Financial Statement

FINANCIAL STATEMENTS
 financial statement are formal records of the financial activities and position of a
business, person, or other entity. Relevant financial information is presented in a
structured manner and in a form which is easy to understand.
The financial statements are as follows:
1. Statement of Financial Position or Balance Sheet

- Summary of the financial balances of an individual or organization.
2. Statement of Income or Statement of Results of Operation
- Shows the company’s revenues and expenses during a particular period.
3. Statement of Cash Flows
- Shows how changes in balance sheet accounts and income affect cash and cash
equivalents, and breaks the analysis down to operating, investing, and financing
activities.
The statement of change in owner’s equity is also prepared to connect the Statement of
Income with the Statement of Financial Position.
The accounting cycle covers a period of usually one calendar year.
Calendar Year – starting on January 1 and ending on December 31
Fiscal Year – a period of twelve months ending on a date other than December 31
Contents of Statement of Financial Position
The Statement of Financial Position or Balance Sheet, reports the permanent accounts as of
the end of an accounting period. For example, on this specific date, December 31, 20X5, the
statement of financial position reports the assets, liabilities, and owner’s equity.
Assets are what the business owns.
Liabilities are what the business owes or claims against assets.
Owner’s equity is what the business is worth.
The Statement of Financial Position or Balance Sheet contains the following:
A. The Heading Example:

1. Name of the Business DMT Trading
2. Title of the Report Statement of Financial Position
3. Date of the Report (specific date) December 31, 20X5
4. Currency (in Philippine Peso)
B. The Asset Section
C. The Liability Section
D. The Owner’s Equity Section
ACCOUNTING PROCESS
In the accounting cycle, the accountant is guided by the company’s accounting policies.
These accounting policies are the specific principles, bases, conventions, rules, and practices
adopted by an enterprise in preparing and presenting financial statements.
Accounting process involves the following:
INPUT PROCESS OUTPUT

Transactions and Analyzing Income Statement
Economic Events Recording Balance Sheet
Classifying Cash Flows
Summarizing Statement
Interpretations
The steps in accounting cycle are the following:
1. Journalizing – Journalize the economic transactions and events.

2. Posting – Post the journal entries in number 1 to the general ledgers.
3. Trial Balance – Prepare the trial balace from the general ledgers.
4. Adjusting – Adjust the ledger balances.
5. Financial Statements – Make income statement and balance sheet from the adjusted trial
balance.
6. Closing – Close or transfer the income and expense accounts to income and expense
summary account and latter account to owner’s drawing, and the owner’s drawing to
owner’s equity.
7. Post-Closing Trial Balance – Make an trial balance all assets, liabilities, and owner’s
equity.
Accounting cycle starts with:
1. The analysis of source documents

2. The journalizing in general journal and special journals
3. The posting in the general ledgers
- It consists of asset, liability, owner’s equity, and expenses accounts.
Net income – the excess of credit total over debit total
Net loss – the excess of debit total over credit total
MULTISTEP INCOME STATEMENT (Merchandising Business)
To illustrate multistep income statement, listed here are the income statement accounts of Karel
Trading Company as of December 31, 20X1.
Debit Credit
Sales P 8,875,000
Sales Discount P 16,000
Sales Returns and Allowances 101,000
Purchases 4,125,000
Purchases Discounts 115,000
Purchases Returns and Allowances 118,000
Freight in 206,000
Salaries Expense 1,218,000
Rent Expense 600,000
Utilities Expense 840,000
Bad Debts Expense 116,000
Depreciation Expense 50,000
Transportation Expense 360,000
Insurance Expense 60,000
Supplies Expense 240,000
Taxes and Licenses 180,000
Merchandise Inventory, January 1, 20X1 P 728,000
Merchandise Inventory, December 31, 20X1 P 810,000

Karel Trading Company
Income Statement
For the Year Ended December 31, 20X1
Sales P 8,875,000
Less: Sales Discounts P 16,000
Sales Returns and Allowances 101,000 117,000
Net Sales 8,758,000
Less: Cost of Sales
Merchandise Inventory, Jan 1 P 728,000
Add: Purchase P 4,125,000
Less: Discounts P 115,000
Returns and Allowances 118,000 233,000
3,892,000
Add: Freight-in 206,000 4,098,000
Total Goods Available for Sales 4,826,000
Less: Merchandise Inventory, Dec 31 810,000 4,016,000
Gross Profit 4,742,000
Less: Selling and Administrative Expenses

Salaries Expense 1,218,000
Rent Expense 600,000
Utilities Expense 840,000
Bad Debts Expense 116,000
Depreciation Expense 50,000
Transportation Expense 360,000
Insurance Expense 60,000
Supplies Expense 240,000
Taxes and Licenses 180,000 3,664,000
Net Income P 1,078,000
Statement of Comprehensive Income (SCI)
The statement of comprehensive income is one of the five financial statements

required in a complete set of financial statements for distribution outside of a corporation.
- Presents the statement of income information with information as required by the

Financial Accounting Standard Board (FASB) and the International Accounting
Standards Board (IASB). The SCI can be presented separately or in combination with
the statement income. When presented separately, the SCI starts with the net income,
plus or minus comprehensive income items on certain value change on investment
securities.
For the Year Ended December 31, 20X4
Net Income P 5,000.000
Other comprehensive (loss)/income
Fair value change on available-for-sale (400,000)
Fair value change on cash flow hedge 500,000
Actuarial loss from defined pension plans (5,000)
Currency translation differences (75,000)
Comprehensive Income P 5,070,000

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FINANCIAL STATEMENTS

The financial statements are as follows:

1. Statement of Financial Position or Balance Sheet

The accounting cycle covers a period of usually one calendar year.

Calendar Year – starting on January 1 and ending on December 31

Contents of Statement of Financial Position

Assets are what the business owns.

Liabilities are what the business owes or claims against assets.

Owner’s equity is what the business is worth.

The Statement of Financial Position or Balance Sheet contains the following:

A. The Heading Example:

Accounting process involves the following:

INPUT PROCESS OUTPUT

Economic Events Recording Balance Sheet

Classifying Cash Flows

The steps in accounting cycle are the following:

1. Journalizing – Journalize the economic transactions and events.

Accounting cycle starts with:

1. The analysis of source documents

Net loss – the excess of debit total over credit total

MULTISTEP INCOME STATEMENT (Merchandising Business)

Sales Discount P 16,000

Sales Returns and Allowances 101,000

Purchases Discounts 115,000

Purchases Returns and Allowances 118,000

Salaries Expense 1,218,000

Rent Expense 600,000

Utilities Expense 840,000

Bad Debts Expense 116,000

Depreciation Expense 50,000

Transportation Expense 360,000

Insurance Expense 60,000

Supplies Expense 240,000

Taxes and Licenses 180,000

Merchandise Inventory, January 1, 20X1 P 728,000

Merchandise Inventory, December 31, 20X1 P 810,000

Less: Selling and Administrative Expenses

The statement of comprehensive income is one of the five financial statements

- Presents the statement of income information with information as required by the

For the Year Ended December 31, 20X4

Net Income P 5,000.000

Other comprehensive (loss)/income

Fair value change on available-for-sale (400,000)

Fair value change on cash flow hedge 500,000

Actuarial loss from defined pension plans (5,000)

Currency translation differences (75,000)

Comprehensive Income P 5,070,000

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