2 - Financial Statements

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60 Terms

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Income Statement
\- statement showing the results of the business operations for a certain period

\- shows the income received by the business and the costs and expenses incurred in realizing the income
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Balance Sheet
\- statement that gives information on the financial condition of a business as of a given date

\- shows the assets, liabilities, and the investments or equity of the owner of the business
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Statement of Financial Position
\- new name for balance sheet
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Assets
\- things owned by the business
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Liabilities
\- debts owed by the business
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Statement of Charges in Equity
\- statement that gives information on the changes or movements in Owner’s Equity during the period
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Statement of Cash Flows
\- statement that provides information on the sources and uses utilization of cash during the period
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Notes to Financial Statements
\- statements that provides narrative disclosures and other information required by the standards but were not presented in the other financial statements
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Single-Step
\- form of income statement where all expenses are deducted from the total income

\- applicable to service businesses

* Total Income 1,000,000

__Total Expense 400,000__

Net Income 250,000
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Multi-Step
\- form of income statement that shows the different sections of the statements like total sales, cost of sales, and operating expenses

\- applicable to merchandising business

* Sales 100,000,000

__Cost of Sales 400,000__

Gross Profit 600,000

__Expenses 350,000__

Net Income 250,000
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Service Income
\- earnings derived from services rendered

\- service fees, professional fees
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Sales
\- income derived from the sales of goods
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Commission Income
\- income account to designate earnings received from selling anything on a commission basis
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Other Income
\- income account to designate earnings received from sources other than the main source of income
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Taxes and Licenses
\- payments made by the business to the government for its business operations
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Salaries Expense
\- cost of services rendered by the employees or workers of the business
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Supplies Expense
\- cost of office items like bond paper, carbon paper, ball pens, and the likes
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Delivery Expense
\- cost of transportation in delivering goods or services to customers
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Bad Debts Expense
\- the portion of accounts receivable which may not be collected
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Depreciation Expense
\- the portion of the fixed asset which have been charged to income during the period

* __Cost__

Useful life
* __20,000,000__

20 years

= 1,000,000 depreciation expense annually
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Insurance Expense
\- insurance premium paid by the business
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Rent Expense
\- payment of the space occupied by the business
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Interest Expense
\- amount charged for use of money
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Advertising Expense
\- includes promotional expenses in the selling of the products
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Utilities Expense
\- payment for cost of light and water consumed by the business
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Repairs and Maintenance
\- expense for repairing or servicing the building, machinery, or equipment of the business
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Cash on Hand
\- cash and other cash items which are not deposited in the bankC
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Cash in Bank
\- money deposited in the bank
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Marketable Securities
\- refer to company securities, usually stocks that are sold for cash
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Accounts Receivable
\- claims of the business from anyone for sales made or services rendered on account
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Notes Receivable
\- claims of the business from anyone evidenced by a note
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Interest Receivable
\- is interest earned on an interest-bearing note not yet collected
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Account Form
\- form of Balance Sheet when the assets are placed at the left side and the liabilities and the owner’s equity at the right side of the statement
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Report Form
\- form of Balance Sheet where the arrangement will be from top to bottom

\- the assets are listed first, followed by the liabilities and the owner’s equity
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Land
\- land space owned by the business
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Building
\- the building/edifice constructed, owned, and intended for use by the business
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Furniture and Fixture
\- pieces of furniture used in the business

\- tables, chairs, cabinets, etc.
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Delivery Equipment
\- transportation vehicles owned by the business

\- cars, jeeps, trucks, vans, etc.
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Intangible Assets
\- assets that do not have physical existence owned by the business

\- goodwill, patents
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Tools
\- small items of equipment like pliers, hammers, screwdrivers, etc.
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Current Liabilities
\- debts of the business paid during the accounting period through current assets or the creation of another asset
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Long-term Liabilities
\- liabilities payable beyond one year
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Accounts Payable
\- current liability which refers to debts or obligations that arise from the purchase of goods/services on account
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Notes Payable
\- current liability if the note is payable within a year
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Interest Payable
\- interest due to an interest bearing note
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Accrued Interest Expense
\- synonymous term with interest payable
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Taxes Payable
\- taxes due for the government not yet paid by the business
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Salaries Payable
\- salaries not yet paid by the business to its employees/workers
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Owner’s Equity
\- refers to the vested interest of the owner in the business

* Assets - Liabilities
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Owner’s Drawing
\- shows the withdrawal of cash or other items from the business by the owner

\- deducted from the income earned by the business
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Income and Expense Summary
\- temporary account opened at the end of teh accounting period to absorb income and expense accounts before finally closing it to capital

\- relieves the capital account of hte many debits and credits
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Internal Users
\- user of financial information who are directly involved in managing the business

\- business owners, board of directors, managerial personnel
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External Users
\- user of financial information who are not directly involved in managing the business

\- investors, customers, employees, creditors, government, public
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Business Owners/Board of Directors/Managerial Employees
\- to determine the activities of the enterprise for planning, organizing, leading, and controlling
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Investors
\- external user who assess the ability of the investee to pay dividends and pay returns to investors
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Customers
\- external user who determines the ability of the enterprise to be a continuing source of supply and the ability of the company to exist over a long period of time
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Employees
\- external user who determines the stability and profitability of the employers and the ability of the employer to pay salaries and fringe benefits
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Creditors/Suppliers
\- external user who know whether to approve the loan or grant credit and the ability of the borrowers to be on time in paying the loans granted
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Government
\- external user who determines the capacity of the business to pay taxes and its tax compliance, and serves as a base for monitoring and regulating the activities of the enterprise
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Public
\- external user who determines the activities of the enterprise and its contribution to the economy in the form of number of employees, ownership of assets, prices of their products, patronage of local supplies, and patronage by customers