ACC-101: FINANCIAL ACCOUNTING AND REPORTING

LESSON 3:
1ST SEMESTER | A.Y. 202Y – 202Y
LECTURER: SIR/MS.

Preparation of the Worksheet and Financial Statements  The management of an enterprise has the primary
responsibility for the preparation and presentation of
Worksheet the financial statements.

 Worksheet is a columnar device used to facilitate the

preparation of financial statements.
 A worksheet provides an efficient way to summarize the Types of Financial Statements
data for financial statements.
 It is, however, optional. STATEMENT OF COMPREHENSIVE INCOME
 After the completion of the worksheet, the financial
— Statement of Comprehensive Income presents two types
statements are prepared, in the following order: the
of information:
statement of comprehensive income, the statement of
o Income, expenses and performance of the
changes in equity, the statement of financial position and
company, which is either net income or loss, for
the statement of cash flows.
a specific period of time.
 It is a summary device used by the accountant for his
o Components of other comprehensive income.
convenience
— The formats of the income statement depend on the
 It is a device or tool to facilitate the preparation of the
presentation of the expenses of the business.
FS
— An entity shall present an analysis of expenses using a
o Ito ang guinagamit para mas mapabilis ang
classification based on either the;
paggawa ng FS
o (1) nature of expenses or their
 10 Columns
o (2) function within the entity, whichever provides
o 1st / 2nd Columns = Unadjusted Trial Balance
information that is reliable and more relevant.
o 3rd / 4th Columns = Adjustments (adjusting
— Income Statement
entries)
— Formal statement showing the performance of the
 If the account cannot be found in the
enterprise for a given period of time
adjusted trial balance—sa ilalim
— A formal statement showing the results of operations of
ilalagay
an entity.
o 5th / 6th Columns = Adjusted Trial Balance
— It shows an entity’s revenues and expenses during a
o 7th / 8th Columns = Income Statement
particular period.
(Nominal Accounts)
— It summarizes the revenues earned and expenses
o 9th / 10th Columns = Balance Sheet (Real
incurred for that period of time
Accounts)
— Results of operation for a particular period (January to
December, ito yung kinita natin)
Financial Statements — A statement that shows whether a company is able to
generate net income or incurs a net loss during a
 are the means by which the information accumulated particular accounting period.
and processed in financial accounting is periodically — Showing the result of operation
communicated to the users. — We’ll see if the company has income or loss
 Once the worksheet is completed, it is very easy to — “During a particular accounting period”
prepare the financial statements, because the — “For the period ended December 31, 2022” – meaning for
necessary data have already been summarized. that particular year only
 The FS are the means by which the information — Information about the performance of an enterprise, in
accumulated and processed is periodically particular its profitability, is required in order to assess
communicated to users. potential changes in the economic resources that is likely
 Periodically because you can have a different timeline to control in the future
(monthly, quarterly, semi-annually, annually) — It is also useful in predicting the capacity of the
 The main objective of FS is to provide information enterprise to generate cash flows from its existing
about the financial position, financial performance, and resource base
cash flows of an entity that is useful in making
economic decisions. Net Income -> credit is greater than debit; greater
 The use of financial statements prevents users from revenue than expenses; inflow is greater than outflow
making errors in business decisions that they make. during the period
Net Loss -> greater expenses than revenue; more
 On a periodic basis, the accountant is required by
reduction in capital than increase
owners to prepare reports containing financial
 If there is a net loss, there’s a decrease in your capital
information on the status and performance of the because revenues and expenses directly affect your
business. Information is obtained from the accounting capital account
records and reports, known as financial statements are  When sales is greater than the cost of the item sold,
prepared there is a profit.

