FABM 2 - Summative 1

Statement of Comprehensive Income (SCI)

a financial statement that gives information on the revenues earned and expenses incurred by the business for a certain period

profit

when revenues>expenses, the business generated …

loss

when revenues<expenses, the business incurred a …

Revenues

defined as fees earned from providing services and the amount of merchandise sold

accrual basis

• when revenues are recorded at the time when the services have been rendered/when the merchandise has been delivered and sold to the customer

• revenue is recorded when earned even when not collected

income

another term for revenue

operating revenues/income

if revenues are earned from a main activity of the business they are called:

non operating revenues/income

if revenues are earned from a secondary activity of the business they are called:

expense

• reduction in value of an asset, as it is used to generate revenue

• costs of doing business

• consumption of assets

accrual basis

when expenses are recorded when they are incurred even when not payed

natural/single-step and functional/multi-step form

two forms of presenting expense in the SCI

natural/single-step form

• based on the nature of expense

• only composed of two sections (revenue and expense)

• used in simple/small business

functional/multi-step form

• based on the function of expense

• applied to business with more complex operations

• expenses are grouped according to function, cost of sales, selling expenses, and administrative expenses, and other non operating expenses

nominal

temporary accounts containing the revenues and expenses of the business during an accounting period

accounting interim period

a time period, such as a month/quarter/semester that is covered by the report

one year

a normal accounting period covers ___ ____ of operation

• sales

• service income

• professional fees

• interest income

• rent income

• gain on sale of assets

typical revenue accounts:

• cost of sales

• salaries and wages

• insurance expense

• taxes and licenses

• doubtful accounts expense or bad debts expense

• depreciation expense

typical expense accounts:

1. single proprietorship

2. Partnership

3. Corporation

Forms of Business Organizations:

single proprietorship

• simplest form of a business organization

• owner acts as the manager, being the only owner of the business

partnership

• a business entity composed of two or more individuals who agree to contribute money, property, or losses among themselves

• two people share in the management of the business

general partners

• partners share any losses incurred and may be liable up to their personal assets if they are _______

limited partners

• partners will be responsible for unpaid liabilities of the partnership only up to the extent of their investment in the partnership

corporations

• bigger in size of resources and capital

• large entities that are engaged in diversified complex operations

owner’s equity

pertains to the residual amount after subtracting liabilities from assets

statement of changes in equity

financial statement that presents the movements of the owner’s equity account during the reporting period

drawing/withdrawal

a temporary account to record whatever asset was withdrawn from the business and at the ending of the accounting period, this account is closed to the owner’s capital account