FABM 2

Statement of Financial Position (SFP)

also known as the balance sheet, is a financial statement that presents a company's assets, liabilities, and equity at a specific point in time.

assets, liabilities, equity

Key Elements of the SFP

assets= liabilities+ equity

equation

Assets

What the company owns that has future economic value.

Liabilities

What the company owes to other entities, such as creditors.

Equity

The owners' stake in the company, representing the residual value of assets after deducting liabilities. This is also sometimes referred to as capital or net assets.

Financial Health, Liquidity Solvency, Financial Performance

Purpose of the SFP

Statement of Financial Position (SFP)

is prepared using account titles organized under the classifications of assets, liabilities, and equity.

Statement of Comprehensive Income (SCI)

focuses on reporting a company's financial performance over a specific period, encompassing both revenues and expenses.

Statement of Comprehensive Income (SCI)

It outlines the company's profitability and includes both net income and other comprehensive income items.

Statement of Comprehensive Income (SCI)

provides a ___________ view of the company's financial health, including gains and losses, and is crucial for stakeholders to assess profitability and overall performance.

Revenues, Expenses, Gains, Losses, Net Income

Key Components of the Statement of Comprehensive Income

Losses

Decreases in equity from transactions that are peripheral or incidental to the entity's main operations.

Net Income

The difference between total revenues and total expenses.

Revenues

These are inflows of assets or reductions of liabilities from delivering or producing goods, rendering services, or other activities that constitute the entity's primary operations.

Expenses

These are outflows or using up of assets or incurrences of liabilities in the process of generating revenues.

Gains

Increases in equity from transactions that are peripheral or incidental to the entity's main operations.

Single step, Multi step

Different Presentation Methods

Single step

A simple presentation where all revenues are grouped together and all expenses are grouped together, with the difference being net income.

Multi step

A more detailed presentation that separates cost of goods sold from other operating expenses, leading to the calculation of gross profit before arriving at net income.

The Statement of Changes in Equity (SoCE)

prepared to meet the requirements of the readers to understand the transactions that caused the movements in aquity accounts.

sole proprietorship, partnership, corporation

forms of business organization

sole proprietorship

the simplest form of a business organization. This is only one owner reffered to as sole proprietor. oftentimes, the owner is also the manager.

partnership

has a legal personality separate from its owners. It is taxed separately from the partners except for those formed for the practice of the profession of the partners.

corporation

is the most complex form of business organization. A ________ is owned by many owners called stockholders or shareholders.

Financial statements

inform the readers of a company's financial position, results of operations, cash flows, and changes in equity.

financial statement analysis

is the process of evaluating risks, performance, financial health, and future prospects of a business using computational and analytical techniques with the objective of making economic decisions.

horizontal analysis, vertical analysis

two different techniques

horizontal analysis

is also known as trend analysis. It is a technique that involves the comparison of a line item over a number of period.

vertical analysis

is the preparation of common-size finantial statements. It is a technique that expresses each financial statement line item as a percentage of a base amount.

Statement of cash flow (SCF)

is the financial statement that explains the net change in cash for the year.

operating, investing, and financing

three major activities of the business