I.

Statement of Financial Position (SFP)

a. Statement of Financial Position
b. Permanent Accounts
c. Contra Assets
d. Report Form
e. Account Form
f. Current and Non-current Assets
g. Current and Non-current Liabilities
h. Difference of the Statement of Financial Position of a Service
Company and of a Merchandising Company
i. Different Parts of Statement of Financial Position

Notes/Explanation:
The Statement of Financial Position (SFP) or “Balance Sheet” is the
company’s total assets, liabilities, and owner’s equity. While “Permanent
Accounts” are accounts that balance remain intact from one accounting period to
another. These includes cash, accounts receivable, accounts payable, loans
payable and capital. Contra assets on the other hand are presented under the
assets portion of the SFP but are reductions to the company’s assets.
The SFP has two forms, report form and account form. The report form shows
asset accounts first and then liabilities and owner’s equity accounts after, while
the account form shows assets on the left side and liabilities and owner’s equity
on the right side just like the debit and credit balances of an account.
Under the SFP, there are accounts called Group accounts. These are current
assets, current liabilities, non-current assets, and non-current liabilities. Current
assets can be easily realized (collected, sold, used up) while non-currents assets
are not. Current and non-current liabilities on the other hand are like so, current
liabilities are liabilities that fall due (paid, recognized as revenue) within one year
after year end date and non-current liabilities are not.
The main difference of the statement of financial position of a service
company and of a merchandising company lies on the inventory account.

Reflection
On a business, the most important statement that owners typically check is
the statement of financial position (SFP). It declares the businesses financial
stability, whether the business is gaining income or losing assets on a specific
point of time. This statement also shows the balance between the assets and
liabilities thus the owner’s capital or equity.
Using the SFP, business owners can look for missing assets or unaccounted
liabilities in a transaction. Without the SFP, businesses wouldn’t even know if their
business is getting bankrupt or having too many debts to pay than their total
assets. But one thing that I definitely learned from this lesson is that, a huge
amount of asset doesn’t mean that the business is gaining much profit.
Sometimes numerous assets suppresses the eyes of those who cannot see the
much more liabilities hidden behind those assets.
II. Statement of Comprehensive Income (SCI)
a. Temporary Accounts
b. Single-step and Multi-step Format of SCI
c. Difference of the Statement of Comprehensive Income of a Service
Company and of a Merchandising Company
d. Different Parts of Statement of Comprehensive Income

Notes/Explanation:
The statement of comprehensive income or the income statement is the
results of the company’s operations for a specific period of time (net income/net
loss). There is an account found under the SCI, it is the temporary accounts.
Examples of which includes, revenues, sales, utilities expense, supplies expense,
salaries expense, depreciation expense, and interest expense.
Like the SFP, the SCI has 2 forms. The “Single-step” and the “Multi-step” form.
In single-step, all revenues are listed down in one section while all expenses are
listed in another (NI=TR-TE), but in multi-step, there are several steps needed in
order to arrive at the company’s net income.
The main difference in the SCI of a service company and of a merchandising
company is how they generate their revenue. A service company uses single-step
while merchandising companies uses multi-step format.

Reflection
In small businesses, they don’t usually make financial arrangements as much
as large businesses or companies frequently do. Accounting and auditing is done
in much simpler extent that no statements are needed. Income is calculated
based on the number of cash at hand, and neglecting the depreciation of their
building and all other equipment over time. This misconception is what companies
sought to eliminate with the use of the statement of comprehensive income.
Without the SCI companies wouldn’t actually distinguish their net income or if their
business is having some net loss..
III. Statement of Changes in Equity (SCE)
a. Single/Sole Proprietorship
b. Partnership
c. Corporation
d. Initial Investments
e. Additional Investments
f. Withdrawals
g. Different Parts of Statement of Changes in Equity

Notes/Explanation
In the statement of changes in equity all changes, whether increases or
decreases to the owner’s interest on the company during the period are reported
here. This statement is prepared prior to preparation of the Statement of Financial
Position to be able to obtain the ending balance of the equity to be used in the
SFP. (Haddock, Price, & Farina, 2012).
There are 3 different forms of businesses, the single/sole proprietorship,
partnership and corporation. A single/sole proprietorship business is owned by
only one person, a partnership is owned by two or more persons and a
corporation is owned by itself by shareholders or stockholders.
The two kinds of investment, the initial investment or the very first investment
of the owner to the company and the additional investment or the increase to
owner’s equity by addition of investments by the owner. On the other hand there
is an account called withdrawals. By its definition, (encarta, 2009) it is the act of
taking money from a bank account, or the amount of money taken out.

