Escolar Documentos
Profissional Documentos
Cultura Documentos
CHAPTER 2
Review of Financial
Statement Preparation,
Analysis, and
Interpretation
Basic Financial
Statements
Learning Objective
• To know the information found in the different
financial statements
Basic Financial Statements:
The Statement of Financial Position
What are the important concepts we need to know
about the STATEMENT OF FINANCIAL POSITION?
1. REPORT FORM – This form sets forth the three major sections in a
downward sequence of assets, liabilities and equity.
b. Rendering of services
Income from rendering of services, among others,
includes professional fees, media advertising
commissions, insurance agency commission, admission
fees for artistic performance and tuition fees.
Components of expense
a. Cost of goods sold or cost of sales
b. Distribution costs or selling expenses
c. Administrative expenses
d. Other expenses
e. Income tax expense
Cost of goods sold or cost of sales
Net Purchases
Gross purchases 1,900,000
Freigh it 150,000
Total 2,050,000
Purchase returns, allowances, discount ( 50,000)
Net purchases 2,000,000
Distribution costs constitute costs which are directly
related to selling, advertising and delivery of goods to
customers.
Examples include:
a. Doubful accounts
b. Office salaries
c. Expenses of general executives
d. Expenses of general accounting and credit
department
e. Office supplies used
f. Professional fees
g. Depreciation of office building and office equipment
Other expenses are those expenses which are not
directly related to the selling and administrative function.
Examples include:
a. Loss on sale of trading investments
b. Loss on disposal of property, plant and equipment
c. Loss on sale of non current investment
d. Casualty loss – flood, earthquake, fire
Notes to Financial Statement
Note
Net sales (1) 9,000,000
Cost of goods sold (2) (5,400,000)
Gross income 3,600,000
Other income (3) 900,000
Investment income (4) 500,000
Total income 5,000,000
Expenses:
Distribution costs (5) 1,350,000
Administrative expenses (6) 1,000,000
Other expenses (7) 320,000
Finance Cost (8) 200,000 2,870,000
Income before tax 2,130,000
Income tax expense 580,000
Net Income 1,550,000
Note 1 – Net Sales
Gross sales 9,300,000
Sales return and allowances ( 100,000)
Sales discount ( 200,000)
Net Sales 9,000,000
Purchases 5,250,000
Purchases returns and allowances 150,000
Rent income 250,000
Selling expenses:
Freight out 175,000
Salesman commission 650,000
Depreciation-store equipment 125,000
Merchandise inventory, jan1 1,000,000
Merchandise inventory, Dec 31 1,500,000
Sales 7,850,000
Sales returns and allowances 140,000
Sales discount 10,000 Required:
Adminsitrative expenses: Prepare a
Officers salaries 500,000 Statement of
Depreciation- office equipment 300,000 Profit or Loss
Freight in 500,000
Income tax 250,000
with supporting
Loss on sale of equipment 50,000 Notes
Purchase discount 100,000
Dividend revenue 150,000
Loss on sale of investment 50,000
Basic Financial Statements:
The Statement of Cash Flows
What are the important concepts we need to know
about the STATEMENT OF CASH FLOWS?