Assets = Liabilities + Equity Accounts Current: Cash Credit Card Receivables Accounts Receivable Marketable Securities Inventories Prepaid Expenses Non Current: Land & Building Machinery & Equipment China, Glass, Silver, Linen and Uniform Intangible Assets Current Accounts Payable Accrued Expenses Notes Payable Non-Current Mortgage Payable Common Stock Retained Earnings or Owners’ Capital Partners’ Capital

Account or Account Title – a device of term used in recording the increases and decreases in the financial statement elements. Accounting Equation – shows the relationship among a business firm’s assets, liabilities and equity. Double Entry Bookkeeping – a method wherein every transaction of a business enterprise is recorded in terms of increases and decreases in its assets, liabilities, and equity. For every debit, there should be a corresponding credit.

Balance Sheet

Balance sheet is: a statement showing ASSETS, LIABILITIES & STOCKHOLDERS’ EQUITY of an entity. It reports the condition of the entity – how much money and other assets it has, how many obligations it has to pay, and how much capital was used in the operation. It is presented in 2 formats : REPORT FORM and ACCOUNT FORM

Assets – liabilities = Owner’s equity THE BALANCE SHEET Assets – are business resources that have probable future economic benefits Qualifications: have future economic benefits be under management’s control result from past transactions Liabilities – are probable future sacrifices of economic benefits. require transfer of assets having future economic benefits. specify to whom the assets must be transferred Owner’s Equity – the residual interest of the owner in the assets of the business. Also known as net assets Assets – liabilities = Owner’s equity

Liabilities and Owner’s Equity ROSAL’S BUSINESS Balance Sheet December 31, 2007 Assets Current Assets : Cash P5,120 Accounts receivable 2,000 Total assets P7,120 ===== Liabilities and Owner’s Equity Liabilities: Note payable P1,000 Owner’s equity: Rosal, capital 6,120 Total liabilities and owner’s Equity P7,120 ====== Account form of the Balance Sheet

AMETHYST TRADING COMPANY Balance Sheet December 31, 2007 Assets Current assets Cash P 150,000 Accounts receivable 50,000 Merchandise inventory 200,000 Total current assets 400,000 Non-current assets Store and delivery equipment 300,000 Less: Accumulated depreciation 50,000 Total non-current assets 250,000 Total assets P 650,000 ====== Liabilities Current liabilities Accounts payable P 100,000 Wages payable 20,000 Total current liabilities 120,000 Non-current liabilities Note payable (due in 2010) 180,000 Total liabilities P 300,000 Owners’ Equity Arni dela Cruz, Capital P 175,000 Mel Santos, Capital 175,000 Total owners’ equity 350,000 Total liabilities and owners’ equity P 650,000 Report form of the Balance Sheet

Income Statement

THE INCOME STATEMENT Revenues – inflows or settlements of liabilities during a particular accounting period. Characteristics: It arises from the company’s primary earning activity and not from incidental or investment transactions It is recurring Gains – increases to equity (net assets) resulting from peripheral or incidental transactions not associated with the company’s major or central line of business. Expenses – outflows of assets or incurrences of liabilities during a particular accounting period. It must be incurred in conjunction with the company’s revenue-generating process. Losses- decrease to equity (net assets) resulting from peripheral or incidental transactions not associated with the company’s major or central line of business.

For the Year Ended December 31, 2007 ROSAL’S BUSINESS Income Statement For the Year Ended December 31, 2007 Service revenue P2,690 Rent income 990 Total Revenue P3,680 Less: Expenses Wages expense 1,630 Utilities expense 310 Miscellaneous expense 120 2,060 Net income P1,620 ======

Statement of Changes In Owners’ Equity

STATEMENT OF CHANGES IN EQUITY Investment by owners Cash or other assets exchanged for shares Service performance exchanged for shares Conversion of liabilities to equity ownership Distribution to owners Cash dividend payments or declarations Transfer of assets to owners Liquidating distributions Conversion of equity ownership to liabilities Capital maintenance adjustment – revaluation or restatement of assets and liabilities

For the Year Ended December 31, 2007 ROSAL’S BUSINESS Statement of Capital For the Year Ended December 31, 2007 Rosal, Capital, January 1, 2007 P5,000 Add: Net Income 1,620 P6,620 Less: Drawings (500) Rosal, Capital, December 31, 2007 P6,120 ======

Statement of Cash Flows

STATEMENT OF CASH FLOWS Operating cash flows – inflows and outflows of cash from: Acquiring Selling Delivery goods for sale Providing services Investing cash flows Acquiring and selling investments, property, plant, and equipment and intangibles Lending money and collecting on loans Financing cash flows Obtaining resources from owners Paying of dividends Obtaining and repaying resources from creditors on long-term credit

RARS Statement of Cash Flows For the Period January 2-31, 2007 Cash flows from operating activities Cash received from revenue transactions P 7,000 Cash paid for expenses (3,500) Cash paid for supplies purchased (2,000) Net cash provided by operating activities P 1,500 Cash flows from investing activities Cash paid for tools and equipment (20,000) Cash received from sale of excess tools 2,000 Net cash used by investing activities (18,000) Cash flows from financing activities Investment by owner 50,000 Net increase in cash for the month 33,500 Cash balance January 1, 2007 0 Cash balance January 31, 2007 P33,500 ======