Basic Financial Statements

Financial Statements

BASIC FINANCIAL STATEMENTS

BALANCE BALANCE SHEET SHEET INCOME INCOME STATEMENT STATEMENT STATEMENT STATEMENT OF OF CHANGES CHANGES IN IN OWNER’S OWNER’S EQUITY EQUITY CASH CASH FLOW FLOW STATEMENT STATEMENT NOTES NOTES TO TO FINANCIAL FINANCIAL STATEMENTS STATEMENTS

BALANCE SHEET This This financial financial report report shows shows what what the the business business is is worth worth in in terms terms of of properties properties itit owns owns (i.e. (i.e. the the assets), assets), the the debts debts itit owes owes (i.e. (i.e. the the liabilities), liabilities), and and the the investment investment of of its its owner/s owner/s(i.e. (i.e. the the equity). equity).

It It informs informs the the users users of of the the financial financial condition condition of of the the business business at at aa given given date, date, usually usually at at the the end end of of an an accounting accountingperiod. period.

FORMS OF BALANCE SHEET ACCOUNT ACCOUNT FORM FORM Where Where Assets Assets are are listed listed on on the the left left side side of of the the report, report, and and Liabilities Liabilities and and Equity Equity on on the the right right side. side. REPORT REPORT FORM FORM Where Where Assets Assets are are presented presented on on the the top top section section of of the the statement, statement, and and the the Liabilities Liabilities and and Equity Equity on on the the bottom bottom section. section.

ACCOUNT FORM - Illustration Juan JuanCruz CruzTrading, Trading,Sole SoleProprietorship Proprietorship Balance BalanceSheet Sheet December 31, December 31,2008 2008

ASSETS ASSETS

LIABILITIES LIABILITIES&&OWNER’S OWNER’SEQUITY EQUITY

Current CurrentAssets Assets

Current CurrentLiabilities Liabilities

Cash Cash&&cash cashequivalents(1) equivalents(1)P20,000 P20,000 Investment in Investment in Trading 10,000 TradingSecurities Securities 10,000 Trade and Other Trade and Other Receivables (2) Receivables (2) 30,000 30,000 Prepaid Expenses (3) 29,000 Prepaid Expenses (3) 29,000 Total Current Assets 89,000 Total Current Assets 89,000 Non-Current Non-CurrentAssets Assets Property, Property,Plant Plant&& Equipment (4) Equipment (4) Total Non-Current Total Non-Current Assets Assets TOTAL TOTALASSETS ASSETS

Trade Tradeand andOther OtherPayables Payables Total TotalCurrent CurrentLiabilities Liabilities

(5) (5)

P75,000 P75,000 75,000 75,000

Non-Current Non-CurrentLiabilities Liabilities Notes Payable 70,000 Notes Payable––Long LongTerm Term 70,000 Mortgage Payable – Long Term 180,000 Mortgage Payable – Long Term 180,000 Total Non-Current Liabilities 250,000 Total Non-Current Liabilities 250,000 TOTAL LIABILITIES P 325,000 TOTAL LIABILITIES P 325,000

OWNER’S OWNER’SEQUITY EQUITY 791,000 Cruz Capital, 791,000 Cruz Capital,Ending Ending 791,000 791,000 TOTAL TOTALLIABILITIES LIABILITIESAND AND OWNER’S EQUITY OWNER’S EQUITY 880,000 880,000 _______ _______

PP555,000 555,000 PP 880,000 880,000 _______ _______

REPORT FORM - Illustration Juan JuanCruz CruzTrading Trading Balance BalanceSheet Sheet December 31, December 31,2008 2008 ASSETS ASSETS Current CurrentAssets Assets Cash Cashand andcash cashequivalents equivalents Investment in trading Investment in tradingsecurities securities Trade and other receivables Trade and other receivables Prepaid PrepaidExpenses Expenses Total Current Total CurrentAssets Assets

(1) (1) (2) (2) (3) (3)

P20,000 P20,000 10,000 10,000 30,000 30,000 29,000 29,000 P89,000 P89,000

Non-Current Non-CurrentAssets Assets Property, Property,Plant Plant&&Equipment Equipment Total Non-Current Total Non-CurrentAssets Assets TOTAL TOTALASSETS ASSETS

(4) (4)

