2.

Employees
1. STATEMENT OF FINANCIAL POSITION - They are the internal users who look for this
information for making decisions
Elements of the balance sheet 3. Lenders
Current and noncurrent assets -Lenders are interested in information which
Current and noncurrent liabilities enables them to determine creditworthiness of
Account form balance sheet the company
Report form balance sheet 4. Trade creditors
2. STATEMENT OF COMPREHENSIVE INCOME -Trade creditors are interested in information which
Service company income statement (single-step) enables them to determine whether amounts owing
Merchandising company income statement (multi- to them will be paid when due.
step) 5. Customers
Functional presentation -These outsiders have an interest in information
Natural presentation about the continuance of an enterprise, especially
when they have a long-term involvement with or
LESSON 1: STATEMENT OF FINANCIAL dependent on the enterprise.
POSITION 6. Government and other agencies
-Governments and their agencies look at these
Financial Statements financial statements to determine the compliance
- Are structured reports prepared by a adherence of the company.
company’s management to present the financial A complete set of financial statements
performance and position at a point in time. comprises:
- The very basic objective of financial ● a statement of financial position as at the end of the
statements is to provide information about the financial period;
position, performance and cash flows of an enterprise that● a statement of profit and loss and other
is useful to a wide range of users in making economic comprehensive income for the period.
decisions. ● statement of changes in equity for the period;
- The three major financial statement ● a statement of cash flows for the period;
reports are the balance sheet, income statement, ● notes, comprising a summary of significant
and statement of cash flows. accounting policies and other explanatory
information; and
They also show the results of the ● a statement of financial position as at the beginning
management’s stewardship of the of the preceding comparative period when an entity
resources entrusted to it. To meet this applies an accounting policy retrospectively or
objective, financial statements provide makes a retrospective restatement of items in its
information about an entity’s: financial statements, or when it reclassifies items in
its financial statements.
1. Assets
2. Liabilities Elements of a Balance Sheet
3. Equity
4. Income and expenses, including gains and 1. Assets- is a resource with economic value
losses that an entity owns or controls with the
5. Contributions by and distributions to owners in expectation that it will provide a future
their capacity as owners benefit.
6. Cash flows 2. Liabilities- is something a person or
company owes, usually a sum of money.
This information, along with other information in the Liabilities are settled over time through the
notes, assists users of financial statements in transfer of economic benefits including
predicting the entity’s future cash flows and, in money, goods, or services.
particular, their timing and certainty. 3. Equity- represents the amount of money
that would be returned to a company's
Users of Financial Statements shareholders if all the assets were
1. Investors liquidated, and all the company's debt was
-Investors being the providers of capital are paid off in the case of liquidation. In the
concerned with the risk and return provided by case of acquisition, it is the value of
their investments.
 company sales minus any liabilities owed by the company not transferred with the sale.

Balance Sheet Equation Types of noncurrent assets:

Land, land improvements, building, equipment,
machineries, intangible assets, investment
current assets = property, investment in an associate, investment in
noncurrent assets current liabilities equity securities
noncurrent liabilities
Liabilities
+
An entity shall classify a liability as current when…
Assets CAPITAL ● It expects to settle the liability in its normal
An entity shall classify an asset as current when… operating cycle;
● It expects to realize the asset, or intends to ● It holds the liability primarily for the purpose
sell or consume it, in its normal operating of trading;
cycle; ● The liability is due to be settled within 12
● It holds the asset primarily for the purpose months after the reporting period; or
of trading; ● It does not have an unconditional right to
● It expects to realize the asset within 12 defer settlement of the liability for at least 12
months after the reporting period; or months after the reporting period.
● The asset is cash or cash equivalent unless
the asset is restricted from being exchanged Types of Current Liabilities
or used to settle a liability for at least 12 Accounts payable, trade accounts payable, salaries
months after the reporting period. payable, utilities payable, short-term notes payable,
Types of current assets: rent payable, taxes payable, interest payable
Cash, cash equivalents, accounts receivable, stock Types of noncurrent liabilities
or inventory, marketable securities, pre-paid Bonds payable, long-term notes payable
liabilities, non-trade receivables,

