AGRIB-111:PRINCIPLES OF ACCOUNTING
Buemzjenfiles-BUCAF
The Accounting Framework
Financial Statements
The income statement, cash flow statement and balance sheet are
the three (3) generally accepted financial statements used by most
businesses to determine its profitability, sustainability, stability, and liquidity
and worthiness of the enterprise.
All three (3) statements are prepared from the same accounting
data, but each statement serves its own purpose.
The Income Statement
An income statement, otherwise known as a profit and loss statement,
is a summary of a company’s profit or loss during any given period of time
such as a month, per production cycle or one (1) year.
The income statement records all revenues for a business during this
given period as well as the operating expenses for the business. This is the
financial statement which shows the profitability of the enterprise.
(Horngren et al, 2005)
The Income Statement
What is an income statement used for?
 You use an income statement to track revenues and expenses so that you
can determine the operating performance of your business over a period of
time.
 Small business owners use these statements to find out what areas of their
business are over budget or under budget.
 Income statements can also track dramatic increases in product returns or
cost of goods sold as a percentage of sales.
 They can also be used to determine income tax liability.
(Horngren et al, 2005)
The Income Statement
The terms that can be found in an income statement:
Revenues
These are the amounts earned as a result of rendering services
(service rendered) or selling goods to customers (sales revenue). The
sales figure represents the amount of revenue generated by the
business. The amount recorded here is the total sales, less any
product returns or sales discounts.
(Horngren et al, 2005)
The Income Statement
The terms that can be found in an income statement:
Production Costs
This number represents the costs directly associated with making
or acquiring your products. Costs include materials purchased from
outside suppliers used in the manufacture of your product as well as any
internal expenses directly expended in the manufacturing or production
process.
 Gross profit. Gross profit is derived by subtracting the cost of
production from total sales. It does not include any operating
expenses or income taxes.
(Horngren et al, 2005)
The Income Statement
The terms that can be found in an income statement:
Operating Expenses
These are the daily expenses incurred in the operation of your
business. In this sample, they are divided into two (2) categories:
selling, and general and administrative expenses.
Net Income before interest
This number represents the amount of income earned by an
enterprise prior to paying interest. This figure is arrived at by subtracting
total operating expenses from gross profit.
(Horngren et al, 2005)
The Income Statement
The terms that can be found in an income statement:
Interest
This is the amount of interest you owe to the creditor.
Net Income after Interest
This is the amount of money the enterprise has earned after paying
the interest.
(Horngren et al, 2005)
The Income Statement
The two (2) general classification of income statement accounts
are the Revenue Accounts and the Expense Accounts.
Revenue Accounts results to an increase in the net worth of the business or
owner’s capital
Expense Account results to a decrease in the owner’s capital or net worth of
the business
(Horngren et al, 2005)
The Income Statement
The Income Statement measures the ability of the business to
generate net income or profit for a particular accounting period.
The Income Statement Equation maintains that:
NET INCOME = REVENUES – EXPENSES
(Horngren et al, 2005)
RONTAS PORK EMBUTIDO ENTERPISE
As reflected in Schedule 11, the proposed RONTAS Pork
Embutido Enterprise is expected to generate sales of P15,600.00 per
week. In the first week, the net income will be P6,486.75. This will be
realized after deducting the cost of production of P8,267.25 and total
operating expenses of P846.00.
For the second and third week, the net income will be
P6,492.75. This will be realized after deducting the cost of production of