Page | 1

APRIL KAE APRIL KAE APRIL KAE

 Income -> Refers to increases in economic benefits during o Final capital balance at the end of the period – reported
the accounting period in the form of inflows or in the financial position
enhancements of assets or decreases of liabilities that result o In the worksheet is the capital balance beginning
in increase in equity, other than those relating to
contributions from equity participants.
A, capital, beginning XX
Add: Additional investment
-------------- Name of the business ----------------- Net income XX XX
------------------ Title of Report -------------------------------
------------- Period -------------------------- Total XX
Less: Withdrawals XX
“For the year Ended” A, capital, ending XX
o Talking about the period that has beginning and
has end
o Only talking about one year
o The revenue and expenses shown in the report is
actually what we have earned and incurred in the STATEMENT OF FINANCIAL POSITION
particular period
— Statement of Financial Position is a formal statement of the
o Wages (per hour, day, week)
assets, liabilities, and owner's equity of the business as of
o Salary (monthly, semi-monthly)
a given date.
— Formats of the Statement of Financial Position
o Report form simply lists the assets, followed by
Revenue XX liabilities and the capital or owner's equity, in a
Less: Expenses XX downward sequence.
Net income (loss) XX o Account form lists the assets on the left side while
the liabilities and capital or owner's equity on the
right side, similar to an account in the ledger.
 Also called Balance Sheet
 Shows the financial position or condition of the entity by
STATEMENT OF CHANGES IN EQUITY
showing its assets, liabilities and capital.
— Statement of Changes in Equity is a statement that shows  A = L + OE
how the entity's equity has changed during the period. for  Information about the financial position of the company is
a sole proprietorship, the statement of changes in equity primarily provided in balance sheet or statement of
discloses the following information: financial position
o Any additional investment made by the proprietor  Information about changes in financial position is provided
during the period in the financial statements by means of a cash flow
o The net profit or net loss for the period statement.
o Withdrawals by the owner during the period  A statement that refers to the condition of a business, in
o The ending balance of the equity monetary terms, as of a given date.
 Summarizes the changes that occurred in owner’s equity o “As of the given date”
during the period. o from inception to date - mula nagsimula yung
 Presents a summary of the changes in capital such as business hanggang ngayon
investments, profit or loss, and withdrawals o The data shown in the balance sheet is from the
 It is a reconciliation of the beginning and ending balances beginning (2000s) to year 2022
in an entity’s equity during an accounting period. o Simula nagumpisa yung business to ending
 We will see here, what happen to the capital account balance
 We will know if our capital is increased or decreased during
the period
 Revenues, expenses, loss, withdrawals have direct effect FORMAT
in capital
 Additional investments will also affect your capital o Report Format – simply lists the assets, followed by
 Additional investments by the owner and profit – increases the liabilities then owner’s equity in vertical sequence
in owner’s equity arise
 Withdrawals by the owner and loss for the period – Current Assets
decrease result Cash & cash equivalents
 The profit or loss figure comes directly from the income Receivables
Prepaid expenses
statement while the withdrawals from the balance sheet
Non-current Assets
columns in the worksheet
Land
Equipment
--------------- Name of the business ----------------
Intangibles
------------------- Title of Report ------------------------------
Other assets
-------------- Period ------------------------
Total Assets
Current Liabilities
“For the year End”
Accounts payable
o Withdrawals will decrease the capital
Notes payable-current
o In the balance sheet, the final capital for the period
Accrued expenses
should be shown
Non-current Liabilities

2|Page

APRIL KAE APRIL KAE APRIL KAE

 Notes payable 4. Preparing a post-closing trial balance.
Mortgage payable 5. Preparing reversing entries.
Total Liabilities
A, capital
Total Liabilities & Capital
Closing Entries

o Account format – lists assets on the left and the  this is done at the end of the accounting period to close
liabilities and owner’s equity on the right (A = L + E) all the nominal accounts.
 Nominal accounts
Current Assets Current Liabilities  are those income statement accounts (all revenue and
Cash & cash equivalents Accounts payable expense accounts)
Receivables Notes payable- o Close the income accounts.
current o Close the expense accounts.
Prepaid expenses Accrued expenses o Close the Income Summary account.
Non-current Assets Non-current Liabilities o Close the withdrawal account.
Land Notes payable
 We will close the accounts through Income Summary
Equipment Mortgage payable
o The income summary entries are the total expenses
Intangibles Total Liabilities
Other assets A, capital and total income from your company's income
statement. To calculate the income summary,
Total Assets Total Liabilities & Capital simply add them together.
 At the end of each accounting period, nominal
(temporary) accounts are transferred to the capital
-------------- Name of the business ----------------- account.
------------------ Title of Report -------------------------------  At the end of the period, all nominal accounts must have
------------- Period -------------------------- zero balances.
 A temporary account, Income Summary, is used in the
“As of” closing process; used to close the income and expenses
o From the time you started business up to this point,  We will only close entries that are nominal accounts
these are my balances of assets, liabilities, capitals
 Two types of Accounts:
o From year 1 up to this one are the balances
a. Nominal Account – these are income statement
accounts (revenue accounts and expense
accounts)
b. Real Accounts – these are the balance sheet
STATEMENT OF CASH FLOWS accounts (asset, liabilities, capital, withdrawals)

