ACCOUNTANCY II

LorieJane Catherine Sibanico

11-ABM
Ms. Olive Fullon

DEFINITION OF THE STATEMENT OF FINANCIAL POSITION AND

ITS ELEMENTS

The Statement of Financial Position 30-4-10 a satement financial that gives the
financial condition of a business as of a given date. The SFP is another name
for the balance sheet. It is composed of three elements assets, liabilities, and
capital.

ASSETS
 Are the things owned by the business.
 Are properties or rights on properties owned by the business. They are
items of value that belong to the business. In general, common

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 examples of assets are cash, tools, equipment, building, and land.
LIABILITIES CASH
 Are the debts by owed by the business to persons other than the
owner.
 A liability is a debt of the entity resulting from a previous transaction
such as loan, a purchase from a supplier, or an agreement to assume
the debt of another party.
CAPITAL
 Refers to the investment or equity of the owner in the business.
 Aside from assets and liabilities, capital is also reflected in the SFP.
PURCHASING
Initially, a proprietor invests capital in the formACTIVITY
COLLECTIO of funds, merchandise,
N ACTIVITY
equipment, orany other property to operate his or her business.

Current Assets Noncurrent Assets

Cash Land
Trading Accounts Securities Building
Receivables (accounts, notes) Equipment
Merchandise Inventory Furniture and Fixtures
PRODUCTS OR
Prepaid Expenses
ACCOUNTS Leasehold Rights
SERVICES
Table 1.1 Examples of Current and Noncurrent Assets
RECEIVABLE

CURRENT LIABILITIES
 Are debts or obligations normally expected to be settled in the normal
course of the company's operating cycle or within one year by using
current assets or creating other current liabilities.
NONCURRENT LIABILITIES
 Are long term debts which will be settled beyond one year.
REVENUE
Current Liabilities ACTIVITY Noncurrent Liabilities
Accounts Payable Notes Payable (due more than one
year)
Loans Payable Mortgage Payable
Utilities Payable Bond Payable
Interests Payabe
Table 1.2 Examples of Current and Noncurrent Liabilities

Figure 1.2 Normal Operating Cycle for a Service or Merchandising

Business

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 PREPARATION OF THE STATEMENT OF FINANCIAL POSITION
OF A SINGLE PROPRIETORSHIP

A. The SPF must have a heading comprising the name of business, title of the
report, and date covered by the report.
B. Its left margin is usually subdivided into two: extreme margin for major
subheadings (e.g., current assets; plant, property, and equipment; other
noncurrent assets; current liabilities, noncurrent liabilities; and owners equity)
and inner margin for specific account titles.
C. At the right margin, the extreme money column is also for major
subheadings while the inner margin is for specific accounts.
D. A double rule is placed under "total assets" and "total liabilities" and
"owners equity". As expressed in the accounting equation, assets must equal
liabilities and owners equity.

DESCRIPTION OF ACCOUNTS TITLES IN THE SFP

The following are the account titles usually used in SFP.
1. CASH - This refers to currencies, checks, money orders, bank deposits,
and other money equivalent.
2. TRADING ACCOUNT SECURITIES - These includes stocks of
companies listed in the stock exchange and are readily convertible into
cash.
3. NOTES RECEIVABLE - These includes claims of the business from
coustomers and third parties that are evidenced by formal instruments
of credit such as promissory notes.
4. ACCOUNTS RECEIVABLE - This performs to claims of the business
from customers for sales of products or rendering of services.
5. ALLOWANCE FOR BAD DEBTS - This is contra account against
accounts receivable. The net amount is called net realizable value.
6. SUPPLIES - These include various office or shop supplies that are
necessary in the operation of the business.
7. EQUIPMENT - This refers to office equipment such as computer set,
printer, air, conditioner and delivery equipment. (Vehicles)
8. FURNITURE AND FIXTURES - These pertain to tables, chairs,
cabinets, counters, and other types of furniture used in the business.
9. ACCUMULATED DEPRECIATION - This is a deduction (except for
land) from property, plant, and equipment.
10. ACCOUNTS PAYABLE - This refers to the debt of the business due to
purchases of products or services that are to be paid on a future date.
11. NOTES PAYABLE -This cover loans obtained by the business from
financial institutions or private individuals and entities supported by
promissory notes.