P8,267.25 per week and total operating expenses of P840.00 per week.
For the fourth month, the net income will be P6,492.50 . This will be
realized after deducting the cost of production of P8,267.50 per week and
total operating expenses of P840.00 per week.
The enterprise will generate net income in each operation. This
means that the enterprise will be profitable.
RONTAS PORK EMBUTIDO ENTERPISE
RHEMZ ABACA FIBER MAT ENTERPRISE
INCOME STATEMENTS
For the Period of May 29 to June 27, 2020 (First Cycle)
For the Period of August 5 to September 27, 2020 (Second Cycle)
ITEMS
SALES-ABACA FIBER MAT
LESS: COST OF PRODUCTION
Expense-Production Supplies
Expense-Transportation
Expense-Labor
Expense-Rent (Production Area)
Expense-Abaca Fiber
TOTAL COST OF PRODUCTION
GROSS PROFIT
LESS: OPERATING EXPENSE
Expense-Office Supplies
Management Fee
Expense-Marketing
TOTAL OPERATING EXPENSE
NET INCOME
FIRST CYCLE SECOND CYCLE
(P)
(P)
88,200.00
132,300.00
15,460.00
150.00
11,465.00
2,000.00
3,600.00
32,675.00
55,525.00
23,190.00
320.00
12,000.00
2,000.00
5,400.00
42,910.00
89,390.00
20.00
1,000.00
200.00
1,220.00
54,305.00
20.00
1,000.00
400.00
1,420.00
87,970.00
In the first cycle, the enterprise generated a sales of abaca fiber
mat of P88,200.00. The total cost of production was P32,675.00 which
resulted to gross profit of P55,525.00. The total operating expense was
P1,220.00 which resulted to net income of P54,305.00.
In the second cycle, the enterprise generated a sales of abaca
fiber mat of P132,300.00. The total cost of production was P42,910.00
which resulted to gross profit of P89,390.00. The total operating expense
was P1,420.00 which resulted to net income of P87,970.00.
The enterprise generated net incomes in both cycles of
operation. This indicates that the enterprise was profitable.
The Cash Flow Statement
The cash flow statement is a financial report which summarizes the
sources and uses of cash over a particular accounting period.
It reveals the sustainability performance of the business operations.
The Cash Flow Statement
The cash flow statement is prepared by using the financial
information in the Cash Account Ledger.
The Debit Entries are summarized according to the types of sources
of cash.
The Credit Entries are summarized according to types of uses of
cash.
The net balance of the cash account ledger must be the same as the
ending net cash balance indicated in the cash flow statement.
The Cash Flow Statement
The Cash Flow Statement Equation maintains that:
CASH INFLOW – CASH OUTFLOW = ENDING CASH BALANCE
Schedule 13 shows the projected cash flow statement for June. For the
month of June, in the first week, the enterprise will have a total cash inflow of
P24,553.00 and a total cash outflow P9,253.00 resulting to net cash inflow of
P15,300.00 with the ending cash balance of P15,300.00. For the second,
third and fourth week, the enterprise will have a total cash inflow of
P15,600.00 and a total cash outflow of P9,098.00 resulting to net cash inflow
of P6,502.00 with the ending cash balance of P21,802.00 for the second
week, P28,304.00 for the third week and P34,806.00 for the fourth week.
The equity invested will not be enough to sustain the total cash
requirements of the first week of operation. Payment of management fee,
labor and rent will be paid after generating sales from each week. This will be
done to sustain the operation. The succeeding operation will be sustain by the
ending cash balance. This will be enough so no need to make an additional
investment.
RHEMZ ABACA FIBER MAT ENTERPRISE
CASH FLOW STATEMENTS
For the Period of May 29 to June 27, 2020 (First Cycle)
For the Period of August 5 to September 27, 2020 (Second Cycle)
ITEMS
CASH INFLOW
RHEMZ Capital
Sales-Abaca Fiber Mat
TOTAL CASH INFLOW
CASH OUTFLOW
Expense-Production Supplies
Expense-Transportation
Expense-Labor
Expense-Rent (Production Area)
Expense-Abaca Fiber
Expense-Office Supplies
Management Fee
Expense-Marketing
TOTAL CASH OUTFLOW
NET CASH INFLOW
ADD: Beginning Cash Balance
ENDING CASH BALANCE
FIRST CYCLE SECOND CYCLE
(P)
(P)
16,235.00
88,200.00
104,435.00
0.00
132,300.00
132,300.00
15,460.00
150.00
11,465.00
2,000.00
9,000.00
20.00
1,000.00
200.00
39,295.00
65,140.00
