Big Picture in Focus: Ulob. Prepare Worksheet and Financial Statements Metalanguage
Big Picture in Focus: Ulob. Prepare Worksheet and Financial Statements Metalanguage
Metalanguage
The most essential terms below are operationally defined for you to have a better
understanding of this section in the course.
1. Worksheet. This multi-column document provides an efficient way to summarize the data
for financial statements.
1.1 The worksheet is not part of the ledger or the journal, nor is it a financial
statement. It is a summary device used by the accountant for his convenience.
2. Statement of financial position (or balance sheet). This lists all the assets, liabilities and
equity of an entity as at a specific date. The balance sheet can be presented in either the
report format or the account format.
2.1 The report format simply lists the assets, followed by the liabilities then by the
owner's equity in vertical sequence.
2.2 The account format lists the assets on the left and the liabilities and owner's
equity on the right. Either balance sheet format is acceptable.
3. Income statement. This presents a summary of the revenues and expenses of an entity
for a specific period.
4. Statement of changes in eq uity. This presents a summary of the changes in capital such
as investments, profit or loss, and withdrawals, during a specific period.
5. Statement of cash flows. This reports the amount of cash received and disbursed during
the period.
6. Accounting policies. These are the specific principles, bases, conventions, rules and
practices adopted by an enterprise in preparing and presenting financial statements.
7. Notes to financial statements. This provides narrative descriptions or disaggregation of
items presented in the statements and information about items that do not qualify for
recognition in the statements.
8. Liquidity. This refers to the availability of cash in the near future after taking account of
the financial commitments over this period.
9. Financial flexibility. This is the ability to take effective actions to after the amounts and
timings of cash flows so that it can respond to unexpected needs and opportunities.
10. Solvency. This refers to the availability of cash over the longer term to meet financial
commitments as they fall due.
Essential Knowledge
The Worksheet
Accountants often use a worksheet to help transfer data from the unadjusted trial
balance to the financial statements. The accountant generally prepares a worksheet when
it is time to adjust the accounts and prepare financial statements. Note, however, that it is
possible to prepare financial statements directly from the adjusted trial balance at the end
ACCBP 100 *Property of UMDC
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UM Digos College
Department of Accounting Education
Roxas Extension, Digos City
of the accounting period if the business has relatively few accounts. The worksheet
simplifies the adjusting and closing process. It can also reveal errors.
1. Enter the account balances in the unadjusted trial balance columns and total the amounts.
The numbers, titles and balances of the accounts as at May 31 are lifted directly from
the ledger before the adjusting entries are prepared. The accounts are listed in the
worksheet in the order they appear in the ledger. Total debits must equal total credits.
Accounts with zero balances (e.g., salaries payable, interest payable, etc.) are also
presented. Listing all the accounts with their balances helps identify the accounts that need
adjustments. This practice will help ensure the achievement of completeness and accuracy
in the adjustment process.
2. Enter the adjusting entries in the adjustments columns and total the amounts.
When a worksheet is used, all adjustments are first entered in the worksheet. The
same adjustments are entered in the adjustments columns of the worksheet. As each
adjustment is entered, a letter is used to identify the debit entry and the corresponding
credit entry. Note that the adjustments are not journalized until after the worksheet is
completed and the financial statements prepared.
3. Compute each account's adjusted balance by combining the unadjusted trial balance and
the adjustment figures. Enter the adjusted amounts in the adjusted trial balance columns.
Figure below exhibited the adjusted trial balance prepared by combining
horizontally, line by line, the amount of each account in the unadjusted trial balance
columns with the corresponding amounts in the adjustment columns. This procedure is
called cross-footing.
A simple convention to observe when extending amounts from the trial balance to the
adjusted trial balance follows:
Add when the type of adjustment (debit or credit) is the same as the unadjusted
balance.
Subtract when the type of adjustment (debit or credit) is different from the
unadjusted balance.
4. Extend the asset, liability and owner's equity amounts from the adjusted trial balance
columns to the balance sheet columns. Extend the income and expense amounts to the
income statement columns. Total the statement columns.
Every account is either a balance sheet account or an income statement account.
Asset, liability, capital and withdrawal accounts are extended to the balance sheet columns.
Income and expense accounts are moved to the income statement columns. Debits in the
adjusted trial balance remain as debits in the statement columns while credits as credits. At
this stage, the initial totals of the income statement and balance sheet columns are not
equal.
ACCBP 100 *Property of UMDC
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UM Digos College
Department of Accounting Education
Roxas Extension, Digos City
5. Compute profit or loss as the difference between total revenues and total expenses in the
income statement. Enter profit or loss as a balancing amount in the income statement and
in the balance sheet, and compute the final column totals.
Profit or loss is equal to the difference between the debit and credit columns of the income
statement.
