and performance of services Receipts from royalties, fees, commissions and other revenues Payments to suppliers of goods and services, employees, taxes, interest and other operating expenses Cash Inflows Cash Outflows Cash received from sales and service Payments to suppliers revenue Payment of operating expenses like salaries, Collection of accounts receivable rent, utilities, and taxes Refunds from suppliers Payment for interest expense Charity contributions Cash refund to customers Cash flows from investing activities: Receipts from sale of property and equipment Receipts from sale of investments in debt or equity securities Payments to acquire property and equipment Payments to acquire debt or equity securities Payments to make loans to others generally in the form of N/R Receipts from collection of loans to others generally in the form of N/R Cash Inflows Cash Outflows Cash proceeds from selling productive Payments for the purchase of productive assets like property, plant, and equipment assets like property, plant, and equipment Cash proceeds from selling investments in Payments to acquire investments in equity equity securities of other companies securities Cash flows from financing activities: Receipts from investments by owners Receipts from issuance of notes payable Payments to owners in the form of withdrawals Payments to settle notes payable Cash Inflows Cash Outflows Cash investments by the owner Cash withdrawal by the owner Cash proceeds from issuance of share capital Payments of cash dividends to shareholders Cash proceeds from long-term borrowing Payments of long-term borrowing 1st Semester 2024 – 2025 FABM 2 Page 4 of 6  Accountancy, Business, and Management Strand Fundamentals of Accountancy, Business, and Management 2 S.Y. 2024-2025 PREPARATION AND PRESENTATION OF FINANCIAL STATEMENTS DIRECT METHOD VS. INDIRECT METHOD Cash Inflows Cash Outflows Operating activity section shows actual cash inflows Operating activity section starts with net income, and outflows from operations which includes cash and non-cash activity Easier to read and understand Adjustments remove the eIect of non-cash transactions included in net income Requires a separate net income reconciliation Adjustments include the eIect of cash transactions not included in net income Easier and less costly to prepare Provides reconciling information to investors What is the diTerence between the direct and indirect methods of cash flow statement? The direct method will actually add up all sales and costs to find out the total cash flow. The indirect method will start with net income, from the income statement, and take out any costs or assets that are included in the net income but are not actually cash in and out. What is the direct method of cash flow with an example? The direct method of cash flow will add up sales and take out expenses. If a company has P500,000 in sales, P200,000 in salaries, P75,000 in inventory costs, and P50,000 in taxes then the direct method will calculate the cash flow to be: P500,000 - P200,000 - P75,000 - P50,000 = P175,000. The total cash flow is P175,000 (an increase of P175,000). What is the indirect method of cash flow with example? The indirect method of cash flow does not directly track cash in and out. Instead, it starts with the net income from the income statement and removes any non-cash income included. For example, if the net income is listed as P200,000, but included depreciation worth P40,000 and inventory worth P100,000, then the depreciation is added and the inventory is subtracted for a total cash flow of: P200,000 + P40,000 - P100,000 = P140,000. Let’s try! Moxie Marasigan established her own service company. She invested 2,000,000 to open the business and has purchased some computer equipment worth 120,000 and o[ice furniture worth 80,000. During the year, 500,000 revenues were earned, 200,000 of which were on account. Salaries paid to employees amounted to 150,000, o[ice rent payment is 40,000, and utilities paid amounted to 30,000. Receivables collected amounted to 70,000. The owner withdrew 100,000 for a personal emergency. At the time when the carrying value of the furniture was 70,000, Moxie sold it for 75,000 cash. 1. How much is the entity's cash flow from operating activities? 2. How much is the entity's cash flow from investing activities? 3. How much is the entity's cash flow from financing activities? 4. How much is the cash balance at the end of the year? 5. Prepare the entity's statement of cash flows. 1st Semester 2024 – 2025 FABM 2 Page 5 of 6  Accountancy, Business, and Management Strand Fundamentals of Accountancy, Business, and Management 2 S.Y. 2024-2025 PREPARATION AND PRESENTATION OF FINANCIAL STATEMENTS Answer using this guide template: 1st Semester 2024 – 2025 FABM 2 Page 6 of 6