1. 30 May 2013

2.  Statement of Comprehensive Income
(Income Statement)
 Statement of Changes in Equity
 Statement of Financial Position (Balance
Sheet)
 Statement of Cash Flows
 Notes to Financial Statements

3.  Reports the revenue and expenses for a
specific period of time
 Revenue is listed first, followed by expenses
 Investment and withdrawal transactions
between the owner and the business are NOT
included in the measurement of profit

4.  Reports the changes in owner’s equity for a
specific period of time
 Beginning owner’s equity, owner’s
investments, profit (loss) and owner’s
drawings
 Information in this statement indicates the
reasons why owner’s equity has increased or
decreased during the period.

5.  Reports the assets, liabilities and owner’s
equity at a specific date
 Total assets must equal total liabilities plus
owner’s equity
 A snapshot of the business’s financial
condition at a specific moment in time

6.  Provides information on the cash receipts
and payments for a specific period of time
 Operating activities, investing activities,
financing activities

7.  Additional information provided in a
company’s financial statements.
 Notes to the financial statements report the
details and additional information that are
left out of the main reporting documents.

8.  Accounting is an information system that
identifies, records and communicates the
economic events of an entity to interested
users.
 Accounting is often referred to as the
‘language of business’.

9.  Identifying – recognition or nonrecognition
of business activities as “accountable events”
 Business transactions
 Personal transactions
 Neither business nor personal transactions
 Measuring (Recording) – assigning of peso
amounts to the accountable economic
transactions
 Communicating – preparing financial
statements and interpreting the results

10.  Internal Users - users whose decisions affect the
internal affairs of the entity
 Marketing Managers
 Production Supervisors
 Chief Financial Officers
 Other employees
 External Users – users whose decisions concern
their financial relationship with the entity
 Investors
 Creditors (suppliers and bankers)

11.  Luca Pacioli – “father of double-entry
bookkeeping”
 Summa de arithmetica, geometria,
proportione et proportionalite (Everything
about arithmetic, geometry, proportions and
proportionality)
 Described a system to ensure that financial
information was recorded efficiently and
accurately

12.  As to ownership
 Sole Proprietorship – owned by one person
 Partnership – owned by two or more persons
associated as partners
 Corporation – a business whose capital is divided
into shares of stock
Advantages:
▪ Limited liability of stockholders
▪ Greater source of capital
▪ Longer period of existence

13.  As to nature of operations
 Service business – renders services to clients or
customers for a fee
Example:
▪ Medical clinics
▪ Accounting and auditing firms
▪ Schools
▪ Security and janitorial agencies
▪ Beauty Salons

14.  As to nature of operations
 Merchandising business – one which buys goods
from suppliers with the aim of selling these goods
at a higher price
Example:
▪ Convenience store
▪ Bookstore
▪ Office and school supplies

15.  As to nature of operations
 Manufacturing business – the manufacturer
actually produces the goods that it sells to
customers
Example:
▪ Manufacturer of consumer goods
▪ Manufacturer of computer hardware products
▪ Manufacturer of food and beverages

16.  The operating cycle of a business is the
average time that is required to go from cash
to cash in producing revenue.

17.  Service business
CASH
SERVICE
RENDERED ON
ACCOUNT
ACCOUNT
COLLECTED

18.  Merchandising business
CASH
MERCHANDISE
PURCHASED
MERCHANDISE
SOLD ON
ACCOUNT
ACCOUNT
COLLECTED

19.  Manufacturing business
CASH
RAW MATERIALS
PURCHASED
RAW MATERIALS
PROCESSED INTO
FINISHED
PRODUCTS
FINISHED GOODS
SOLD ON
ACCOUNT
ACCOUNT
COLLECTED

20. ASSETS = LIABILITIES + OWNER’S EQUITY
A = L + C

21.  Assets are resources controlled by an entity.
 They are used in carrying out such activities as
production, consumption and exchange.
 Common characteristic: the capacity to provide
future services or benefits
 Cash
 Accounts Receivable – collectible from customers on
account
 Inventory
 Supplies
 FixedAssets

22.  Liabilities are claims against assets.
 They are existing debts and obligations.
 Accounts Payable – obligations to suppliers
 Bonds Payable
 Mortgage Payable

23.  The ownership claim on total assets is known
as owner’s equity.
 It is equal to total assets minus total liabilities
 Increased by owner’s investments and
income
 Decreased owner’s drawings and expense