CHAPTER 5
WORKSHEET AND FINANCIAL STATEMENTS
Worksheet – is a common tool and a summary device used by accountants to gather on a sheet
of paper all the information needed for the preparation of the financial statements, adjusting
entries, closing entries, and the post-closing trial balance.
- Simplifies the adjusting and closing process but does not substitute the
preparation of entries in the journal and posting to the ledger
Adjustments
a. Advertising Expense 140,000
Prepaid Advertising 140,000
b. Supplies Expense 180,000
Engineering Supplies 180,000
c. Depreciation Expense 160,000
Accumulated Depreciation 160,000
2
d. Unearned Survey Revenues 40,000
Survey Revenues 40,000
e. Salaries Expense 140,000
1
Salaries Payable 140,000
f. Interest Expense 60,000
Interest Payable 60,000
5
Preparing the Worksheet
1. Enter the account balances in the unadjusted trial balance columns and total the
amounts.
2. Enter the adjusting entries in the adjustments columns and total the amounts.
3. Compute each account’s adjusted balance by
combining the unadjusted trial balance and the Cross-footing – combining
adjustment figures. Enter the adjusted amounts horizontally, line by line, the
in the adjusted trial balance columns. amount of each account in the
4. Extend the asset, liability, and owner’s equity unadjusted trial balance
amounts from the adjusted trial balance columns with the
columns to the balance sheet columns. Extend corresponding amounts in the
the income and expense amounts to the adjustment columns
income statement columns. Total the (refer to step 3)
statement columns.
5. Compute profit or loss as the difference between total revenues and total expenses in
the income statement. Enter profit or loss as a balancing amount in the income
statement and in the balance sheet, and compute the final column totals
Financial Statements – set of documents that are the key product or the end product of the
accounting process
Recognition – is the process of incorporating an accounting element in the financial
statements. Involves depiction of an item in words/or by monetary value
Measurement – is the process of determining the monetary peso value that will be
assigned to an item that is recognized in the financial statements.
Income Statement or Statement of Comprehensive Income – shows the result of
operations for a given period. It consists of the revenue, cost, and expenses
With Results of Profit: With Results of Loss:
Statement of Changes in Owner’s Equity or Statement of Owner’s Equity – shows the
changes in the capital or owner’s equity as a result of additional investment or
withdrawals by the owner, plus or minus the net income or net loss for the year
With Results of Profit: With Results of Loss:
Balance Sheet or Statement of Financial Position – shows the financial
condition/position of a business as of a given period. It consists of the assets, liabilities,
and capital
Liquidity – availability of cash in the near future after taking into account of the
financial statements over the period.
Financial Flexibility – is the ability to take actions to alter the amount and timings
of cash flows so that it can respond to unexpected needs and opportunities.
Solvency – availability of cash over the longer term to meet financial
commitments as they fall due.
Two Forms
REPORT FORM
ACCOUNT FORM
With Results of Profit: With Results of Loss:
*figures are based on the worksheet (see previous page)
*The capital amount is based on the statement of changes in owner’s equity (ending amount)
Statement of Cash Flows - summarizes the cash activities of the business by classifying
cash inflows (receipts) and cash outflows (payments) into operating, investing, and
financing activities.
- Allows management to assess the business ability to generate
cash and project future cash flows
Cash Flows from Operating Activities Cash Flows from Investing Activities
o Cash Inflows o Cash Inflows
Receipts from sale of goods Receipts from sale of property and
Receipts from royalties, fees, equipment
commissions, and other revenues Receipts from sale of investments in debt or
equity securities
o Cash Outflows Receipts from collections on notes receivable
Payments to suppliers of goods
and services o Cash Outflows
Payments to employees Payments to acquire property and equipment
Payments for taxes Payments to acquire debt or equity securities
Payments for interest expense Payments to make loans to others generally
Payments for other operating in the form of notes receivable
expenses
Cash Flows from Financing Activities Operating Activities – generally involve providing
o Cash Inflows services, and producing and delivering goods
Receipts from investments by owners Investing Activities – include making and
Receipts from issuance of notes payable collecting loans; acquiring and disposing of
investments in debt or equity securities; and
o Cash Outflows obtaining and selling of property and equipment
Payments to owners in the form of and other productive assets
withdrawals Financing Activities – include obtaining resources
Payments to settle notes payable from owners and creditors
Cash flows from operating activities can be presented in either of the two methods:
Direct Method: The entity’s net cash
provided by (used in) operating Indirect Method
activities is obtained by adding the Profit P xxx
Adjustments for:
individual operating cash inflows
Non-Cash Expenses (e.g. Depreciation) xxx
and then subtracting the individual
Increases in Current Asset Accounts (xxx)
operating cash outflows Decreases in Current Liability Accounts (xxx)
Decreases in Current Asset Accounts xxx
Indirect Method: derives the net Increases in Current Liability Accounts xxx
cash provided by (used in) operating Cash Flows from Operating Activities P xxx
activities by adjusting profit for
income and expense items not
resulting from cash transactions.
Statement of Cash Flows
See next page for reference
Operating Activities:
April 6
April 13 Collected
April 20 from
April 27 rentals of
April 10 bike
1 April 16
April 22 Paid
April 29 assistant
April 17
April 18
April 25
Investing Activities:
April 3
April 5 Paid
April 8 container –
cost plus
shipping
Financing Activities:
April 2
April 30