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 12. UTILITIES PAYABLE - These refer to amounts due to provides of
water, electricity, telephone, and other basic services.
13. MORTGAGE PAYABLE - This pertains to debt secured from a
financial institution by mortgage or lien on real state of the business or
its proprietor.
14. OWNERS DRAWING - This covers the withdrawal of cash or any
form of assets from the business.

COMPLETE SET OF FINANCIAL STATEMENTS

A Complete set of Financial Statements consists the following.
Types of Financial Statement Brief Description
1. Statement of Financial Position - Also called the balance sheet or
statement of condition.
- Provides information of the entity's
assets, liabilities, and equity.
2. Statement of Profit or Loss and - Provides information on income and
other expenses.
comprehensive income
3. Statement of changes in Equity - Provides information on the
movements in the components of
equity during the period.
4. Statements of Cash Flows - Provides information on how cash
and cash equivalents were generated
and used during period.
5. Notes - Provides narrative disclosures and
other information required by the
standards but were not presented in
the other financial statements.
6. In some cases an "additional" - This is discussed in higher
statement of financial position accounting subjects, so you don't
need to worry about this.
Information on Financial position is primarily provided by the Statement of
financial position.

Information on results on operation is provided by the other components of a

complete set of financial statements as follows:
1. Information on financial performance is provided by the statement of
profit or loss and other comprehensive income.
2. Information on changes in financial position (e.g., changes in equity
and in changes in cash flows) is provided by the statement of changes
in equity and changes in cash flows.

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ELEMENTS OF FINANCIAL STATEMENTS
The following are the elements of financial statements:
1. Assets;
2. Liabilities;
3. Equity (also called Capital, Net Assets, or Net Worth);
4. Income; and
5. Expenses

TRADE AND NONTRADE RECEIVABLES AND PAYABLES

 Some receivables and payables are presented as current even if they
are collectible or payable beyond 12 months. These are called trade
receivables and trade payables.
TRADE AND NONTRADE RECEIVABLES
 Trade receivables are receivables arising from the sale of goods or
services in the ordinary course of business. These include trade
accounts receivable. Receivables arising from other sources are
classified as nontrade receivables.

IN A CLASSIFIED STATEMENT OF FINANCIAL POSITION:

A. Trade Receivables are presented as current assets. If they are collectible
within the normal operating cycle, even if the normal operating cycle is
longer than 12 months.
B. Nontrade Receivables are presented as current assets only if they are
collectible within 12 months from the end of reporting period.

The Normal Operating Cycle of an entity is the time between the acquisition
of assets for processing and their realization in cash.

ACCOUNTING CYCLE OF A MERCHANDISING BUSINESS

Introduction
 Business are categorized into product-oriented firms, service-oriented
firms, or a mix of both. In this chapter, we will focus on product-
oriented firms and understand now a merchandising business a
company that sells products works. An overview on the accounting
process of a merchandising firm wil discussed. In the process, new
account titles will be encountered with the cost of good sold being one.
Merchandising Business
 A merchandising business (or a trading business) is a company that
buys goods and resells these goods, without any making modifications,
at a price higher than its purchase price for the purpose of making
profit. This type of business is much common in the Philippines and
can range from small-to-large-sized entities. Examples would be the

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 neighborhood sari-sari store, department stores, grocery shops, and
those selling in whole sale.
Analyzing Business Transactions
 The first step in accounting cycle of a Merchandising business involves
that analysis of business transactions. This is done to determine wether
the economic events will affect the book of an entity.
Journalizing Transactions
 Transactions having effects on the company's books journal entries,
since a merchandising business involves regular and reccuring
inventory transactions, when begin studying the different events
involving the said accounts.
Inventory Reporting
 Companies can either use (1) perpetual or (2) periodic system in
reporting their inventories. Perpetual Inventory Systems keep track all
changes in the inventory account. This is more expensive as more costs
are incurred to make sure that amounts regarding inventory are
available at every point of sale.