P791,000 P791,000 P791,000 P791,000 P880,000 P880,000 _______ _______

REPORT FORM - Illustration (CONTINUATION) (CONTINUATION)

LIABILITIES LIABILITIES&&OWNER’S OWNER’SEQUITY EQUITY Current CurrentLiabilities Liabilities Trade and Trade andOther OtherPayables Payables Total Current Total CurrentLiabilities Liabilities

(5) (5)

PP 75,000 75,000 PP 75,000 75,000

Non-Current Non-CurrentLiabilities Liabilities Notes Payable Notes Payable––Long LongTerm Term Mortgage Payable – Long Mortgage Payable – LongTerm Term Total Non-Current Liabilities Total Non-Current Liabilities TOTAL TOTALLIABILITIES LIABILITIES

70,000 70,000 180,000 180,000 PP 250,000 250,000 PP 325,000 325,000

OWNER’S OWNER’SEQUITY EQUITY Cruz Capital, Cruz Capital,Ending Ending

PP

TOTAL TOTALLIABILITIES LIABILITIESAND ANDOWNER’S OWNER’SEQUITY EQUITY

PP

555,000 555,000

PP 880,000 880,000 _______ _______

NOTES TO FINANCIAL STATEMENTS Note Note11––Cash Cashand andcash cashequivalence equivalence Cash PP 5,000 Cashon onhand hand 5,000 Cash in bank 15,000 Cash in bank 15,000 Total cash and cash equivalence P 20,000 Total cash and cash equivalence P 20,000 Note Note22––Trade Tradeand andother otherreceivables receivables Accounts PP 20,000 Accountsreceivable receivable 20,000 Less: Allowance for doubtful accounts 1,200 Less: Allowance for doubtful accounts 1,200

Notes Notesreceivable receivable––short shortterm term Accrued Accruedinterest interestreceivable receivable Advances Advancesto toemployees employees Total Totaltrade tradeand andother otherreceivables receivables Note Note33––Prepaid Prepaidexpenses expenses Office Officesupplies supplieson onhand hand Prepaid insurance Prepaid insurance Prepaid Prepaidadvertising advertising Total Totalprepaid prepaidexpenses expenses

PP 6,000 6,000 20,000 20,000 3,000 3,000 PP29,000 29,000

PP 18,800 18,800

7,500 7,500 700 700 3,000 3,000 PP 30,000 30,000

NOTES TO FINANCIAL STATEMENTS Note Note44––Property, Property,plant plantand andequipment equipment Land Land Building PP450,000 Building 450,000 Less: Accumulated depreciation – Building 70,000 Less: Accumulated depreciation – Building 70,000 Office equipment P 110,000 Office equipment P 110,000 Less: Accumulated depreciation – Office equip. 20,000 Less: Accumulated depreciation – Office equip. 20,000 Furniture and Fixture P 25,000 Furniture and Fixture P 25,000 Less: Accumulated depreciation – F/F 4,000 Less: Accumulated depreciation – F/F 4,000 Total property, plant and equipment Total property, plant and equipment

PP 300,000 300,000 380,000 380,000 90,000 90,000 21,000 21,000 PP 791,000 791,000

Note Note55––Trade Tradeand andother otherpayables payables Accounts Accountspayable payable Mortgage PayableMortgage Payable-current current

Notes Notespayable payable––short shortterm term Interest payable Interest payable Accrued Accruedsalaries salariesexpense expense Unearned rent income Unearned rent income Total Totaltrade tradeand andother otherpayables payables

PP 20,000 20,000 20,000 20,000

18,000 18,000 2,000 2,000 5,000 5,000 10,000 10,000 PP 75,000 75,000

PARTS OF BALANCE SHEET (A)STATEMENT (A)STATEMENT HEADING HEADING Includes Includesthe thename nameof ofthe thebusiness, business,tells tellsthe thekind kindof ofstatement statementititis, is, and gives the date on which the report is prepared and gives the date on which the report is prepared

(B) (B) ASSETS, ASSETS, LIABILITIES LIABILITIES AND AND OWNER’S OWNER’S EQUITY EQUITY Items Itemsare aregrouped groupedand and each each group group of ofitems items is is identified identified by by special special captions. captions.

(C) (C) CAPTIONS CAPTIONS Classification Classification of of each each group group of of items items appearing appearing on on the the left left margin margin of the statement. of the statement.

