FABM 2 Third Quarter Test Reviewer - presents the changes in capital due to

additional investments, withdrawals, and net

Accounting income or net loss
- “language of business” 4. Statement of Cash Flows
- “the process of identifying, measuring, - presents the cash inflows and the cash
recording, and communicating economic outflows of the business through its operating,
information about an organization or entity, investing and financing activities
in order to permit informed judgements by // 2, 3, 4, uses “For the Period Ended”
users of information” (Meyer 2009) (Statement of Comprehensive Income For the
Bookkeeping Period Ended December 31, 2017) //
- Mechanical aspect of accounting 5. Notes to the Financial Statements
- Deals with record keeping and - presents the details of the line items in
maintenance of the book of accounts the Statement of Financial Position and
Financial Information Statement of Comprehensive Income which
- The end product of accounting may include:
- The story that accounting tells to its users - Company info
- Fundamental Qualitative Characteristics: - Accounting policies used
[makes information useful] - Administrative requirements by
(1) Relevant - can assist a user in predicting a regulators
financial situation or scenario - Other relevant info
-can confirm predictions and forecasts
previously made Statement of Financial Position
(2) Faithfully Representation – “must present - A = L+OE
what it purports to present”
- info must be complete, neutral, and free Assets – “a resource controlled by the entity
from error as a result of past events and from which
future economic benefits are expected to flow
- Enhancing Qualitative Characteristics: to the entity”
[ enhances useful information] Asset can be classified as current if:
(1) Comparability – info can be compared to 1. Expected to be realized, sold, or consumed
another entity in the entity’s normal operating cycle
- info can be compared to previous year 2. Held primarily for trading
(2) Verifiability – different users can reach an 3. Expected to be realized 12 months after the
agreement about the financial information or reporting period
mainly about consensus 4. Asset is cash or cash equivalent unless
(3) Timeliness – ensures that such info is restricted for at least 12 months after the
available to the users when they need it reporting period
(4) Understandability – info must be clearly
and concisely scaled down Current Assets
- presumes that users are willing to learn 1. Cash and Cash Equivalents
about these complex information - Cash on hand
- Cash in Bank
Financial Statements - Operating Funds (Petty Cash Fund)
- Organized depiction of the events that - Cash equivalents are “short-term, highly
happened in the business liquid investments that are readily convertible
- Show the results of the recording of the to known amounts of cash and which are
business transactions subject to an insignificant risk of changes in
Five (5) Components value”
1. Statement of Financial Position (aka 2. Investment in Trading Securities
Balance Sheet) - refers to short-term, highly liquid
- presents the financial condition of the investment in securities such as shares and
business through its assets, liabilities, and bonds
capital or owner’s equity 3. Trade Accounts Receivables
- “as at” or “as of” the end period - amounts owed by customer to entity
(Statement of Financial Position as of - Accounts Receivable
December 31, 2017) - Allowance for Doubtful Accounts
2. Statement of Comprehensive Income (aka - Notes Receivable
Income Statement) - Commission Receivable
-presents the financial performance of - Interest receivable
the business through its income and expenses - Rent Receivable
3. Statement of Changes in Equity -Advances to employees
4. Inventories
 - goods for resell in the normal course of 2. Bonds payable
business (finished goods)
- work in progress or goods in process Owner’s Equity
- raw materials 1. Owner, Capital
5. Supplies and Other Prepaid Assets 2. Owner, Drawing
- Prepaid Advertising 3. Ordinary Share, Preference Share, Share
- Prepaid Insurance Premium
- Prepaid rent 4. Retained Earnings
-Prepaid Subscriptions // 3,4 is for Corporations //
- Office Supplies
- Store Supplies Steps in making a Balance Sheet
Non-Current Assets 1. Prepare the statement heading
1. Property, Plant and Equipment 2. Prepare the asset section
- Land 3. Prepare the liabilities section
- Building 4. Prepare the owner’s equity section
- Machinery 5. Ensure the accounting equation is balanced
- Furniture and fixtures
- Office Equipment UY LAW OFFICE
- Store Equipment Statement of Financial Position
- Transportation Equipment December 31, 2015
- Accumulated Depreciation ASSETS
2. Intangible Assets Current Assets
- Trademarks for brand names Cash
- Patents for inventions Etc.
- Copyrights for artistic/ literary works Total Current Assets
3. Investment Properties Non-Current Assets
- long-lived assets not used in production PPE
4. Biological Assets Etc.
- living plants or animals held by the Total Non-Current Assets
business for resale or for breeding Total Assets
LIABILITIES AND EQUITY
Liabilities – “present obligation… arising from Current Liabilities
past events the settlement of which is Accounts payable
expected to result in an outflow from the entity Etc.
of resources embodying economic benefits Total Current Liabilities
(assets)” Non-Current Liabilities
Bonds payable
Liabilities can be classified as current if: Etc.
1. Normal Operating Cycle Total Non-Current Liabilities
2. Trading Owner’s Equity
3. One year X, Capital
4. No right to defer settlement Total Liabilities and equity

