Financial Statements, Part 1

AcPlus Essentials of Accounting, Business and Management

Elements of Financial Statements

Assets
these are resources owned and controlled by the business as a result of past
transactions and events from which economic benefit is expected to flow to the
enterprises.

Liabilities
the present obligations of an enterprise resulting from past transactions and events, the
settlement of which will result in an outflow of resources by an enterprise embodying
economic benefits.

Owner’s Equity or Capital

the residual interest in the assets of an enterprise after deducting all its liabilities. It is
increased by an income or additional contributions of the owner, and decreased
whenever there is a net loss or owner’s withdrawal.

Revenue
the gross inflow of economic benefits during the period arising in the course of ordinary
activities of an enterprise when those inflows result in an increase in equity other than
the contribution of the owners.

Expenses
the gross outflow of economic benefits during the period arising in the course of ordinary
activities of an enterprise when those outflows result in a decrease in equity other than
distribution to owners.
Basic Financial Statements
1. Income Statement / Statement of Profit or Loss. A statement showing the revenues and
expenses of the enterprise for a given period of time. It presents the financial performance or result
of operations of the business. Result of operations is determined by:
If: The result of operation is:
Revenue > Expenses Profit
Revenue < Expenses Loss
Revenue = Expenses Break-even

Sample Income Statement

Beas Aye Wan Company
Income Statement
For the year ended December 31, 2020
Revenue:
Service Income ₱ 2,972,413
Interest Income 98,500
Other Income 72,910
Total Revenue 3,143,823
Expenses
Salary Expense 1,982,541
Utility Expense 453,028
Depreciation Expense 350,771
Interest Expense 126,060
Income Tax Expense 66,934
Total Expenses 2,979,334
Net Income ₱ 164,489
2. A financial statement showing the financial condition or financial position of the enterprise as at a
given period of time.
Beas Aye Wan Company
Balance Sheet
As of December 31, 2020

ASSETS
Current Assets
Cash ₱ 70,735
Accounts Receivable, net of allowance 163,974
Inventories 512,713
Supplies 9,780
Prepaid Expense 16,252
Total Current Assets 773,454
Noncurrent Assets
Furniture and Fixtures, net of Accumulated Depreciation 317,300
Buildings, net of Accumulated Depreciation 404,800
Land 225,000
Total Noncurrent Assets 947,100
TOTAL ASSETS ₱ 1,720,554

LIABILITIES AND OWNER’S EQUITY

Current Liabilities
Accounts Payable 248,032
Accrued Salaries 72,440
Total Current Liabilities 320,472
Noncurrent Liabilities
Long term Notes Payable 300,000
Bonds Payable 200,000
Total Noncurrent Liabilities 500,000
Owner’s Equity
Wan, Capital 900,082

TOTAL LIABILITIES AND OWNER’S EQUITY ₱ 1,720,554

Accounting Equation:
ASSET = LIABILITIES + OWNER’S EQUITY

The balance sheet presents the following financial condition:

a. Liquidity – the ability of the enterprise to pay currently maturing obligations.
b. Solvency – the ability of the enterprise to pay long-term obligations.
c. Financial Flexibility – the ability of the enterprise to use its assets at unexpected
disbursements, or to take investments opportunities without affecting its regular operations.
d. Financial Structure – refers to the composition of the company’s investments (assets) and
how these investments are being financed (liabilities and capital).
Name: JEFFERSON M. BERNALDEZ Date: SEPT. 8, 2020 Score:
Instructor: PROF. MEMILANIE TENAJEROS Course and Year: BSA-2
ACTIVITY. Choose the MOST CORRECT option. Please print as pdf this paper after you answered.
1. Which of the following elements of financial statements is not a component of income statement?
o Revenues o Expenses
o Losses o Equity

2. Which of the following is not a basic element of financial statements?

o Assets o Capital
o Revenues o Equality

3. Which of the following basic elements of financial statements is more associated with the balance
sheet than the income statement?
o Gain o Expense
o Revenue o Equity

4. ABC Co. had the following account balances:

Service Revenue ₱ 120,000
Salary expense 70,000
Depreciation expense 20,000
Rental revenue 24,000
Utilities expense 8,000
Interest expense 12,000
Advertising expense 24,000
What would ABC report as total revenues in a single-step income statement?
o ₱133,000
o ₱ 10,000
o ₱144,000
o ₱120,000

5. The balance sheet is useful for analyzing all of the following except
o liquidity. o profitability.
o solvency. o financial flexibility.

6. The amount of time that is expected to elapse until an asset is realized or otherwise converted into
cash is referred to as
o liquidity. o exchangeability.
o solvency. o financial flexibility.
7. The basis for classifying assets as current or noncurrent is conversion to cash within
o the industry cycle or one year, whichever is shorter.
o the operating cycle or one year, whichever is longer.
o the industry cycle or one year, whichever is longer.
o the operating cycle or one year, whichever is shorter.

8. The current assets section of the balance sheet should include

o machinery.
o patents.
o trademark.
o inventory.

9. Which following statements is false?

o Liquidity refers to the ability of an enterprise to pay its debts as they mature.
o Financial flexibility measures the ability of an enterprise to take effective actions to alter the
amounts and timing of cash flows.
o An asset which is expected to be converted into cash, sold, or consumed within one year of
the balance sheet date is always reported as a current asset.
o Financial flexibility is a company’s ability to respond and adapt to financial adversity and
unexpected needs and opportunities.

10. If the total revenue is the same with the total expenses, the company operation resulted to a
o Net Income
o Net Expenses
o Break expense
o Breakeven