Fundamentals of Accounting, Business, and

Management 2
1st Semester | 2024-2025

Statement of Financial Position PPE is that intangible

assets have no tangible
1. Assets sources with future benefits
properties. (Patent, Brand
that are within the control of the
name, Trademark)
company.
 Current Asset are assets
 Cash only to funds readily
that can be turned into cash
available to be spent for the
in less than a year.
company’s operations.
Examples of these are
 Receivables is a general
accounts receivable and
term that refers to the
short-term investments.
company’s right to collect
 Non-current Asset are
or claim payment.
longer-term assets with a
 Accounts Receivable
full value that you cannot
refers to the outstanding
recognize until after one
invoices that a company has
year, such as property and
or the money that clients
machinery. It can be both
owes the business.
“tangible” and
 Notes Receivable is
“intangible”.
evidenced by promissory
2. Liabilities these are obligations
notes.
that the company is required to
 Inventory refers to the
pay.
Inventory Account Reports;
 Accounts Payable is also
the cost of unsold
referred to as the
merchandise. Inventory is
department that handles
composed of raw materials,
vendor invoices or bills and
unfinished inventories in
records the short-term debts
the middle of the
in the general ledger.
manufacturing process, and
 Notes Payable are written
unsold finished goods.
agreements (promissory
 Prepaid Expense future
notes) in which one party
expenses that the company
agrees to pay the other
had paid for in advance.
party certain amount of
 Property, Plant, and
cash.
Equipment are long-term
 Accrued Expense are
assets or non-current assets
unpaid expenses that a
because they will be used in
company owes as of the
the business for more than
cut-off date of the
one year. Only the assets
Statement of Financial
that are owned and
Position. These expenses
controlled by the company
include Salaries Payable,
are classified as PPE,
Utilities Payable, Rent
rented facilities and
Payable, and Interest
equipment are not included.
Payable.
(Land, Building, Computer
 Unearned Income
equipment)
Customer deposits or
 Intangible Asset long-term
downpayments are
assets similar to PPE. This
customer payments
is computed similarly to
received before the delivery
depreciation. The main
of goods or services. These
difference between this and
Fundamentals of Accounting, Business, and
Management 2
1st Semester | 2024-2025

will not count as sales until 2. Report form is not side-by-side, it

deliveries are made. is in a separate column which first
 Short-term or Current demonstrates the assets before the
Liabilities a debt that has to Liabilities and Equity.
be paid back in less than a
year
 Long-term or Non- Elements of the Statement of
current Liabilities refer to Comprehensive Income
obligations with due dates  Statement of Comprehensive
that fall more than one year Income is also known as “Income
from the date of the SFP. Statement”
3. Equity net assets of the business  Provides a comprehensive view of
 Capital Owner's capital is financial performance.
the amount of money and  The statement of comprehensive
resources an owner invests income is a financial statement that
into their business to help it summarizes both standard net
succeed. income and other comprehensive
 Drawings An owner's draw income (OCI). The net income is
is a way for a business the result obtained by preparing an
owner to withdraw money income statement.
from the business for 1. Revenue is the total amount of
personal use. income generated by sale of goods
and services related to the primary
operations of the business.
Statement of Financial Position using  Service Income Account is
the Account and Report Form generally used to describe
Statement of Financial Position revenue derived from
rendering of service.
 An organization's equity,
Examples are rental
liabilities, and assets are listed in
income, professional
the statement as of the report date.
fee(professional firm),
 It offers a quick glance at a
tuition fee(schools), and
company's financial situation on
commission(agencies).
a particular day.
 Sales Revenue Account is
Equation of Statement of Financial generally used to describe
Position revenue derived from
Assets = Liabilities + Owner’s Equity selling of goods/products
(tangible products).
Examples are office
Two Acceptable Formats of SFP supplies sales, bool sales,
1. Account form has a similarity in and food sales.
T-account form which is the form 2. Expenses an item requiring an
of the T-account. In account form, outflow of money, or any form of
it shows the equal or totals of fortune in general, to another
assets, liabilities and equity side- person or group as payment for an
by-side, so that it would be easy to item, service, or other category of
identify if it is balance or not. costs. A cost that businesses incur
in running their operations.
Fundamentals of Accounting, Business, and
Management 2
1st Semester | 2024-2025

