FABM-1 - Module 10 - Preparation of FS
FABM-1 - Module 10 - Preparation of FS
Also known as the profit and loss statement or the statement of revenue and expense, the
income statement primarily focuses on the company’s revenues and expenses during a particular
period.
It is used alongside other important financial statements such as the income statement and
statement of cash flows in conducting fundamental analysis or calculating financial ratios.
Note: Other types of financial statements will be discussed in higher accounting subjects.
Illustrative problem:
Company Name: Ah Rees Pogi Company (2020)
Notice how each account’s amount was spread to different columns. The amount of the
Expense and Revenue accounts were placed under the Income Statement Column; Net
Income/Loss, Capital Account, and Drawing Account were placed on the Changes in Equity
Column; and then the amount of the Asset Accounts, Liability, and the Final Capital Account were
placed under the Balance Sheet.
Starting off with the Income Statement, always remember that it will always include revenue
and expense accounts only. From the adjusted trial balance column, copy the amounts of accounts
related to revenue and expenses. Hence we have the result as shown above. Get the total of the
debit side and credit sides respectfully and then get the difference. If the debit side (expenses) is
higher than the credit side (income), the difference will be treated as a Net Loss and Net Income if
vice versa.
And then on the Changes in Equity column, you will be copying the amounts of accounts
related to Capital, Drawings, Net Income/Loss. Get the total of each side and the result will be
treated as the ending balance of your Capital Account that will appear on the next column for the
Balance Sheet. Take note that if the Income Statement resulted to a Net Loss, it will be a deduction
to the Capital Account and will be placed on the Debit side of the Changes in Equity Column. In this
sample, we got Net Income, which is an addition to the Capital Account, hence, it was placed on
the credit side. So the ₱406,000 amount as a result of the computation was used as the value of the
Capital Account in the Balance Sheet.
Remember that a financial statement does not have a definite format that every company
uses. It will differ depending on the user of the financial statement. In this module, you will be taught
how to prepare a financial statement following a pattern common to all financial statements.
LESS Expenses:
Salary Expense 36,000.00
Doubtful Accounts Expense 5,000.00
Supplies Expense 4,000.00
Depreciation Expense 15,000.00
NET INCOME ₱ 20,000.00
Always make sure to put a double underline (it is called a DOUBLE RULE) on your final answer.
Notice also that in a financial statement, there is no longer a separation of the debit and credit
amount but there will be indications of addition or deduction of the amounts. In this case, “LESS” was
used to indicate a deduction of the amounts of expenses from the revenue. If “LESS” was not used,
you may use “(,)” as a symbol of deduction.
LIABILITIES:
Accounts Payable ₱ 30,000.00
CAPITAL:
R. Estoque, Capital ₱ 406,000.00
TOTAL LIABILITIES and CAPITAL ₱ 436,000.00
ASSETS: LIABILITIES:
Cash ₱ 200,000.00 Accounts Payable ₱ 30,000.00
Accounts Receivable 100,000.00
Allow. for Doubtful Accts. (10,000.00)
Supplies 16,000.00
Office Equipment 160,000.00 CAPITAL:
Accumulated Depreciation (30,000.00) R. Estoque, Capital 406,000.00
TOTAL ASSETS ₱ 436,000.00 TOTAL LIABILITIES and CAPITAL ₱ 436,000.00
References:
• Banggawan, R., Asuncion, D.(2017).Fundamentals of Accountancy, Business and
Management 1. Aurora Hill, Baguio City: Real Excellence Publishing.
• Ferrer, R., Millan, Z.(2017). Fundamentals of Accountancy, Business and Management 1.
Bakakeng Sur, Baguio City: Bandolin Enterprise.
• Ong, F.(2016). Fundamentals of Accountancy, Business and Management 1. South Triangle,
Quezon City: C & E Publishing.
• Baysa, G., Lupisan, M.(2011). Accounting for Partnership and Corporation. Mandaluyong City:
Millenium books,