Current Liabilities Common Arrangement of assets in BS

1. Trade Accounts Payable Cash
2. Accounts Payable FAFVPL
3. Notes Payable Notes Receivable
4. Commission Payable Trade Accounts Receivable
5. Utilities Payable Inventories
6. Interest Payable Supplies and Other Payment
7. Rent Payable
8. Salaries and Wages Payable Common Arrangement of liabilities in BS
9. Taxes and Licenses Payable Accounts Payable and Other Accrued
- Income Tax payable Expenses
10 Unearned Income Notes Payable
- Unearned Advertising Income Tax Payable
- Unearned Commission
- Unearned Rent Total assets are equal to total liabilities and
- Unearned Subscriptions shareholder’s equity
Non-current Liabilities
1. Long-term Debt Statement of Comprehensive Income
- Mortgage Payable
Key Features: 3. Determine the amount of investment (initial
1. Heading or additional)
2. Revenues 4. Determine the amount of the net income
3. Expenses 5. Determine the balance of the drawing
4. Gains and Losses (withdrawal) account
5. Other Items 6. Determine the ending balance of the capital
or owner’s equity account.
Cost of Sale Formula
Beginning Inventory 2. Partnerships
Add: Net Purchases - involves two or more persons called
Total Goods Available for, Sale partners
Less: Ending Inventory - agreement is contained in a document
Cost of Sales called articles of partnership
- ease of organization
Net Purchases Formula - has a larger source of capital and
Gross Purchases expertise
Less: Purchase discounts - unlimited liability
Less: Purchase Returns and Allowances - limited existence
Add: Freight-in - mutual agency of partners (may bind
Net Purchases the partnership and other partners in business
related matters
Steps in making the Statement of - ex: legal firms, accounting or auditing
Comprehensive Income for a Service firms
Organization
1. Draft the Appropriate Title Statement of Changes in Partner’s Equity
2. Determine the total revenues from the Trial - is prepared for partnerships after
Balance preparing the income statement
3. Determine the total operating expenses - same line items with the SCE of the sole
4. Determine the effect of other items proprietorship (beginning equity, net
income, additional investments,
Steps in making the Statement of withdrawals, and ending capital)
Comprehensive Income for a Merchandising - may agree to give interests to their
Concern investment and bonuses
1. Determine the revenues
2. Determine the net purchases, cost of sales, 3. Corporation
and gross profit - “artificial being created by operation of
3. Determine the selling expenses law, having the right of succession and the
4. Determine the administrative expenses powers, attributes, and properties expressly
5. Determine the net income authorized by law or incident to its existence”
- things about the whole corporation is
Statement of Changes in Equity included in a document called articles of
Business Entity Concept incorporation
- States that the transactions of the business - has a centralized management
(as a separate entity) must be distinguished - has policies implemented
and differentiated from the transactions of - has longer existence
the owners - may withstand their original owners
- has a very complicated requirements
Forms of Business Organizations for registration
1. Sole Proprietorships - subjected to heavy government
- owned by one person called proprietor regulations
- relatively easy to organize
- unlimited liability Stocks
- have limited life -corporation’s unit of ownership
- ex: franchise enterprises, individuals - represented by a stock certificate
rendering professional services
Stock Certificates
Steps in making Statement of Changes in - a piece of paper representing the
Equity for Sole Proprietorship ownership of one stock of the corporation
1. Draft the heading - has an amount on its face called par
2. Determine the beginning balance of capital value (synonymous to the amount of money
(equity) printed in Philippine bills, signifies the amount
of the stock at face value)
 - Cash receipts and payments for securities
Paid up capital held for dealing or trading purposes