PARTS OF BALANCE SHEET (D) (D) ACCOUNTS ACCOUNTS TITLE TITLE Individual Individualaccounts accountstitle titlein ineach eachclassification classificationare areindented. indented.

(E) (E) CURRENT CURRENT ASSETS ASSETS The The individual individual current current assets assets are are usually usually listed listed in in “order “order of of liquidity”, with the most liquid asset “CASH & CASH liquidity”, with the most liquid asset “CASH & CASH EQUIVALENCE” EQUIVALENCE”appearing appearingfirst. first.

(F) (F) PROPERTY, PROPERTY, PLANT PLANT AND AND EQUIPMENT EQUIPMENT The The plant plant assets assets are are often often listed listed in in order order of of their their expected expected useful useful life with the longest expected useful life, “LAND” appearing life with the longest expected useful life, “LAND” appearing first. first.

(G) (G) NOTES NOTES The The separate separate schedule schedule attached attached to to the the report report explaining explaining in in detail detail the aggregate amount presented on the face of FS. the aggregate amount presented on the face of FS.

PARTS OF BALANCE SHEET (H) (H) CURRENT CURRENT LIABILITES LIABILITES The The current current liabilities liabilities are are presented presented in in order order of of due due date, date, the the debt debt with earliest due date appearing first. with earliest due date appearing first.

(I) (I) CAPTIONS CAPTIONS INDICATING INDICATING TOTALS TOTALS Each Eachgroup groupof ofitems, items,(i.e. (i.e.total totalcurrent currentassets, assets,total totalproperty, property,plant plant and equipment, total current liabilities, etc.) is indented and equipment, total current liabilities, etc.) is indented further. further.

(J) (J) SINGLE SINGLE RULE RULE The Thelast lastfigure figurein ineach eachgroup groupof ofitems itemsis isunderlined. underlined.

PARTS OF BALANCE SHEET (K) (K) FINAL FINAL TOTALS TOTALS The The two two final final totals totals (i.e. (i.e. total total assets, assets, and and total total liabilities liabilities and and owner’s equity) appear as the line in their respective sections owner’s equity) appear as the line in their respective sections and andare areunderlined underlinedtwice twice(double (doubleruled) ruled)to toindicate indicateaafinal finaltotal total

(L) (L) PESO PESO SIGN SIGN Peso Pesosigns signsare areused used(a) (a)to tothe theleft leftof ofthe thefirst firstamount amountof ofaagroup groupof of amounts being combined, and (b) to the left of each final total. amounts being combined, and (b) to the left of each final total.

(M) (M) PESO PESO AMOUNT AMOUNT The The peso peso amount amount for for the the detailed detailed items items is is shown shown in in one one column; column; the total of each classification is extended into the last the total of each classification is extended into the lastcolumn column on the right side of the statement. on the right side of the statement.

ASSETS CURRENT CURRENT ASSETS ASSETS

THIS THIS includes includes cash cash and and any any other other assets assets that that are are reasonably reasonably expected to be converted into cash or consume during expected to be converted into cash or consume during one one year or one operating cycle, whichever is longer. year or one operating cycle, whichever is longer.

NONCURRENT NONCURRENT ASSETS ASSETS

ALL ALL other other assets assets which which not not are are reasonably reasonably expected expected to to be be converted into cash or consume during one year or one converted into cash or consume during one year or one operating operatingcycle, cycle,whichever whicheveris islonger. longer. ALL ALLother otherassets assetsnot notclassified classifiedas ascurrent. current.

A. CURRENT ASSETS 1. CASH AND CASH EQUIVALENTS - includes currencies, coins, cash on hand, cash in bank, petty cash fund, as well as checks that has been received from customers and other sources that have not yet been deposited in bank account. 2. INVESTMENT IN TRADING SECURITIES - Investment by owners on shares of stocks or debt securities like bonds, which are acquired for the purpose of generating profit from a SHORT-TERM period of time. - term “MARKETABLE SECURITIES” is no longer used.

A. CURRENT ASSETS 3. TRADE AND OTHER RECEIVABLES - Refers to claims arising from rendering services, sale of merchandise, and from other sources in the ordinary course of business. - It includes: Accounts receivable – amount owed to the business by charge account customers, any provision for uncollectible accounts must be deducted. Notes Receivable – Amount due in the immediately succeeding business period from persons or companies as supported by a promissory notes.