Revenues (Income statement credit column total) P71,700
Expenses (Income statement debit column total) 36,700
Profit P35,000
The profit or loss should always be the amount by which the debit and credit columns
for income statement, and the debit and credit columns for balance sheet differ. The profit
is entered in the debit column of the income statement and the credit column of the balance
sheet. After completion, total debits and total credits in the income statement and balance
sheet columns must equal.
The profit figure is extended to the credit column of the balance sheet because profit
increases owner's equity and increases in owner's equity are recorded as credits. Observe
that the capital account amount of P250,000 shown in the worksheet reflects the beginning
rather than the ending balance. Profit must be added and withdrawals subtracted to arrive
at the ending capital balance; this is done when the statement of changes in equity is
prepared.
An entity shall present all items of income and expense recognized in a period:
a. In a single statement of comprehensive income, or
b. In (separate two statements: a statement displaying components of profit with
profit or loss or income statement) and a second statement beginning loss and
displaying components of other comprehensive income (statement of
comprehensive income).
Weddings
Income Statement
For the Month Ended May 31, 2020
Revenues
Consulting Revenues P 67,700
Referred Revenues 4,000
Total 71,700
Expenses
Salaries Expense P 15,600
Utilities Expense 4,400
Rent Expense 4,000
Depreciation Expense – Service Vehicle 4,000
ACCBP 100 *Property of UMDC
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UM Digos College
Department of Accounting Education
Roxas Extension, Digos City
Weddings
Statement of Financial Position
As of the Period Ended May 31, 2020
Assets
Current Assets
Cash P 22,200
Accounts Receivable 17,300
Supplies 15,000
Prepaid Rent 4,000
Prepaid Insurance 13,200
Total Current Assets P 71,700
Property, Plant and Equipment (Net)
Service Vehicle P 420,000
ACCBP 100 *Property of UMDC
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UM Digos College
Department of Accounting Education
Roxas Extension, Digos City
Cash inflows
receipts from sale of goods and performance of services
receipts from royalties; fees, commissions and other revenues
Cash Outflows
payments to suppliers of goods and services
payments to employees
payments for taxes
payments for interest expense
payments for other operating expenses
Cash Inflows
receipts from sale of property and equipment
receipts from sale of investments in debt or equity securities
ACCBP 100 *Property of UMDC
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UM Digos College
Department of Accounting Education
Roxas Extension, Digos City
Cash Outflows
payments to acquire property and equipment
payments to acquire debt or equity securities
payments to make loans to others generally in the form of notes receivable
Cash Inflows
receipts from investments by owners
receipts from issuance of notes payable
Cash Outflows
payments to owners in the form of withdrawals
payments to settle notes payable
Weddings
Statement of Cash Flows
For the Period Ended May 31, 2020
Self-Help: You can also refer to the sources below to help you further
understand the lesson:
Ballada, W. (2016). Basic Accounting 2016 issue (21st edition). DomDane Publishers and Made
Easy Books: Manila
Let’s Check
Activity 1. Evaluate the statements below. Write True if the statement is true and write False
if otherwise.
________ 1. The statement of cash flows discloses significant events related to the
operating, investing, and financing activities of a business.
________2. When adjusting entries are entered onto a worksheet, it is not necessary to
record them in the general journal.
________ 3. When the Balance Sheet columns of the worksheet are initially footed, they
should be in balance.
________ 4. The balances of the Accumulated Depreciation accounts will appear on the
credit side of the worksheet's Balance Sheet columns.
________ 5. An important use of the worksheet is as an aid in the preparation of financial
statements.
________ 6. The balance sheet may be prepared by referring solely to the Balance Sheet
columns of the worksheet.
________ 7. The worksheet should be prepared after the formal financial statements have
been prepared.
________ 8. The amount for owner's Withdrawals will appear in the Income Statement
columns of a worksheet.
________ 9. Buying and producing goods and services are examples of operating activities.
________10. The statement of changes in equity discloses the withdrawals during the
period.
Let’s Analyze
Activity 1. Preparing the Financial Statements
The accounts for the balance sheet, statement of changes in equity, and income statement of
Marife Sarmiento, CPA, are as follows:
The following transactions pertain to the operations of Party Consultants, an events planning
company owned by Eleanor Tan. The entity had the following transactions during the month:
1. Received a P180,000 cash investment from the owner.
2. Provided P400,000 services on account.
3. Incurred P220,000 of operating expenses on account.
4. Collected P320,000 cash from accounts receivable.
5. Allowed a P30,000 cash withdrawal to the owner of the business.
6. Paid P160,000 cash on accounts payable.
7. Performed services for P30,000 cash.
8. Paid P12,000 cash for expenses.
Required:
1. Classify each of these transactions as a cash flow from operating activities (OA),
investing activities (IA), or financing activities (FA). Transactions that do not affect the
statement of cash flows should be identified as "n/a".
2. Prepare a statement of cash flows.
In a Nutshell
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