Reflection
On the past lessons, I have learned the importance of both assets and
liabilities on company’s statements and accounts. Its effects on companies
financial standings, tells whether the company is gaining income or loss. But this
lesson thought me that even the owner’s equity signifies whether the business is
in good shape or not. Its importance covers how much of the capital is being
brought back to business, and that all the changes, whether an increase or
decrease it must be reported. Also the SCE is needed in the computation of the
SFP. In order to obtain the ending balance in the SFP, the SCE must be firstly
accomplished.
Aside from the SCE, a lot of learning was also gathered throughout the
discussion. The three forms of business, sole proprietorship, partnership and
corporation, which was first tackled in grade 11 was reviewed and briefly
discussed. The difference between the initial investment and additional
investments and the withdrawal was also defined.
IV. Cash Flow Statement (CFS)
a. Importance of CFS
b. Direct Approach
c. Indirect Approach
d. Operating Activities
e. Investing Activities
f. Financing Activities
g. Different Parts of Cash Flow Statement

Notes/Explanation
Cash flow statement provides an analysis of inflows and/or outflows of cash
from/to operating, investing and financing activities. This statement shows cash
transactions only compared to the SCI which follows the accrual principle.The
CFS has two approach, being direct or indirect. Direct approach show each major
class of gross cash receipts and gross cash payments. Indirect approach
reconcile the net income/loss of the company with the total cash flows
generated/used in operating activities by adjusting the net income/loss for effects
of non-cash transactions.
The CFS has six major parts, operating activities, investing activities,
financing activities, net change in cash or net cash flow, beginning cash balance
and ending cash balance.

Reflection
The cash is a must thing to have on hand, before any transaction could occur.
With it, the company can pay all of its liabilities, operations and debts. Knowing
how much cash is present within the company, whether it can sustain the
company’s expenses or not, this is why the CFS is made. The CFS provides the
net change in the cash balance of a company for a period. Without the CFS, the
company would not know if it can pay its upcoming liabilities or continue
operations due to some expenses that have no credit terms. Its two different
approaches also have its own importance. Direct approach provides information
regarding the actual cash transactions generated/used in operations. Indirect
approach provides information regarding non-cash transactions during the year
and shows the difference between the net income/loss of the company and the
cash generated/used in operations. Knowing the cash flow of the company reduce
unnecessary outflows and increase inflows to make sure that at the end of each
period, the company can have a net increase in cash
V. Analysis and Interpretation of Financial Statements
a. Horizontal Analysis
b. Vertical Analysis
c. Financial Ratios
d. Financial Statement Analysis
e. Ratio Analysis
f. Profitability ratio
g. Operational efficiency ratio
h. Financial Health Ratio

Notes/Explanation
Analysis of financial statement (FS) is the process of evaluating risks,
performance, financial health, and future prospects of a business by subjecting
financial statement data to computational and analytical techniques with the
objective of making economic decisions. There are three kinds of FS analysis
techniques; horizontal analysis, vertical analysis and financial ratios.
Horizontal analysis, also called trend analysis, is a technique for evaluating a
series of financial statement data over a period of time with the purpose of
determining the increase or decrease that has taken place. Vertical analysis, also
called common-size analysis, is a technique that expresses each financial
statement item as a percentage of a base amount. Ratio analysis expresses the
relationship among selected items of financial statement data. The relationship is
expressed in terms of a percentage, a rate, or a simple proportion.
In ratio analysis there are three categories; profitability, efficiency, and
financial health analysis. Profitability ratios measure the ability of the company to
generate income from the use of its assets and invested capital as well as control
its cost. Operational efficiency ratio measures the ability of the company to utilize
its assets. Financial Health Ratios look into the company’s solvency and liquidity
ratios.

