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Big Picture in Focus: Ulob. Prepare Worksheet and Financial Statements Metalanguage

1) The document provides definitions and explanations of key accounting terms needed to understand how to prepare a worksheet and financial statements, including the worksheet, balance sheet, income statement, statement of changes in equity, and statement of cash flows. 2) It describes the steps to prepare a worksheet, including entering trial balance accounts and adjustments, computing adjusted account balances, and extending balances to financial statements. 3) The worksheet is used to transfer data from the trial balance to the financial statements and simplify the adjusting and closing process. Total debits must equal total credits in the adjusted trial balance and financial statements.

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0% found this document useful (0 votes)
240 views16 pages

Big Picture in Focus: Ulob. Prepare Worksheet and Financial Statements Metalanguage

1) The document provides definitions and explanations of key accounting terms needed to understand how to prepare a worksheet and financial statements, including the worksheet, balance sheet, income statement, statement of changes in equity, and statement of cash flows. 2) It describes the steps to prepare a worksheet, including entering trial balance accounts and adjustments, computing adjusted account balances, and extending balances to financial statements. 3) The worksheet is used to transfer data from the trial balance to the financial statements and simplify the adjusting and closing process. Total debits must equal total credits in the adjusted trial balance and financial statements.

Uploaded by

emem resuento
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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UM Digos College

Department of Accounting Education


Roxas Extension, Digos City

Big Picture in Focus: ULOb. Prepare worksheet and financial statements

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.

PREPARING THE WORKSHEET (step 5)


The steps in the preparation of a worksheet will be illustrated using the Weddings case:

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.
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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.

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Department of Accounting Education
Roxas Extension, Digos City

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Department of Accounting Education
Roxas Extension, Digos City

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Department of Accounting Education
Roxas Extension, Digos City

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Department of Accounting Education
Roxas Extension, Digos City

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UM Digos College
Department of Accounting Education
Roxas Extension, Digos City

Essence of Financial Statements


The financial statements are the means by which the information accumulated and
processed in financial accounting is periodically communicated to the users. Without
accounting information embodied in the financial statements, users may not be able to
arrive at sound economic decisions.

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 decisions. An entity shall present with equal prominence all of the financial
statements in a complete set of financial statements.

Complete Set of Financial Statements

A complete set of financial statements comprises:


a. A statement of financial position as at the end of the period;
b. A statement of comprehensive income for the period;
c. A statement of changes in equity for the period;
d. A statement of cash flows for the period; and
e. Notes, comprising a summary of significant accounting policies and other
explanatory information.

PREPARING THE FINANCIAL STATEMENTS (step 6)

Statement of Comprehensive Income

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

Interest Expense 3,500


Supplies Expense 3,000
Insurance Expense 1,200
Depreciation Expense – Office Equip. 1,000
Total 36,700
Profit 35,000

Statement of Changes in Equity


Changes in an enterprise's equity between two balance sheet dates reflect the
increase or decrease in its net assets during the period. In the case of sole proprietorships,
increases in owner's equity arise from additional investments by the owner and profit during
the period. Decreases result from withdrawals by the owner and from loss for the period.
The beginning balance and additional investments are taken from the owner's capital
account in the general ledger.
Weddings
Statement of Changes in Equity
For the Month Ended May 31, 2020

Garcia, Owner’s Equity, 5/1/2020 P 250,000


Add: Additional Investments by Garcia P 0
Profit 35,000 35,000
Total P 285,000
Less: Withdrawals 14,000
Garcia, Owner’s Equity, 5/31/2020 P 271,000

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 a specific
date. The information needed for this statement are the net balances at the end of the
period, rather than the total for the period as in the income statement.

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

Less: Accumulated Depreciation 4,000 P 416,000


Office Equipment 60,000
Less: Accumulated Depreciation 1,000 59,000 P 475,000
Total Assets P 546,700
Liabilities
Current Liabilities
Notes Payable P 210,000
Accounts Payable 53,000
Salaries Payable 1,800
Utilities Payable 1,400
Interest Payable 3,500
Unearned Referral Revenues 6,000
Total Current Liabilities P 275,700
Owner’s Equity
Garcia, Capital, 5/31/2020 271,000
Total Liabilities and Owner’s Equity P 546,700

Statement of Cash Flows


Statement of cash flows provides information about the cash receipts and cash
payments of an entity during a period. It is a formal statement that classifies cash receipts
(inflows) and cash payments (outflows) into operating, investing and financing activities.

Cash Flows from Operating Activities


 Operating activities generally involve providing services, and producing and delivery
goods.