— Statement of Cash Flows provides information about the

cash inflows (receipts) and cash outflows (payments or
disbursements) of a business during the period. cash After the financial statements are prepared, the adjusting
inflows or outflows are classified into the following entries are recorded in the general journal and posted to the
categories: general ledger. The adjusting entries can be taken directly from
o Operating activities the adjustment columns of the worksheet. After adjusting
o Investing activities entries are posted, the ledger account balances will be the
o Financing activities same as the corresponding amounts in the financial
— Provides information about cash receipts and cash statements.
payments of an entity during a period.
Procedures in closing the nominal accounts:
— Classifies cash receipts (inflows) and cash payments
(outflows) into operating, investing and financing 1. A summary account called Income Summary is used to
activities. close all revenue and expense accounts.
— This statement shows the net increase or decrease in cash 2. Close all revenue accounts by debiting the amount of the
during the period and the cash balance at the end of thee credit balances and crediting the Income Summary
period; it also helps project the future net cash flows of account.
the entity 3. Close all expense accounts by debiting the Income
— Reports the amount of cash received and disbursed during Summary account and crediting the amounts of the debit
the period balances.
4. Close the balance of the Income Summary account to the
owner's drawing account, which balance represents the
This Chapter covers the completion procedures for the net profit (credit balance) or net loss (debit balance) for
accounting cycle of a Service type of business. In the previous the period. The entry transfers the amount net income
chapter, we were able to prepare the worksheet and eventually or loss to the drawing account.
facilitated the preparation of the financial statements. 5. Close the updated drawing account to the capital
account. This entry transfers the balance of the drawing
Completion procedures include the following steps: account to the capital account.

1. Recording adjusting entries to the general journal and

posting the same to the general ledger.
2. Recording and posting of closing entries.
3. Ruling and balancing real and nominal accounts.

3|Page

APRIL KAE APRIL KAE APRIL KAE

 Beginning balance X The Ledger for the Capital account will appear as follows:
X
Closing of the drawing X Closing of income X
account X summary* X
Ending balance X o Makikita yan lahat sa Ledger—kung ano yung galaw ng
X account that should appear in the ledger
If it is a NET INCOME.
Steps in Recording Closing Entries
POST-CLOSING TRIAL BALANCE
1. Close all the revenue accounts to the Income summary
account.  Verifies that all debits equal the credits in the trial
o Normal balance of revenue is credit, to close we balance.
debit  Contains only real accounts (balance sheet items):
2. Close all the expense accounts to the Income summary assets, liabilities and ending capital.
account.  It will show you real or permanent accounts
o Normal balance of expense is debit, to close we
credit
o Icoclose sila sa INCOME SUMMARY Reversing Entries
3. Compare the amount of revenues and expenses (get the
balance of the Income summary account) and close the  Reversing entries are prepared at the beginning of a new
Income Summary account to the Capital account. accounting period before any of the regular transactions
4. Close the Drawing account to the Capital account. are recorded.
o Once this is done, you can now have the Ending  The reversing entries are the exact opposite of some of
balance of the Capital account which will appear the adjusting entries recorded at the close of the
in the Statement of Financial Position. accounting period just ended. It is not strictly required
to prepare the entries, but it is preferred by some
1 Service revenue xx accountants because of the following:
Income summary xx o Brings about segregation of items between
(to close all revenue accounting periods and simplifies the recording of
accounts) regular transactions in the next accounting period;
2 Income summary xx o Restores the ledger accounts to their normal status.
Expenses (itemized all xx  this is done at the start (beginning) of the next
expenses)
accounting period.
(to close all expense accounts)
o If you have an accounting cycle of year-end, this is
3 Income summary xx
done first thing in January 1
Capital account xx
o This is the last step
(to close the Income summary
account)  this is optional (may or may not be done).
4 Capital account xx o Pwedeng hindi gawin, pero mas recommended
Drawing account xx gawin to make life of accountant easier
(to close the drawing account)  this is done for easy recording of accounts.
 Selected adjusting entries are being reversed
 Optional step
o We will get the balance of Income Summary by getting the  A journal entry which is the exact opposite of a related
difference after closing the revenue and expenses adjusting entry made at the end of the period.
o After getting the balance or difference (whether debit or
credit), we will close this to capital account
 Kung may income, credit ang normal balance— What are the accounts to be reversed?
idedebit natin ang Income Summary para
1. Accrued expenses (liability)
maclose naman siya
o Salaries Expenses (debit) | Salaries Payable
Temporary Account (credit)
o In reversing entries—Salaries Expenses (credit) |
 Income Summary is only a temporary account Salaries Payable (debit)
because we only use it in closing entries 2. Accrued revenues (income)
 After that, we zero out its balance 3. Prepaid expenses using the Expense method
4. Unearned revenues using the Income method