LESSON 2: STATEMENT OF COMPREHENSIVE interest and dividends received with respect to their
INCOME cash accounts and reserves related to the
business.
Income Statements
- Summarize all income and expenses over a REVENUE
given period, including the cumulative - Refers to the entire amount of money made
impact of revenue, gain, expense, and loss through selling products and services from a
transactions. Income statements are often company’s core operations.
shared as quarterly and annual reports, GAINS
showing financial trends and comparisons - Often pertains to some of a company’s
over time. transactions which occur outside of the
company’s main business activities.
Revenues
- expenses 2. Expense- is the cost of operations that a
Net Income before tax company incurs to generate revenue. As the
- Income tax expense popular saying goes, “it costs money to
Net Income make money.”

Elements of an Income Statements EXPENSE

- Costs of goods sold, Marketing, Salaries,
1. Income- refers to the money that a person Rent, Depreciation
or entity receives in exchange for their labor LOSSES
or products. - Is an unrecoverable and unanticipated
- For businesses, income means the decrease in a resource or asset outside of
revenues from selling services, products, and any normal business operations.
 RAW DATA
A portion of the adjusted trial balance for the Marina Company is shown below.

Sales (net of $8,000 sales discounts and $24,500 sales returns and allowances) $ 417,500.00
Cost of goods sold $ 210,000.00
Salaries expense $ 38,000.00
Depreciation expense—building $ 40,000.00
Advertising expense $ 12,300.00
Office supplies expense $ 3,500.00
Gain on disposal of store equipment $ 3,000.00
Interest expense $ 1,000.00

SINGLE-STEP INCOME STATEMENT

Marina Company
Income Statement
For the year ended December 31

Revenues
Net Sales $ 417,500.00
Gain on disposal of store equipment $ 3,000.00
Total Revenues $ 420,500.00
Expenses
Cost of goods sold $ 210,000.00
Salaries expense $ 38,000.00
Depreciation expense—building $ 40,000.00
Advertising expense $ 12,300.00
Office supplies expense $ 3,500.00
Interest expense $ 1,000.00
Total Expenses $ 304,800.00
NET INCOME $ 115,700.00

MULTI-STEP INCOME STATEMENT

Marina Company
Income Statement
For the year ended December 31

Gross Sales $ 450,000

Less: Sales Discounts $ 8,000
Sales Returns and Allowances $ 24,500 $ (32,500.00)
Net Sales $ 417,500.00

Cost of goods sold $ (210,000.00)

Gross Profit $ 207,500.00
Operating Expenses
Sales salaries expense $ 38,000
Depreciation expense - building $ 40,000
Advertising expense $ 12,300
Office supplies expense $ 3,500
Total Operating Expense $ (93,800)
Income from Operations $ 113,700.00
Other revenues and gains (expenses
and losses)
Gain on disposal of store equipment $ 3,000
Interest expense $ (1,000) $ 2,000
NET INCOME $ 115,700.00

Problem 2. Merchandising company income statement

 Teddy Bear Trading is operating a big store of stuff toys called Crush Magic. For the month of April 20XX,
recorded sales in the ledger amounted to P8,756,445. Contra-sales account balances include P223,650
returns and allowances and P396,500 discounts.The entity began April with P2,963,574 of inventory which
decreased by P75,924 at the end of the month. Purchases made amounted to P3,685,790 which were
transported to the company premises costing P352,000 in total. Contra-purchases account balances include
P235,112 returns and allowances and P265,820 discounts. The company is also into costume rentals of
different cartoon characters, rental income of which amounted to P125,746 for the month. To operate, the
company needs to pay salaries of P435,874, utilities of P236,987, and rent of P52,365. Depreciation of
furniture, equipment, and POS system totaled P39,657.
Required:
a. Prepare a multi-step merchandising company income statement.

b. Prepare a function of expense income statement with related notes.

c. Prepare a nature of expense income statement with related notes.