12.-Q2-Complete-the-Accounting-Cycle-Part-1.pdf

Fundamentals of
Accountancy, Business &
Management 1 Q2
Complete the Accounting
Cycle(service business)
Learning Objective: The learners are able to Complete the
Accounting Cycle.

Preparation of the Financial Statement
Step 7
• Aim: To provide useful information to decision-
maker

Statement of Comprehensive Income/
Statement of Financial Performance

What are the actions reported on SCI?
Income
Expenses

Elements of the SCI (service)
1. Revenue
Service Income – is generally used to
describe revenue derived from
rendering of services.
•Rental income, Professional Fee ,
Tuition fee revenue

2. Expenses
•are transactions that decrease assets
and/or increase liabilities leading to
decrease in equity resulting from the
operations of the business and not
because of distributions to owners.

Operating Expenses
❖ salaries of office employees, supplies,
utilities (electricity, telephone and water
bills), gasoline expense, representation,
bad debts expense, depreciation and
amortization.

3. Gain/Other Income
•represent other items that meet the definition of
income and may, or may not, arise in the course of
the ordinary activities of an entity.
4. Losses
•Represent other items that meet the definition
of expenses and may, or may not, arise in the
course of the ordinary activities of the entity.
✓Uy Law Office sells for 1,000 an office printer
with a book value of 3,500, a loss of 2,500.

5. Other Items
• is the sum of money payable to the government.
Income tax
• are increases or decreases in economic benefit for
a period.
Other Comprehensive Income

MIMOTO DENTAL CLINIC
Statement of Comprehensive Income
For the year Ended December 31, 2015
Professional Fee ₱800,000
Operating Expenses
Salaries 200,000
Rent 175,000
Office Supplies 100,000
Utilities 90,000
Depreciation 20,000
Miscellaneous 15,000 600,000
Operating Income 200,000
Gain on Sale of Equipment 50,000
Income before Income Tax 250,000
Provision for Income Tax (80,000)
Net Income 170,000
Other Comprehensive Income 20,000
Net Income ₱190,000

The following accounts were taken from the adjusted trial balance of
Mariell’s Beauty Salon, a calendar-year business, as of December 31, 2020.
Account Title Debit Credit
Accounts Payable ₱54,000
Accounts Receivable ₱96,000
Accumulated Depreciation-Beauty Machine 20,000
Accumulated Depreciation-Furniture & Fixture 10,000
Accumulated Depreciation-Office Equipment 6,500
Allowance for doubtful accounts 15,000
Mariell, Capital 387,000
Mariell, Drawing 40,000
Beauty Machines 220,000
Cash 120,000
Depreciation Expense 36,500
Doubtful account Expense 15,000
Furniture and Fixtures 120,000
Interest Income 15,000

Interest Receivable 15,000
Investment Income 3,500
Investment in Trading Securities 70,000
Notes Receivable – due on two years 150,000
Office Equipment 70,000
Salon Revenue 980,000
Rent Expense 144,000
Salaries Expense 312,000
Salaries Payable 12,000
Utilities Expense 77,500
TOTALS ₱1,494,000 ₱1,494,000

Mariell’s Beauty Salon
Statement of Comprehensive Income/F Performance
As of December 31, 2020
Salon Revenue ₱ 980,000
Investment Income 3,500 ₱998,500
Less:
Doubtful Account Expense 15,000 585,000

Statement of Changes in Equity

3 major forms of Business
Organizations
a. Sole Proprietorship
b. Partnership
c. Corporation

Elements of SCE for Sole Proprietorship
The owner’s Capital account tracts the
following:
1. Beginning Capital
2. Additional Income
3. Net Income
4. Withdrawals

Statement of Changes in Owner's Equity
Mariell, Beginning Capital ₱ 378,000
Net Income 413,500
Mariell, Drawing (40,000)
Mariell, Ending Capital ₱ 751,500

Uy Law Office
Statement of Changes in Equity
For the month Ended December 31, 2021
Initial Investment (beginning balance) ₱ 500,000
Add: Net Income 175,000
Less: Jan Uy - Withdrawal 25,000
Jan Uy-Capital, Ending ₱ 650,000

Elements of SCE for Partnership
The owner’s Capital account tracts the
following:
1. Beginning Capital
2. Additional Income
3. Net Income
4. Withdrawals

ABC Partnership
Statement of Changes in Partners' Equity
For the period Ended December 31, 2020
Amonia
Amoranto
Berlium
Bersola
Cadium
Cada Total
Partner's Equity, Jan. 1, 2020 ₱1,000,000 ₱ 500,000 ₱300,000 ₱ 1,800,00
Add:
Share in Net Income 200,000 400,000 500,000 1,100,000
Additional Investment 500,000 - - 500,000
Less: Withdrawals - 200,000 50,000 250,000
Partners' Equity Dec. 31, 2020 ₱1,700,000 ₱ 700,000 ₱ 750,000 ₱ 3,150,000

Statement of Financial Position

SFP
• Also known as the balance sheet. This statement includes
the amounts of the company’s total assets, liabilities, and
owner’s equity which in totality provides the condition of
the company on a specific date.
PERMANENT ACCOUNTS
• Cash, Accounts Receivable, Accounts Payable, Loans
Payable and Capital
✓ These are called permanent accounts because the accounts are
retained permanently in the SFP until their balances become
zero. Permanent accounts are never closed.
Temporary or Nominal accounts
• accounts which are found in the Statement of Comprehensive
Income (SCI)
✓ Temporary accounts unlike permanent accounts will have
zero balances at the end of the accounting period.