Reflection
The analysis and interpretation of financial statements is vital to companies
financial aspects. With it, the company can keep an eye to things that are
happening to their finances like the company’s financial performance, evaluation
of financial risks, analysis of the company’s financial health and exploration of the
future aspects of the business. Its analysis and interpretation is subjected to
computational and analytical techniques with its objective of making economic
decisions.
As to what I have learned, the FS analysis technique has three kinds,
horizontal analysis, vertical analysis and financial ratios. Generally and physically,
the vertical and horizontal does not differ very much in case of its content but the
positioning of data and format is very distinct from each other.
VI. Accounting Books - Journal and Ledger
a. Difference of Journal and Ledger
b. Types of Journal
i. General Journal
ii. Special Journal
c. Compound Journal Entries

Notes/Explanation
Journal is a chronological record (day-by-day) of business transactions. It is
called the book of original because it is the accounting record in which financial
transactions are first recorded. The ledger refers to the accounting book in which
the accounts and their related amounts as recorded in the journal are posted to
periodically. The ledger is also called the “book of final entry” because all the
balances in the ledger are used in the preparation of financial statements.
Generally there are 2 types of journal, general journal and special journal. The
simplest type of journal is the general journal. This type of journal is unique
among journals because it may be used to record any type of business
transactions. But, in order to speed up and simplify the recording process, most
businesses make use of special journals. Each special journal is designed to
record a particular type of transaction efficiently and quickly. Examples of special
journals are cash receipts journal, cash disbursements journal, sales journal and
purchase journal.
Even journal entries have two types, the one that involves two accounts only,
one debit and one credit is called a simple journal entry, but transactions that
requires more than two accounts in journalizing is a compound journal entry.

Reflection
Unlike financial statements, journal and ledgers can be widely found on
almost every business we can see. Either big or small, everyone keeps a record
of every transaction that the business could acquire. These records can even be
seen even on Sari-sari Stores and “Carinderyas’”. Likewise, more than recording
and balancing, these journals can also be handy in auditing business transactions.
Journals and Ledgers are essential to owners and managers for they can track all
the inflows and flows of the business in the most basic way.
In large business, they keep not just one kind of journal, they create multiple
journals with different uses or transactions made. As it was written in the manual,
generally there are two (2) types of journal, the general journal and special journal.
But, some business or company’s create a number of special journals, each for
every kind of transaction they make. It is a way to simplify and lessen the
complexity of the recording process to be able to record quickly and efficiently.
VII. Basic Documents and Transactions Related to Bank Deposits
a. Types of Bank Accounts
i. Savings Account
ii. Checking or Current Account
b. Bank Deposit and Withdrawal Slips
c. Check (cheque)

Notes/Explanation
Businesses usually maintain two types of account: savings account and
checking or current account. Savings accounts are intended to provide an
incentive for the depositor to save money. Some savings accounts charge a fee if
the balance falls below a specified minimum. In checking or current account,
banks usually allow numerous withdrawals and unlimited deposits to an account.
The account holder or depositor of a checking account is normally provided at the
end of the month a bank statement showing all the deposits made, checks paid by
the bank, and the balance of the account.
A withdrawal slip and deposit slip are written orders to the bank. These slips
are used to take out money or to put in money to the depositors account. A check
is a document that orders a bank to pay a specific amount of money from a
person's account to the person in whose name the cheque has been issued

Reflection
Some of the basic documents and transactions related to bank deposits are
bank accounts, bank deposit and withdrawal slips and cheques. Likewise, bank
accounts usually have two (2) types; current account and savings account. These
two accounts are very common and created to employ ease to transactions
between the depositor and the bank company. One of the most basic difference
between the current and saving account is that the current accounts have the
allowance of numerous withdrawals and while savings account only be withdrawn
on one specific time or date.
VIII. Basic Reconciliation Statement
a. The two common causes of the discrepancy
b. The importance of Bank Reconciliations
c. Three methods of preparing bank reconciliation statement
d. Most common format of a bank reconciliation statement
e. Bank Reconciliation Process

Notes/Explanation

Bank reconciliation statement is a report which compares the bank balance as

per company's accounting records with the balance stated in the bank statement.
The two common causes of the discrepancy are; Time lags that prevent one of
the parties (company or the bank) from recording the transaction in the same
period as the other party and Errors by either party in recording transactions.
There three methods of preparing bank reconciliation statement. The first is
the adjusted method wherein the balances per bank and per book are separately
determined. Next is book to bank method wherein the book balance is adjusted to
agree with the bank balance. Lastly, the bank to book method wherein the banks
balance is adjusted to agree with book balance.
The bank reconciliation process has three steps. The first step is to adjust the
balance on the bank statement to the true, adjusted, or corrected balance. The
second step of the bank reconciliation is to adjust the balance in the company's
Cash account so that it is the true, adjusted, or corrected balance. The third step
is to compare the adjusted balances. After adjusting the balance per bank (Step 1)
and after adjusting the balance per books (Step 2), the two adjusted amounts
should be equal.