4|Page

APRIL KAE APRIL KAE APRIL KAE

 Efemela Pension House
Unadjusted Trial Balance
December 31, 2020

ACCOUNTS DR. CR.

Cash in Bank PHP 100,000.00

Petty Cash Fund 3,000.00

Accounts Receivable 120,000.00

Allow. For Doubtful Accounts 16,000.00

Prepaid Insurance 5,600.00

Prepaid Interest (Bank Loan) 40,000.00

Unused Supplies 16,000.00

Building 1,900,000.00

Acc. Depreciation-Building 20,000.00

Furniture and Fixtures 350,000.00

Acc. Depreciation- Furniture and Fixtures 15,000.00

Notes Payable 1,570,000.00

Efemela, Capital 823,000.00

Efemela, Drawing 16,000.00

Hotel Income 288,800.00

Taxes and License 25,760.00

Telephone and Postage 24,240.00

Laundry Expense 30,000.00

Audit and Legal Fees 25,200.00

Salaries and Wages 50,000.00

Utilities Expense 27,000.00

Totals PHP 2,732,800.00 PHP 2,732,800.00

Data for Adjustments:

a. Provision for doubtful accounts should be increased by P4,000. (DOUBTFUL ACCOUNTS)

Doubtful Accounts Expense 4,000

Allowance for Doubtful Accounts 4,000
o “Increase by” = Add 4,000
o “Increase to” = Make it 40,000 (the adjustment will be 40,000 – 16,0000)

b. Unpaid salaries and wages, P16,000. (ACCRUED EXPENSE)

Salaries and Wages 16,000

Salaries and Wages Payable 16,000

c. Building is depreciated at 10% while Furniture and Fixtures, 20% annually. (DEPRECIATION EXPENSE)

Depreciation Expense 260,000

Accumulated Depreciation- Building 190,000
Accumulated Depreciation- Furniture and Fixtures 70,000

d. Interest on bank loan applicable for this period, P10,000. (PREPAID EXPENSE – A)

Interest Expense 10,000

Prepaid Interest (Bank Loan) 10,000
o The loan is discounted
 Nung kinuha mo yung loan—it is already discounted
 Hindi mo nakuha yung full amount nung loan—ibinawas na kaagad yung interest

5|Page

APRIL KAE APRIL KAE APRIL KAE

  “The note is discounted”—kaya merong prepaid interest

e. Supplies actually on hand, P11,000. (PREPAID EXPENSE – A)

Supplies Expense 5,000

Unused Supplies 5,000

f. P1,600 of the insurance premium paid in advance has expired. (PREPAID EXPENSE – A)

Insurance Expense 1,600

Prepaid Insurance 1,600

g. Cash payment by customer covered by invoice No. 0085 dated December 31 in the amount of P7,600 was not recorded.
(Hotel Income) (ACCRUED INCOME)

Cash 7,600
Unearned Hotel Income 7,600

From the given information, prepare the worksheet for Efemela Pension House as of December 31, 2020.