Periodic Inventory Systems, on the other hand, provide data on inventory

levels at some points in time. Hence, a physical count is usually at year-end to
provide figures as to how many exist at that point in time. Periodic inventory
systems are cheaper to implement.

TRANSACTION PERPETUAL PERIODIC

1. Purchased inventory Inventory 10,000 Purchases 10,000
worth 10,000 and paid in Cash 10,000 Cash 10,000
cash.

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2. Paid 500 for the delivery Cash 500 Freight-In 500
fee of the purchased Inventory 500 Cash 500
merchandise.
3. Returned defective Cash 2,000 Cash 2,000
inventory received worth Inventory 2,000 Purchase
2,000; Cash is received Return 2,000
upon return of the
merchandise.
4. Sold 4,000 worth of A/R 8,000 A/R 8,000
merchandise; The selling Sales 8,000 Sales 8,000
price of the said
merchandise is 8,000; Cost of good
sales are made on sold 4,000
account. Inventory 4,000
5. Sales worth 2,500 were Sales Returns 2,500 Sales Returns 2,500
returned by customer A/R 2,500 A/R 2,500
as wrong products have
been delivered. Inventory 1,250
Cost of good
sold 1,250
6. The remaining balance Cash 5,500 Cash 5,500
of the receivable related A/R 5,500 A/R 5,500
to the sale was collected.
7. Year-end inventory No entry. Year-end Inventory 5,750
count shows that 5,250 amounting to 5,750 can be Cost of good sold 2,750
worth of inventory is still computed from the Purchase return 2,000
within company premises movements on the
inventory account title. Purchases 10,000
Freight-In 500

*COGS is determined by
BEG inventory + Net
Purchases - Inventory

DIFFERENCES BETWEEN PERPETUAL AND PERIODIC INVENTORY SYSTEM

Perpetual Periodic
 Used for both expensive and  Used for inexpensive items
inexpensive items.
 Most costly to implement  Cheaper to implement
 Record exists in every movement  No record is kept for transactions
of inventory involving inventory movement

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  Inventory physical count is made  Inventory physical count is made at
at least one a year least one a year
 Inventory physical count is made at
year-end to establish ending
inventory amounts

Journal Page No. 1

DATE ACCOUNT TITLES AND PR DEBIT CREDIT
EXPLANATION
Apr 1 Cash 101 P39 000
Lopez,Capital 301 P39 000
to record initial investment
2 Equipment 105 P10 000
Cash 101 P10 000
to record purchase of equipment
on cash basis

Purchases 501 P15 900

Accounts Payable 201 P15 900
to record purchases on account
2/10, n/30
3 Supplies 103 P700
Cash 101 P700
to record purchase of supplies in
cash basis
4 Accounts Receivable 102 P15 200
Sales 401 P15 200
to record sales of goods terms
2/10, n/30
5 Freight out 506 P200
Cash 101 P200
to record payment of freight on
cash basis
6 Accounts Payable 201 P300
Purchase Returns and 502 P300
Allowance
to record returns on purchases
11 Accounts Payable 201 P15 600
Cash 101 P15 288
Purchase Discount 503 P312
to record payment of an account
discount taken

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 13 Cash 101 P14 896
Sales Discount 403 P304
Accounts Receivable 102 P15 200
to record receipts of cash from
an account
14 Purchases 501 P14 400
Cash 101 P14 400
to record purchases on cash basis

Journal Page No. 2

15 Salaries Expense 501 P1 500
Cash 101 P1 500
to record payment of salaries
16 Cash 101 P12 000
Notes Payable 202 P12 000
to record receipts of cash
17 Cash 101 P500
Purchase Returns Allowance 502 P500
to record refund purchases
18 Purchases 501 P14 200
Accounts Payable 201 P14 200
to record purchases on account
2/10
20 Freight in 504 P700
Cash 101 P700
to record payment of freight on
purchases
23 Cash 101 P16 400
Sales 401 P16 400
to record sales on cash
26 Purchases 501 P12 300
Cash 101 P12 300
to record purchases on cash
27 Accounts Payable 201 P9 000
Cash 101 P9 000
to record payment of an account
28 Lopez, Withdrawal 302 P2 008
Cash 101 P2 008
to record withdrawal by the
owner
29 Sales returns and Allowances 402 P900
Cash 101 P900
to record refund to cash