Reflection
Preparation of bank reconciliation is important because it helps in the
identification of errors in the accounting records of the company or the bank. Bank
reconciliations provide the necessary control mechanism to help protect the
valuable resource through uncovering irregularities such as unauthorized bank
withdrawals. However, in order for the control process to work effectively, it is
necessary to segregate the duties of persons responsible for accounting and
authorizing of bank transactions and those responsible for preparing and
monitoring bank reconciliation statements.
IX. Accounting Practice Set
a. Different kinds of business forms
i. Internal business forms
ii. External business forms
b. Accounting Books

Notes/Explanation
In general, there are two different kinds of business forms. First are the
internal business forms, forms used only within the business. These includes
purchase requests and check vouchers Second are external business forms,
forms used by both buyer and seller, which includes purchase order, delivery
receipts, purchase /sales invoice and official receipts.
Accounting books consists of cash disbursement books, cash receipts books,
sales journals and purchases journals.

Reflection
For Accountancy, Business and Management Students like us, completing a
whole accounting practice set is already an excellent achievement for us. To be
able to perform effectively from the journalizing, balancing of T-accounts, unto
creating ledgers and different financial statements is a great experience. It is a
way to test and practice all that we have learned in the subject from grades 11
unto 12.
It is by the use of financial analysis techniques in order to evaluate the
company’s operations. However I have learned that taking precautionary
measures in using financial analysis techniques is also essential. For a horizontal
analysis maybe performed only if the accounting practice set provided data for
prior accounting periods. Also, if the data is less than one year, the ratios
computed may be problematic and may require adjustments that are beyond the
scope of senior high-school accounting (Haddock, Price, & Farina, 2012).
X. Income and Business Taxation
a. Principles of Taxation
b. List of sources of gross income
c. Compensation Income
d. Business Income

Notes/Explanation

Taxation is the process by which the government collects revenue in order to

pay for its expenses. Income tax is defined as the tax on the net income or the
entire income realized in one taxable year. The National Internal Revenue Code
of 1997 is the governing tax law in the Philippines. Some of the sources of gross
income are pensions, prize winnings, dividends, rents, royalties, annuities,
interests, business or trade exercises, salaries, fees, wages and commissions. An
individual may be generating income from compensation (as an employee) and
business (for part time services or consultation services). Also, an individual may
also be generating solely business income if his or her business is legally
organized as a sole proprietorship or a general professional partnership. In such
cases that business income is part of an individual tax payer’s income, the tax
rate is based on the individual’s progressive income tax rate.
Employed individuals that earn compensation income pay their income taxes
monthly. Employers withhold the income tax of their employees from their monthly
gross income and remit these sums to the BIR. Philippine individual income tax is
progressive. The tax rate increases as the tax base increases which means that
tax payers with more capacity to pay will pay more taxes.
Businesses may settle their income tax liabilities and submit their income tax
returns (tax form) to the government three months and fifteen days from the close
of the year. For a business that follows a calendar year, the date of settlement is
April 15. Two approaches for the computation of income tax for the business:
Itemized deduction or Optional standard deduction scheme.

Reflection
Every business or company in the world pays tax. Even small business gives
taxes, sari-sari stores gives tax, rolling stores gives tax, online business gives
taxes, and everybody gives taxes. Even consumers pay taxes. Normal citizens
give taxes. By the time anyone buys goods or acquire services tax is one of the
things they pay for.
But of course, for every rule there must be an exemption. For large
companies, they create foundations, or donated money to public schools or
organizations to acquire incentives and somehow lessen their taxes and in the
most wanted situation, tax exemption.
These lessons have taught me why and how income and business taxation
converge. It gave me an idea of how much tax do individuals and companies
share to the government, how the government take and use taxes to raise funds
to the country in order to continue its operations, and how the computation of
taxes takes place.