 Kapag magkaparehong debit/debit or credit/credit = add

 Kapag magkaiba debit/credit or credit/debit = subtract
 Petty Cash Fund – petty means small, the money of the company is the bank but if ever they need small expenses
 Asset – Liability – Capital – Withdrawal = balance Sheet
 Revenue – Expenses = income statement
 Adjusted entries that are not part of the unadjusted trial balance = lower part
 Income Statement
o Get the difference of the total debit and total credit
o Place the difference in the smaller amount
o Revenue – Expenses = Net Income/Loss
o Loss is a debit
 Balance Sheet
o Get the difference of the total debit and total credit
o Place the difference in the smaller amount
 Dapat pareho sila ng difference (hindi magkaiba)
o The difference represents your income or loss

Efemela Pension House

Income Statement

For the period ended December 31, 2020

Hotel Income PHP 288,800.00

Less: Operating Expenses

Taxes and License PHP 25,760.00

Telephone and Postage 24,240.00

Laundry Expense 30,000.00

Audit and Legal Fees 25,200.00

Salaries and Wages 66,000.00

Utilities Expense 27,000.00

Doubtful Accounts Expense 4,000.00

Depreciation Expense 260,000.00

Interest Expense 10,000.00

Supplies Expense 5,000.00

Insurance Expense 1,600.00 PHP 478,800.00

NET INCOME (NET LOSS) PHP (190,000.00)

6|Page

APRIL KAE APRIL KAE APRIL KAE

 Efemela Pension House

Statement of Changes in Owner's Equity

December 31, 2020

Beginning Capital PHP 823,000.00

Withdrawal (16,000.00)

TOTAL PHP 807,000.00

Net Loss (190,000.00)

Ending Capital PHP 617,000.00

Efemela Pension House

Balance Sheet
December 31, 2020

ASSETS
CURRENT ASSETS
Cash in Bank PHP 107,600.00
Petty Cash Fund 3,000.00
Accounts Receivable 120,000.00

Less: Allow. For Doubtful Accounts (20,000.00) 100,000.00

Prepaid Insurance 4,000.00
Prepaid Interest (Bank Loan) 30,000.00
Unused Supplies 11,000.00
TOTAL CURRENT ASSETS PHP 255,600.00

NON-CURRENT ASSETS
Building PHP 1,900,000.00
Less: Acc. Depreciation-Building (210,000.00) PHP 1,690,000.00
Furniture and Fixtures 350,000.00
Less: Acc. Depreciation- Furniture and Fixtures (85,000.00) 265,000.00
TOTAL NON-CURRENT ASSETS PHP 1,995,000.00

TOTAL ASSETS PHP 2,210,600.00

LIABILITIES AND EQUITY

CURRENT LIABILITIES
Salaries and Wages Payable 16,000.00
Unearned Hotel Income 7,600.00
TOTAL CURRENT LIABILITIES 23,600.00

NON-CURRENT LIABILITIES
Notes Payable 1,570,000.00

TOTAL LIABILITIES 1,593,600.00

Efemela, Capital 617,000.00
TOTAL LIABILITIES AND EQUITY PHP 2,210,600.00

--------------------------------------------------------CLOSING ENTRIES--------------------------------------------------------

Efemela Pension House

Post-Closing Trial Balance
December 31, 2020
D C
Debit Credit
Cash in Bank 107,600

7|Page

APRIL KAE APRIL KAE APRIL KAE

Petty Cash Fund 3,000
Accounts Receivable 120,000

Allow. For Doubtful Accounts 20,000

Prepaid Insurance 4,000
Prepaid Interest (Bank Loan) 30,000
Unused Supplies 11,000
Building 1,900,000
Accumulated depreciation - Building 210,000
Furniture and Fixtures 350,000
Accumulated depreciation – Furniture and Fixtures 85,000
Salaries and wages payable 16,000
Unearned hotel income 7,600
Notes payable 1,570,000
Efemela, Capital 617,000
TOTAL 2,525,600 2,525,600

8|Page

APRIL KAE APRIL KAE APRIL KAE

 Efemela Pension House Efemela Pension House Efemela Pension House
Unadjusted Trial Balance Adjusting Entries Adjusted Trial Balance
December 31, 2020 December 31, 2020 December 31, 2020

ACCOUNTS DR. CR. DR. CR. DR. CR.