CONTRA ASSETS
• are those accounts that are presented under the assets
portion of the SFP but are reductions to the company’s
assets
✓ these include Allowance for Doubtful Accounts and Accumulated
Depreciation. Allowance for Doubtful Accounts is a contra asset to
Accounts Receivable.
✓ Accumulated Depreciation is a contra asset to the company’s
Property, Plant and Equipment.

SFP format
Report Form
• is the normal format for those not familiar with accounting.
1. Assets
2. Liabilities
3. Owner’s Equity
Account Form
• easily shows that the SFP is balanced and separates assets
from liabilities and equities.
Assets Liabilities
Owner’s Equity
Left side Right side

The following accounts were taken from the adjusted
trial balance of Mariell’s Beauty Salon, a calendar-
year business, as of December 31, 2020.
Accounts Payable ₱54,000
Accounts Receivable ₱96,000
Accumulated Depreciation-Beauty Machine 20,000
Accumulated Depreciation-Furniture & Fixture 10,000
Accumulated Depreciation-Office Equipment 6,500
Allowance for doubtful accounts 15,000
Mariell, Drawing 40,000
Cash 120,000
Doubtful account Expense 15,000
Furniture and Fixtures 120,000

Statement of Financial Position
Current ASSETS
Cash ₱ 120,000
Accounts Receivable 96,000
Allowance for doubtful accounts (15,000)
Interest Receivable 15,000
Investment in Trading Securities 70,000 ₱294,000
Non-current ASSETS
Notes Receivable-due on two years 150,000
Accumulated Depreciation-Machines (20,000)
Furniture & Fixtures 120,000
Accumulated Depreciation-Furniture & Fixtures (10,000)
Office Equipment 70,000
Accumulated Depreciation-Office Equipment (6,500) 523,500
TOTAL ASSETS ₱ 817,500
Current LIABILITIES
Accounts Payable ₱ 54,000
Salaries Payable 12,000 ₱ 66,000
Non-current LIABILITIES
OWNER' EQUITY
TOTAL LIABILITIES & OWNER'S EQUTY ₱ 817,500

Statement of Comprehensive Income/F Performance
Salon Revenue ₱ 980,000
Investment Income 3,500 ₱998,500
Less:
Depreciation
Expense 36,500
Doubtful Account Expense 15,000 585,000

Statement of Cash Flows/Cash flow
Statement

Cash •is a money owned by the
company.
✓Cash account generally represent
cash receipts and cash disbursements.
cash receipts
1.Cash sales to customers
2.Collection of customer accounts
3.Loan and other borrowings
4.Owner’s contributions

Cash disbursements.
1. Business Expenses
2. Purchases of inventories and other
assets
3. Liabilities to creditors
4. Dividends to owners
Three major activities of the business
1. Operating
2. Investing
3. Financing

1. Operating activities
•are primary delivered from the main
revenue producing activities of the
business.
•Collection from customers will be
reported on the SCF on the year
when cash is received.
•Cash disbursement for expenses
are reported on SCF on the year
payments are made.

❖Positive cash flows from operations
suggests that there is excess cash
that can be used to purchase long-
term assets, pay debts or distribute
to owners.
Cash flow transactions under
operating activities:
a. Cash received from customers (cash
receipts from sale of goods and rendering
of service) (+)

b. Cash received from royalties, fees,
commissions, and other revenue (+)
c. Cash payments to suppliers of goods and
services (-)
d. Cash payments to employees (-)
e. Cash payments for other operating
expenses (income taxes, interest paid) (-)
f. Interest received (+)
g. Dividends received (+)

2. Investing Activities
• are cash used for acquisition of property,
plant, and equipment, intangible assets and
other long-term assets as well as cash
proceeds from the disposals of long-term
assets.

investing activities:
a. Cash payments to acquire property, plant, and
equipment, intangibles and other long-term assets (-)
c. Cash receipts from sale of property, plant, and
equipment (+)
d. Cash receipts from sale of intangible assets (+)
e. Cash receipts from sale of long-term assets (+)
b. Cash payments to acquire intangible assets(-)

3. Financing activities
• This section reports cash received and cash
paid to equity owners and long-term creditors.
financing activities:
a. Cash investments from owners(capital
contribution from owners) (+)
b. Cash proceeds received from issuing notes or
getting a long-term loan from a bank (+)
c. Cash distributions to owners (-)
d. Repayment of bank loan (-)

Decision Rule in Determining
Classification of Cash Transactions
1. Operating – Profit or Loss
•Items that will affect net income or profit or
loss
2. Investing – Non-current Asset
•Items affecting noncurrent assets
3. Financing – Equity and Non-current Liability
•Items affecting non-current liabilities and
equity

12.-Q2-Complete-the-Accounting-Cycle-Part-1.pdf

12.-Q2-Complete-the-Accounting-Cycle-Part-1.pdf

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