A. CURRENT ASSETS Interest receivable – amount of interest due as of the balance sheet date on notes received from customers. Advances to employee – cash advance given to employee in a form of “VALES” to be paid either in cash or to be liquidated in the form of service. 4. MERCHANDISE INVENTORY - Purchase price of the particular line of goods the business expects to sell to its customers for cash or on a charge account basis.

A. CURRENT ASSETS 5. PREPAID EXPENSES - Costs or expenses already paid but not yet consumed. - It includes: SUPPLIES UNUSED – cost value of supplies that are available for use in the business operations. PREPAID INSURANCE – unexpired insurance premiums regardless of the period of coverage. PREPAID RENT – rent paid for facilities to be used after the balance sheet date.

B. NONCURRENT ASSETS 1. PROPERTY, PLANT AND EQUIPMENT - includes those which meet the following criteria: (a) must have physical existence; (b) must be more or less permanent in nature; (c) must be used in business operations (d) must be subject to depreciation, except land - It includes: LAND – cost of land which the business uses to carry on its activities. Not subject to depreciation. BUILDING – any structure built for the purpose of conducting the business activities. Presented in the balance sheet at cost less accumulated depreciation.

B. NONCURRENT ASSETS EQUIPMENT – cost of office equipment, delivery equipment and/or machineries which are used by the business. Presented at cost less accumulated depreciation. FURNITURE AND FIXTURE – cost of furniture such as office tables and chairs, cabinets, display cases, etc which are used in the business operation. Presented at cost less accumulated depreciation. DEPRECIATION is the allocation of the cost of a property to its period of usefulness in order to recognize a decline in its value due to wear and tear, obsolescence or inadequacy. The total amount of depreciation accumulated over a number of years is called “ACCUMULATED DEPRECIATION”.

B. NONCURRENT ASSETS 2. LONG-TERM INVESTMENTS - Refers to investments in long-term bonds and other debts instruments or equity securities intended to be held for more than one year. 3. INTANGIBLE ASSETS - Refers to identifiable non-monetary assets without physical substance. - Includes Patent, Goodwill, Franchise, Copyrights, Trademarks, etc.

LIABILITIES CURRENT CURRENT LIABILITIES LIABILITIES

INCLUDES INCLUDES debts debts or or obligations obligations of of aa business business that that are are expected expected to to be liquidated by the use of assets classified as current or by be liquidated by the use of assets classified as current or by the thecreation creationof ofanother anothercurrent currentliability. liability.

NONCURRENT NONCURRENT LIABILITIES LIABILITIES

INCLUDES INCLUDESlong-term long-termdebts debtsor orobligations obligationsthat thatwill willbecome becomedue dueand and payable after one year from the balance sheet date. payable after one year from the balance sheet date.

A. CURRENT LIABILITIES 1. TRADE AND OTHER PAYABLES - Refers to a line items for the following: ACCOUNTS PAYABLE – amount owed by the business as of the balance sheet date for purchases of supplies, merchandise, and services on a charge account and due within one year from the BS date. NOTES PAYABLE – amount owed by the business supported by a promissory note which is due within one year. INTEREST PAYABLE – amount of interest owed by the business as of BS date for money borrowed on interest bearing promissory note issued. UNEARNED REVENUE – income already collected by not yet earned. TAXES PAYABLE – amount of taxes owed by the business as of the BS date to the government.

B. NONCURRENT LIABILITIES 1. NOTES PAYABLE – LONG-TERM - Refers to amount on signed formal notes due after one year from BS date. 2. BONDS PAYABLE – LONG-TERM - Debt instruments issued by the business to raise money, which are to be paid beyond one year from BS date and normally bears interests. 3. MORTGAGE PAYABLE – LONG-TERM - Debt due after one year from BS date with collateral security on properties owned by the business such as land and/or buildings.

OWNER’S EQUITY -Sometimes -Sometimes called called capital capital or or proprietorship, proprietorship, is is the the excess excess of of Assets Assets over over Liabilities Liabilities of of aa business. business. -It -It is is increased increased by by Additional Additional Investment Investment and and Net Net Income Income resulting resulting from from business business operations. operations. -It -It is is decreased decreased by by Owner’s Owner’s withdrawals withdrawals and and Net Net Loss Loss resulting resulting from from business business operations. operations.

End of Discussion