- refers to that portion of the capital for
which the corresponding sum of money has 2. Investing Activities
been received -cash flows derived primarily from the
Authorized stock acquisition and disposal of long-term assets
- the maximum amount of stock that a and other investments not included in cash
corp can issue equivalent
- Non-current Assets
Subscribed capital - Cash payments and receipts to acquire PPE
- amount of money for which certain - Cash payments and receipts to acquire
individual promised to pay to the corporation intangible assets
for their ownership - Cash receipts from sale of long-term assets
- Cash payments to acquire equity or debt
Stockholders: Types and Rights instruments of other interest in joint venture
1. Rights to vote (current and long term investments)
2. Right to dividends - Cash advances and loans to other parties
3. Right to new stock issues (pre-emptive right) - Cash payment for future contract, forward
contract, and swap contract
Common Stocks
- have all the regular rights (1-3) 3. Financing Activities
Preferred Stocks - cash flows derived primarily from
- are given priority over common stocks equity and borrowing of the entity
when it comes to dividends - equity and non-current liability
-usually have a required dividend - Cash investments from owners
(percentage of the preferred stocks) for each - Cash proceeds from bank loans
year - Cash distributions to owners
- Repayment of bank loans
Additional Paid-in Capital - Cash receipts from issuing ordinary and
- the amount of money received by the preference shares of their equity instruments
company from the issuance of shares, in - Cash payments to owners to acquire or
excess of the par redeem the entity’s shares
- loans, notes, bonds, mortgages, other short-
Retained Earnings term or long-term borrowings
- all the net income and net loss - Cash payments for amounts borrowed
incurred by the corp for the current and
previous years Direct Method
- shows in details or itemizes the major
classes or gross cash receipts and gross
Statement of Cash Flows cash payments
Indirect Method
Three major sections: - adjust the accrual basis ( kabaliktaran
1. Operating Activities nung operation na nasa problem)
- cash flows derived primarily from the 1. increase in trade non current assets =
principal revenue producing activities of the deduct from net income
entity 2. decrease in trade non current assets =
- profit or loss added back to the net income
- Cash receipts from sale of goods and 3. increase in trade current liabilities = added
rendering of services back to the net income
- Cash receipts from royalties, fees, 4. decrease in trade current liabilities =
commission, and other revenue deducted from the net income
- Cash payments to suppliers of goods and 5. depreciation, amortization, and other
services noncash expenses = added back to the net
- Cash payments to employees income
- Cash payments to income taxes 6. any gain on disposal = deduction
- Interest paid 7. loss on disposal = add
- Interest received
- Dividends received Steps in making the Statement of Cash Flows
- Cash receipts and cash payments of an 1. Heading
insurance entity for premiums and claims, 2. Analyze the cash transactions
annuities and other policy benefits 3. Prepare the Operating Activities Section
4. Prepare the Investing Activities Section
5. Prepare the Financing Activities Section
6. Determine the Ending Cash Balance

Comparison Standards
1. Intracomparability
- current period is being compared to
the previous period/s
2. Intercomparability
- company’s financial statement
compared to the FS of direct competitor
3. Industry Standards
- company’s FS compared to the
standard of the industry they belong

Horizontal Analysis
- the company compare their own FS for
the current period with their FS from the
prior period
- getting the increase or decrease of the
two periods

Vertical Analysis
- express items of a certain FS as a
percentage of a given base amount
- all the line items will be divided to the net
sales to get the percentage