Elements of Financial

Statements and Account

Titles Used
 Statement of Financial Position or Balance
Sheet Accounts
(Permanent Accounts)

Assets:
resources controlled by the
enterprise as a result of past
transactions and events and from which
future economic benefits are expected to
flow to the enterprise;
Classified into two, namely:
Current Assets and Non-Current Assets
 CURRENT ASSETS

Cash- account title to describe money, either in

paper or in coins and money substitutes like check,
postal money orders, bank drafts and treasury
warrants
Cash Equivalents- PAS No. 7, defines it as short
term, highly liquid instruments that are readily
convertible into cash and they present insignificant
risk of changes in values because in interest rates
Petty Cash Fund- account title for money placed
and set aside for petty or small expenses
 CURRENT ASSETS

Notes Receivable- promissory note that is

received by the business from the customer arising
from rendering of services, sale of merchandise,
etc.
Accounts Receivable- account title for amounts
collectible arising from services rendered to a
customer or client on credit or sale of goods to
customers on accounts
Estimated Uncollectible Accounts- an contra-
asset account; provides possible losses from
uncollected accounts
 CURRENT ASSETS

Advances to Employees- account title for

amounts collectible from employees for allowing
them to make cash advances which are deductible
against their salaries or wages
Inventories- per PAS No. 2, these are assets
which are (1) held for sale in the ordinary course of
business; (2) in the process of production for such
sale; or (3) in the form of materials to be
consumed in the production process or in the
rendering of services
 CURRENT ASSETS

Merchandise Inventory, ending- refers to

unsold merchandise at the end of the accounting
period
Supplies Inventory or Unused Supplies- an
account title for cost of stationery and other
supplies purchased for use but are left on hand
and still unused
Prepaid Expenses- account title for expenses
that are paid in advance but are not yet incurred or
have not yet expired
 NON-CURRENT ASSETS

Property and Equipment- IAS No. 16 defines it

as tangible assets which are held by an enterprise
for use in production or supply of goods and
services, for rental to others, or for administrative
purposes, and which are expected to be used
during more than one period such as
Land- account title for the site where the
building used as office or store is constructed
Building- account title for a finished
construction owned by the business where
operations and transactions took place
 NON-CURRENT ASSETS

Equipment- includes calculators, typewriters,

adding machines, computers, steel filing cabinets
and the like
Furniture & Fixtures- include chairs, tables,
counters, display cases and the like
Accumulated Depreciation asset offset or
contra-asset account ; valuation account which is
shown as a deduction from property and
equipment;
NOTE: Land is not subject to depreciation
 Statement of Financial Position or Balance
Sheet Accounts
(Permanent Accounts)

Liabilities:
financial obligations of the business
to its creditors; represents the claim of
the creditors over the assets of the
enterprise;
Classified into two, namely:
Current Liabilities and Non-Current
Liabilities
 CURRENT LIABILITIES

Accounts Payable- account title for financial

obligation of an enterprise that constitutes an oral
or verbal promise to pay
Notes Payable (short-term)- same as Accounts
Payable in nature but only the obligations is
evidenced by a promissory note
Accrued Expense- expenses incurred by the
enterprise but are not yet paid
Unearned Income- account title for an income
collected or received in advance but services has
not been rendered yet
 NON-CURRENT LIABILITIES

Notes Payable (long-term)- same nature with

that of Notes Payable (short-term) but only, this
requires payment for more than a year
Mortgage Payable- a financial obligation of the
enterprise which requires a fixed or tangible
property to be pledged as a collateral to ensure
payment
 Statement of Financial Position or Balance
Sheet Accounts
(Permanent Accounts)

Owners Equity:
residual interest in the assets of the
enterprise after deducting all its
liabilities; increased where there is
PROFIT or ADDITIONAL
CONTRIBUTIONS by the owner and
decreased when there is LOSS or
WITHDRAWAL by the owner
Robert Jaworski, Capital
R. Jaworski, Capital
Withdrawal
Robert Jaworski, Personal
Robert Jaworski, Drawing
Robert Jaworski, Withdrawal
Income & Expense Summary Temporary
account created at the end of the accounting
period where Income and Expenses are temporarily
closed to this account
 Statement of Comprehensive Income or
Income Statement Accounts
(Temporary Accounts)

Income or Revenue:
refers to the proceeds from services
rendered by a servicing firm, income
from use by other entities of the
resources of the enterprise like royalties
income, rent income, interest income,
etc.; includes proceeds from the sale of
merchandise
 INCOME or REVENUE

Sales- account title for merchandise sold either in

cash or on account
Sales Returns & Allowances- reduction from
sales account for goods that were sold but were
returned by the buyer for bad order or not
conforming with the order
Sales Discount- discounts given to buyers for
early payment of merchandise purchased on
account or payment within the discount terms
 Statement of Comprehensive Income or
Income Statement Accounts
(Temporary Accounts)

Service Income:
In general, this is the account title
used for all types of income derived from
rendering of services; sometimes
Service Revenue
 SERVICE INCOME
Professional Income- account title used by
professionals for income earned from the practice
of their profession
Rental Income- income earned on buildings,
space or other properties owned and rented out by
the business as the main line of its activity
Interest Income- income received by the
business arising from an amount of money
borrowed by a customer and usually covered by a
promissory note
Miscellaneous Income- income earned by the
business which is not the main line of its activity
and could not be clearly classified
 COST

Cost of Sales or Cost of Goods Sold- refers to

cost to produce and sell the merchandise
Freight-in refers to transportation cost incurred
in buying goods
Purchases- account title for merchandise
purchased under the periodic inventory system.
Under perpetual inventory system, the account title
is merchandise inventory
Purchases Returns & Allowances- refers to the
cost of merchandise that were purchased but later
returned to the suppliers for bad orders or does not
conform with the specifications
 Statement of Comprehensive Income or
Income Statement Accounts
(Temporary Accounts)

Expenses:
gross outflow of economic benefits
during the period arising in the course of
ordinary activities of an enterprise when
those outflow result in decrease in
equity, other than those relating to
distribution to owners
 EXPENSES

Freight Out- refers to transportation expenses of

merchandise sold
Supplies Expense- represents cost of supplies
that were used and consumed that bears specific
titles as office supplies expense, store supplies
expense, shop supplies expense, etc.
Rent Expense- amount paid or incurred for use of
property, usually premises
Repairs and Maintenance- incurred in repairing
or servicing the buildings, machineries, vehicles,
equipment, etc.
 EXPENSES

Salaries Expense- compensation given to

employees of a business
Uncollectible Accounts- for the anticipated loss
that the business may incur arising from
uncollectible accounts
Depreciation Expense- portion of the cost of
property and equipment or fixed asset that has
expired based on rational and systematic allocation
procedure
Taxes and Licenses- amount paid for business
permits, licenses, and other government dues
except the Income Tax paid
 EXPENSES

Insurance Expense- expired portion of the

insurance premium paid
Utilities Expense- for telephone, light and water
bills; also included are gasoline, lubricants and oil
Interest Expense- expense incurred from
borrowed money
Miscellaneous Expense- any amount paid as
expense which is not significant enough a warrant
classification
Gas & Oil- the account title for gasoline,
diesoline, lubricants, grease, fluids, lube oils, etc.
for use by company vehicles