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 customer
30 Accounts Receivable 102 P13 700
Sales 401 P13 700
to record sales on account, N/30

/ Salaries 501 P1 500

Utilities 502 P400
Advertising 503 P1 000
Rent 504 P3 500
Cash 101 P6 400

Ledgers

Date Explanation JR Debit Credit Debit Credit

1 GJ-1 39 000 39 000
2 GJ-1 10 000 29 000
3 GJ-1 700 28 300
5 GJ-1 200 28 100
11 GJ-1 15 288 12 812
13 GJ-1 14 896 27 708
14 GJ-2 14 400 13 308
15 GJ-2 1 500 11 808
16 GJ-2 12 000 23 808
17 GJ-2 500 24 808
20 GJ-2 700 23 608
23 GJ-2 16 400 40 008
26 GJ-3 12 300 27 708
27 GJ-3 9 000 18 708
28 GJ-3 2 008 16 700
29 GJ-3 900 15 800
30 GJ-3 6 400 9 400

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101 Cash Balance

102 Accounts Receivable Balance

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Date Explanation JR Debit Credit Debit Credit
4 GJ-1 15 200 15 200
13 GJ-1 15 200 -
30 GJ-3 13 700 13 700

103 Supplies Balance

Date Explanation JR Debit Credit Debit Credit

30 25 000 25 000

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Date Explanation JR Debit Credit Debit Credit
3 GJ-1 700 700

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104 Equipment Balance

14
Date Explanation JR Debit Credit Debit Credit
2 GJ-1 10 000 10 000

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105 Merchandise Inventory Balance

403 Sales Discount Balance

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Date Expalanatio JR Debit Credit Debit Credit
n
13 GJ-1 304 304

501 Purchases Balance

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Date Explanation JR Debit Credit Debit Credit
2 GJ-1 15 900 15 900
4 GJ-2 14 400 30 300
18 GJ-2 14 200 44 500
26 GJ-3 12 300 56 800

502 Purchases Returns and Allowances Balance

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Date Explanation JR Debit Credit Debit Credit
6 GJ-1 300 300
17 GJ-2 500 500

503 Purchase Discount Balance

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Date Explanation JR Debit Credit Debit Credit
11 GJ-1 312 312

504 Freight In Balance

20
Date Explanation JR Debit Credit Debit Credit
20 GJ-1 700 700

601 Salaries Expense Balance

21
Date Explanatio JR Debit Credit Debit Credit
n
15 GJ-1 1 500 1 500
30 GJ-1 1 500 3 000

201 Accounts Payable Balance

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 Date Explanation JR Debit Credit Debit Credit
2 15 900 15 900
6 300 15 600
11 15 600 -
18 14 200 14 200
27 9 000 5 200

202 Notes Payable Balance

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 Date Explanation JR Debit Credit Debit Credit
16 GJ-2 12 000 12 000

301 Lopez, Capital Balance

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 Date Explanatio JR Debit Credit Debit Credit
n
1 GJ-2 39 000 39 000
39 000
39 000

302 Lopez Drawings Balance

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 Date Explanation JR Debit Credit Debit Credit
28 GJ-3 2 008 2 008

401 Sales Balance

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 Date Explanatio JR Debit Credit Debit Credit
n
4 GJ-1 15 200 15 200
23 GJ-3 16 400 31 600
30 GJ-3 13 700 45 300

402 Sales Returns and Allowances Balance

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 Date Explanation JR Debit Credit Debit Credit
29 GJ-3 900 900

602 Rent Expense Balance

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 Date Explanation JR Debit Credit Debit Credit
30 GJ-3 3 500 3 500