 Cost of Goods Sales (Cost ending inventory over beginning inventory

of Sales) an account used is from the unsold current-year purchases)
by companies that sells Suppose the business has an over-
goods instead of services. deduction of expenses because all Net
For trading operations, Cost Purchases were deducted without taking
of Sales collects the cost of into consideration the unsold portion of the
the merchandise sold. current year's purchases. This caused the
 Operating Expenses refer Net Income to be understated.
to all other expenses related
to the operation of the To correct this, the increase in inventory
business, other than cost of should be added back to arrive at the
sales. Expenses that arise corrected Net Income.
from daily, core operational
activities conducted by a
Single-Step SCI
company. The examples are
ABC Company
salaries, supplies, utilities,
Statement of Comprehensive Income
gasoline expense, bad debts For the year ended December 31, 20X1
expense, depreciation, and Service revenue xxx

amortization. Rental income xxx

Interest income xxx

Increase in inventory*

Other Expenses and Other Income Total revenues and income XXX

refers to goods that do not fall into your Net purchases yyy

usual business operations' revenue and Depreciation expense yyy

expense categories. Outliers are Utilities expense yyy

Salaries expense yyy

unexpected or infrequent items that are not
Interest expense yyy
directly related to your everyday business Insurance expense yyy

activities. Supplies expense yyy

Total expenses YYY

Net income XXX - YYY

Single-Step Statement of *Increase in inventory = Ending inventory – Beginning

Comprehensive Income inventory

 Groups all revenue and all

expenses. Adjustment for a Decrease in Inventory
 Computed by one step, deducting
total expenses from total revenue. Ending inventory is less than beginning
 Only used by small businesses and inventory if all the current year purchases
service businesses. were sold and some of the beginning
 Lists the expenses based on the inventory.
source of expenses. Such as This time, there was an under-deduction of
salaries: purchases, supplies, expenses because only the current year's
utilities, fuel, and depreciation. purchases were subtracted from the Net
Income. This caused an overstatement in
the Net Income and therefore, the sold
Adjustment for an Increase in Inventory portion of the beginning inventory should
When ending inventory is greater than be deducted.
beginning inventory, not all of the current
year purchases were sold. (The excess of
SCI Multi-Step Approach
Fundamentals of Accounting, Business, and
Management 2
1st Semester | 2024-2025

The multi-step SCI is characterized by the  Drawing accounts’ decrease the

presentation of several subtotals until net equity. It is closed at the end of the
income is determined. The multi-step SCl year to the Capital account.
is more popularly used in business.

Multi-Step SCI
ABC Company

Statement of Comprehensive Income

For the year ended December 31, 20X1

Gross Sales A

Sales returns and allowances B

T-Account of Owner’s Capital
Sales discount C
Drawings Owner’s Capital
Net Sales D=A–B–C

Cost of Goods Sold E

Debit Credit Debit Credit

Gross Profit F=D–E Beg Balance 0 xxx Beg Balance

Operating Expenses: Withdrawals xxx xxx contributions

End Balance xxx xxx net income

General and administrative expense G
xxx Closing Withdrawals xxx
Selling Expenses: H I=G+H
Final Balance 0 xxx End Balance
Income from Operations J=F–I

Interest Income K

Interest Expense L

Net Income J+K–L

Statement of Changes in Equity --- Sole Proprietorship

ABC Company

Statement of Changes in Equity

The multi-step approach is also associated with the For the period ended December 31, 20X1

function of expense format. The function of expense Owner, Capital, January 1, 20X1 xxx

classifies operating expenses into three categories Add: Net Income xxx

based on usage. The categories are Cost of Sales, Owner’s Contribution xxx

General and Administrative Expenses and Selling Less: Drawings xxx

Expenses. General and Administrative Expenses Owner, Capital, December 31, 20X1 xxx

refer to those incurred in the daily operations and

management of the business. On the other hand, Accounts Payable xxx

Selling Expenses are costs related to marketing, Notes Payable xxx

selling and distributing the company's Total Liabilities xxx

merchandise.
Owner, capital xxx

Total liabilities and owner’s equity xxx

Statement of Changes in Equity

The form of business organization
determines the equity accounts reported on
the financial statements. The form of Statement of Cash Flow
business organization differ in terms of The debit and credit side of the cash
number of owners and the transferability account generally represent cash receipts
of ownership. These inherent and cash discbursements, respectively.
characteristics of business organizations Cash receipts may come from (1) cash
led to the difference in the presentation of sales to customers, (2) collection of
equity. customer account, (3) loans and other
 The owner’s capital account has a borrowings, and (4) owner’s contribution.
normal credit balance. On the other hand, cash disbursements
may be for payments of: (1) business
Fundamentals of Accounting, Business, and
Management 2
1st Semester | 2024-2025

expense, (2) purchases of inventories and

other assets, (3) liabilities to creditors, and
(4) dividends to owners.
SCF is dated “for the year ended”. The
statement shows the transactions for the
year that reconciles the beginning balance
of cash to its year-end balance. The report
is presented based on the three major
activities of the business --- operating,
investing, and financing.

Statement of Cash Flows

Cash Flows from Operating Activities

Cash transactions xxx

Net cash provided by (used in) operating activities xxx

Cash Flows from Investing Activities

Cash transaction xxx

Net cash provided by (used in) investing activities xxx

Cash Flows from Financing Activities

Cash transactions xxx

Net cash provided by (used in) financing activities xxx

Net increase (decrease) in cash and cash equivalents xxx

Cash and cash equivalents at the beginning of the year xxx

Cash and cash equivalents at the end of the year xxx