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 Flows from Investing Activities


 Investing activities include making and collecting loans; acquiring and disposing of
investments in debt or equity securities; and obtaining and selling of property and
equipment and other productive assets.

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

 receipts from collections on notes receivable

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 Flows from Financing Activities


 Financing activities include obtaining resources from owners and creditors.

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

Cash Flows from Operating Activities:


Cash received from clients P60,400
Payments to suppliers (10,000)
Payment to employees (13,800)
Payments for office rent (8,000)
Payments for insurance (14,400)
Payments for utilities (3,000)
Net cash provided by (used in) operating activities P 11,200
Cash Flows from Investing Activities:
Payments to acquire service vehicle P(420,000)
Payments to acquire office equipment (15,000)
Net cash provided by (used in) investing activities (435,000)
Cash Flows from Financing Activities:
Cash received as investments by owner P250,000
Cash received from borrowings 210,000
Payments for withdrawals by owner (14,000)
Net cash provided by (used in) financing activities 446,000
Net Increase (Decrease) in Cash P 22,200
Cash balance at the beginning of the period -
Cash balance at the end of the period P22,200

ACCBP 100 *Property of UMDC


Page 88 of 125
UM Digos College
Department of Accounting Education
Roxas Extension, Digos City

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

Procurement of services, audit of accounting and financial statements, advice on the


preparation of financial statements [tender documents : T450069990]. (2019). MENA
Report, Retrieved from
https://www.proquest.com/docview/2330981419?accountid=31259

Implementation of the monthly financial accounting U. preparation of the annual financial


statements acc. svhv U. preparation of salary statements [tender documents :
T447547394]. (2019). MENA Report, Retrieved from
https://www.proquest.com/docview/2298552412?accountid=31259

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.

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UM Digos College
Department of Accounting Education
Roxas Extension, Digos City

________ 11. The purchase of equipment is an example of a financing activity.


________ 12. The amount placed opposite the owner's Capital account in the Balance Sheet
columns of the worksheet is the amount to be reflected for owner's Capital
on the balance sheet.
________ 13. The purchase of land is an example of an investing activity.
________ 14. The amount of owner's withdrawals can be found on the worksheet.
________ 15. The Adjusted Trial Balance columns of the worksheet are prepared by
combining the Trial Balance and Adjustments columns of the worksheet.
________ 16. When the Income Statement columns of the worksheet are initially footed,
they should be out of balance by the amount of profit or loss.
________ 17. The account Commissions Earned would appear on the balance sheet.
________ 18. Financial statements cannot be prepared correctly until all the accounts have
been adjusted.
________ 19. The worksheet is prepared after the formal adjusting and closing entries.
________ 20. The heading for an income statement might include the line "As of December
31, 2020"

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:

Accounts Payable P 63,500


Accounts Receivable 198,000
Accumulated Depreciation-Building 110,000
Accumulated Depreciation-Office Equipment 120,000
Auditing Revenues 1,361,500
Building 750,000
Cash 118,500
Depreciation Expense-Building 55,000
Depreciation Expense-Office Equipment 60,000
Sarmiento, Capital, 1/1/2020 1,193,500
Sarmiento, Withdrawals 165,000
Land 75,000
Notes Receivable 60,000
Office Equipment 362,500
Office Supplies Expense 96,000
Office Supplies 28,000
Professional Development Expense 86,500
Rent Expense 52,500
Salaries Expense 735,000
Salaries Payable 30,500
Travel Expense 41,000
Utilities Expense 18,000
ACCBP 100 *Property of UMDC
Page 90 of 125
UM Digos College
Department of Accounting Education
Roxas Extension, Digos City

During the year, Sarmiento invested additional P22,000 in the business.


Required: Prepare the income statement, statement of changes in equity and balance sheet.

Activity 2. Classification of Events on Statement of Cash Flows

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

Activity 1. Preparation of financial statements is an important skill an accountant must attain


in doing his role. In this part, you will be required to draw conclusions, perspectives,
arguments and ideas from the unit lesson. I will supply the first item and you will continue the
rest.

1. Preparing a worksheet before preparation of financial statements can be helpful if the


company has a lot of account titles to deal with. Nevertheless, financial statements can be
prepared with or without the preparation of worksheet.
ACCBP 100 *Property of UMDC
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UM Digos College
Department of Accounting Education
Roxas Extension, Digos City

2.

3.

4.

5.

6.

7.

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Department of Accounting Education
Roxas Extension, Digos City

8.

9.

10.

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