603 Utilities Balance

29
Date Explanation JR Debit Credit Debit Credit
30 GJ-3 400 400

604 Advertising Balance

30
Date Explanation JR Debit Credit Debit Credit
30 GJ-1 1 000 1 000

605 Freight out Balance

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 Date Explanation JR Debit Credit Debit Credit
5 GJ-1 200 200

Trial Balance
Dole Distributors
Trial Balance
30-4-10
Account Account Titles Debit Credit
No.
101 Cash 9 400
102 Accounts Receivables 13 700
103 Supplies 700
104 Merchandise Inventory
105 Equipment 10 000
201 Accounts Payable 5 200
202 Notes Payable 12 000
301 Lopez, Capital 39 000
302 Lopez, Drawings 2 008
401 Sales 45 300
402 Sales returns and Allowances 900
403 Sales Discount 304
501 Purchases 56 800
502 Purchase returns and Allowances 800
503 Purchase Discount 312
504 Freight In 700
601 Salaries Expense 3 000
602 Rent Expense 3 500
603 Utilities Expense 400
604 Advertising Expense 1 000
605 Freight out 200
Balance 102 612 102 612

Dole Distributors
Cost of Goods Sold
30-4-10
Beginning Inventory -
Add: Purchases 56 800
Less: Purchase return and Allowances 800

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 Purchase Discount 312 1 112
Net cost of Purchases 55 688
Add: Freight In 700
Less: Ending Inventory 25 000
Goods available for resale 31 388

Dole Distributors
Statement of Financial Performance
30-4-10
Gross sales 45 300
Less: Sales returns and Allowances 900
Sales Discount 304 1 204
Net Sales 44 096
Less: Cost of goods sold 31 388
Gross Profit 12 708
Less: Expenses
Salaries 3 000
Rent 3 500
Utilities 400
Advertising 1 000
Freight out 200 8 100
Net Profit 4 608

Dole Distributors
Of Changes in Equity
30-4-10
Lopez Capital 4/1/10 39 000
Add: Add'l Investment 0
Net Profit 4 608
Total 43 608
Less: Withdrawal 2 008
Lopez Capital 4/30/10 41 600

Financial Position
30-4-10

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Asset
Current Asset
Cash and Cash Equivalent 9 400
Trades and other Receivable 13 700
Supplies 700
Inventories 25 500
Total Current Asset 48 000

Non Current Asset

Property, Plant and Equipment 10 000
Total Non Current Asset 10 000

Total Assets 58 000

Liabilities
Current Liabilities
Accounts Payable 5 200
Notes Payable 12 000
Total Current Liabilities 17 200
Total Liabilities
Owners Equity
J Lopez Capital 4/30/2010 41 600

Total Liabilities and Owners Equity 58 800

Dole Distributors
Cash Flow
30-4-10
Cash Flow from Operaring Activities
Cash Receipt sale of goods 14 896
Cash receipt from refund 500
Cash receipt from sale 16 400 31 796
Purchase of supplies -700
Payment of Freight -200
Payment of Purchases -15 288
Purchases of goods -14 400
Payment of salaries -15 000
Payment of Freight -700
Payment of purchases -12 300
Payment of Purchases -9 000

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 Payment of refund -900
Payment of various expense -6 400 61 388

Total cash flow from operating Activities 29 592

Cash flow from Investing Activities

Total cash flow Investing Activities

Cash flow from financing activities

Cash receipt from investment 39 000

Cash receipt from loan 12 000
Withdrawal/Drawings -2008 -2008
Total cash flow from financing Activities -10 000 -10 000

Total Cash Flow 4/30/2010 9 400.00

Dole Distributors
Post Costing Trial Balance
30-4-10
Account Account Titles Debit Credit
No.
101 Cash 9 400
102 Accounts Receivables 13 700
103 Supplies 700
104 Merchandise Inventory 25 000
105 Equipment 10 000
201 Accounts Payable 5 200
202 Notes Payable 12 000
301 Lopez, Capital 41 600
Balance 58 000 58 000

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