module 7 - financial statements

• Accounting - involves all the process necessary to record, report, and analyze the financial activities of a companu

  * recording is done by book keeper or CPA

  * language of business because iy serves as the medium of communication
• Auditor - double check the receipt from treasurer
• Financial Statement - highly essential in drugstores as they allow the managers to know if the business is surviving or progressing
• Balance Sheets

  Assets - resources owned by the company

  _property or rights on property owned by the business and upon which the business has vested equitable interest

  _balance sheet equation is assets = liabilities + owner's equity
• Current Assets - cash other assets that are expected to become cash, or sold, or consumed during the normal operating cycle of the business or one year

  Cash - includes coins, currencies, money orders, bank check, bank deposits and other cash accounts that are available for business operations

  Cash on Hand - if cash is in the office premises

  Cash in Bank - if cash is deposited in the bank
• Accounts Receivable - these are collectibles from customers, clients, and other persons for money, goods or services provided by the business on credit basis

  * It has no added interest
• Notes Receivable - issue promisory notes in exchange for goods or services received and as evidenced of their obligation to pay the business

  _ It has added interest

  _ Collectible from promisory notes
• Interest Receivable - these are added collectibles from notes receivable
• Merchandise Inventory - these are the available stockes of goods to be sold to consumers/ customers

  _ They are classified as curreny assets because these goods when sold can either become cash in cash basis and account receivable if sold in credit basis

  _ Either cash or credit card basis

  * Medicine, Beverages, and Pastries
• Prepaid Expenses - these are advance payments made for benefits or services that the business will receive or use in the future

  _ Examples are prepaid insurance, prepaid rent, prepaid supplies and interest
• Trading Securites - these are investments in stock of other companies

  _ they gain profit through dividents

  * proof of gain profts

  _ investment in companies, certificates, shares, stockhold
• Non -current assets, plant assets, or fixed assets - needed to support the operation of the business over a long period of time

  With the ff requirements:

  _ more or less permanent in nature

  _not for sale

  _ intented for use in the business

  _ have physical existence

  Land

  Building

  Equipment

  Furniture & Fixtures

  Motor Vehicle

  Allowance for depreciation - all assets except land are subject to depreciation. these assets follow a standard depreciated value.

  _ loss of value due to wears and tears

  _ except for real state
• Intangible Assets - non monetary and immaterial assets that are held for the production of goods, rental or administration to others

  _ patient

  _ copyright

  _ good will

  _ franchise

  _ trademark

  _ license
• Liabilities - claims by 3 parties on the asset value, what the business owers to others

  _ these are obligations resulting from past transactions whose settlement will cause an outflow from the resources of the business

  _ they are usually identified with payable
• Classification of Liabilities

  Current Liabilities -firm's total assets in which short term creditors have an interest or equity

  _ payment due within the regular operating cycle

  _ due to the regular or 13th cycle
• Account Payable -obligations or debts to creditors that are not evidenced by a written promise to pay
• Notes Payable - are the unpaid promissory notes given to creditors for money borrowed, mechandise, and or other assets bough on credit
• Salaries Payable - the amounts owed to employees for services they have already rendered
• Interest Payable - interest incurred in the current period but is not yet paid
• Taxes Payable - these are expenses from the current period that have yet to be paid as of the balance sheet date
• Utilities Payable - these are liabilities to pay utility companies for telephone, electricity, and water services used by business
• Loan Payable - amounts borrowed by the business from banks or financial institutions

  _ need to be paid within 1 year
• Mortgage Payable - business long term debt for which property has been given as security or collateral

  _ failure to pay on the maturity date may allow the creditor to take legal actions to force the sale of the asset
• Bonds Payable - this accounts includes long term contracts f indebtedness payable usually from 5-10 years
• Owner's Equity - assets over liabilities of the business, the single owner's total equity in the firm's assets

  _ owner's capital, net asset, net worth

  _ it represents the claim of the owner over the asset of the business once the liabilities have been deducted

  _ owners equity= asset - liabilites
• Categories of Owner's Equity

  Owner's Capital or Capital - used to record the investment or share of the owner in a business
• Drawing or Owner's Personal - account used in recording the withdrawals of capital by the owner for personal use
• Income Statement - profit and loss statement

  _ It is a financial report of business transactions in a defined period of time

  _ objective: gives information about the result of operation for a period of time

  _ it can be done at the end of the fiscal year, but it is recommended to be done on a monthly basis to determine the business ' profitability
• Accounting - 12mos. during which business transaction are recorded upon
• Calendar Period - jan 1 dec 31
• Fiscal Period - ends on any other month of the ff. year
• Revenues - inflow of cash for services / goods sold
• Expenses - consumption of assets
• Net income - inceases revenue, decreases cost expenses
• Loss Income - decreases revenue, increases cost expenses
• Forms of Income Statement Presentation

  
  

  Multiple Step Form - for merchandising business

  _ present income and expense in a series of operations of additions or subtractions before arriving at the final result
• Single Step Form - for service business

  _ arranges all income in one group, all expenses in one group and then deducts the total expenses from the total income in a single step operation of subtraction to arrive at the final result
• Peso sign - must be written on the first amount and every after ruling
• Single rule - all additions ; double rule; final results
• Balance Sheet - also called statement of financial position

  _ current financial position of the business

  _ it shows what the business owns (assets) what it owes ( liabilities) and how much is left over the owner's equity