Cash in Bank PHP 100,000.00 PHP 7,600.00 PHP 107,600.00

Petty Cash Fund 3,000.00 3,000.00

Accounts Receivable 120,000.00 120,000.00

Allow. For Doubtful Accounts 16,000.00 4,000.00 20,000.00

Prepaid Insurance 5,600.00 1,600.00 4,000.00

Prepaid Interest (Bank Loan) 40,000.00 10,000.00 30,000.00

Unused Supplies 16,000.00 5,000.00 11,000.00

Building 1,900,000.00 1,900,000.00

Acc. Depreciation-Building 20,000.00 190,000.00 210,000.00

Furniture and Fixtures 350,000.00 350,000.00
Acc. Depreciation- Furniture and
Fixtures 15,000.00 70,000.00 85,000.00
Notes Payable 1,570,000.00 1,570,000.00
Efemela, Capital 823,000.00 823,000.00

Efemela, Drawing 16,000.00 16,000.00

Hotel Income 288,800.00 288,800.00

Taxes and License 25,760.00 25,760.00

Telephone and Postage 24,240.00 24,240.00

Laundry Expense 30,000.00 30,000.00

Audit and Legal Fees 25,200.00 25,200.00

Salaries and Wages 50,000.00 16,000.00 66,000.00

Utilities Expense 27,000.00 27,000.00

Doubtful Accounts Expense 4,000.00 4,000.00

Salaries and Wages Payable 16,000.00 16,000.00

Page | 9
Depreciation Expense 260,000.00 260,000.00

Interest Expense 10,000.00 10,000.00

Supplies Expense 5,000.00 5,000.00

Insurance Expense 1,600.00 1,600.00

Unearned Hotel Income 7,600.00 7,600.00

Totals PHP 2,732,800.00 PHP 2,732,800.00 PHP 304,200.00 PHP 304,200.00 PHP 3,020,400.00 PHP 3,020,400.00

Efemela Pension House Efemela Pension House Efemela Pension House

Adjusted Trial Balance Income Statement Balance Sheet
December 31, 2020 December 31, 2020 December 31, 2020

ACCOUNTS DR. CR. DR. CR. DR. CR.

PHP
Cash in Bank PHP 107,600.00 107,600.00

Petty Cash Fund 3,000.00 3,000.00

Accounts Receivable 120,000.00 120,000.00

Allow. For Doubtful Accounts 20,000.00 20,000.00

Prepaid Insurance 4,000.00 4,000.00

Prepaid Interest (Bank Loan) 30,000.00 30,000.00

Unused Supplies 11,000.00 11,000.00

Building 1,900,000.00 1,900,000.00

Acc. Depreciation-Building 210,000.00 210,000.00

Furniture and Fixtures 350,000.00 350,000.00

Acc. Depreciation- Furniture and Fixtures 85,000.00 85,000.00

Notes Payable 1,570,000.00 1,570,000.00

Efemela, Capital 823,000.00 823,000.00

Efemela, Drawing 16,000.00 16,000.00

Hotel Income 288,800.00 288,800.00

Taxes and License 25,760.00 25,760.00

10 | P a g e
Telephone and Postage 24,240.00 24,240.00

Laundry Expense 30,000.00 30,000.00

Audit and Legal Fees 25,200.00 25,200.00

Salaries and Wages 66,000.00 66,000.00

Utilities Expense 27,000.00 27,000.00

Doubtful Accounts Expense 4,000.00 4,000.00

Salaries and Wages Payable 16,000.00 16,000.00

Depreciation Expense 260,000.00 260,000.00

Interest Expense 10,000.00 10,000.00

Supplies Expense 5,000.00 5,000.00

Insurance Expense 1,600.00 1,600.00

Unearned Hotel Income 7,600.00 7,600.00
PHP
Totals PHP 3,020,400.00 PHP 3,020,400.00 PHP 478,800.00 288,800.00 PHP 2,541,600.00 PHP 2,731,600.00

NET LOSS 190,000.00 190,000.00

PHP
GRAND TOTAL PHP 478,800.00 478,800.00 PHP 2,731,600.00 PHP 2,731,600.00

11 | P a g e