0.00
65,140.00
23,190.00
320.00
12,000.00
2,000.00
0.00
20.00
1,000.00
400.00
38,930.00
93,370.00
65,140.00
158,510.00
In the first cycle, the enterprise had a total cash inflow of P104,435.00
which came from equity of P16,235.00 and sales of abaca fiber mat of
P88,200.00. The total cash outflow was P39,295.00 resulting to net cash
inflow and ending cash balance of P65,140.00.
In the second cycle, the enterprise had a total cash inflow of P132,300.00
which came from sales of abaca fiber mat. The total cash outflow was
P38,930.00 resulting to net cash inflow P93,370.00. The ending cash balance
was P158,510.00.
The equity invested was not enough to sustain the total cash
requirements of the enterprise in the first cycle. The enterprise was sustained
by payment of rent, labor and management fee after generating sales.
The second cycle of operation was sustained by the ending cash balance
of the first cycle. This was enough to sustain the total cash requirements.
Also, payment for rent, labor and management fee was made after
generating sales.
The Balance Sheet
 A balance sheet is a snapshot of a business’ financial condition at a
specific moment in time, usually at the close of an accounting period.
 A balance sheet comprises assets, liabilities and owners’ or stockholders’
equity.
 Assets and liabilities are divided into short and long-term obligations
including cash accounts such as checking, money market, or government
securities.
 At any given time, assets must equal liabilities plus owners’ equity.
(en.wikipedia.org.wiki)
The Balance Sheet
A balance sheet is a statement which shows the stability, liquidity and
worthiness of the enterprise.
How can you say that the enterprise is stable, liquid and worthy of
investment?
 The enterprise is stable if the equity is equal or greater than its liabilities.
 The enterprise is liquid if majority of the assets are current assets.
 The enterprise is worthy of investment if the invested capital continuously
increases at the end of every accounting period.
The Balance Sheet
The terms that can be found in a balance sheet:
Assets
Assets are subdivided into current and long-term assets to
reflect the ease of liquidating each asset. Cash, for obvious
reasons, is considered the most liquid of all assets. Long-term
assets, such as real estate or machinery are less likely to sell
overnight or have the capability of being quickly converted into a
current asset such as cash.
(Horngren et al, 2005)
The Balance Sheet
The terms that can be found in a balance sheet:
Current assets
Current assets are any assets that can be easily converted into cash
within one calendar year. Examples of current assets would be checking or
money market accounts, accounts receivable and notes receivable that are
due within one year’s time.

Cash. Money available immediately, such as in checking accounts, is
the most liquid of all short-term assets.

Accounts receivables. This is money owed to the enterprise for
purchases made by customers.
(Horngren et al, 2005)
The Balance Sheet
The terms that can be found in a balance sheet:
Fixed assets
Fixed assets include land, buildings, machinery and vehicles that are
used in connection with the business.

Land. Land is considered a fixed asset but, unlike other fixed assets, it
does not depreciate because it is considered as an asset that never
wears out.

Buildings. Buildings are categorized as fixed assets and are depreciated
over time. In our example, is a hog shed.

Total fixed assets. This is the total monetary value of all fixed assets in your
enterprise, less any accumulated depreciation.
(Horngren et al, 2005)
The Balance Sheet
The terms that can be found in a balance sheet:
Total assets. This figure represents the total monetary value of both the shortterm and long-term assets of your business.
Liabilities and Owner’s Equity. This includes all debts and obligations owed
by the enterprise to outside creditors, vendors, or banks that are payable
within one year, plus the owners’ equity.
Accounts Payable. This is comprised of all short-term obligations
owed by your business to creditors, suppliers and other vendors.
Accounts payable may include supplies and materials acquired on
credit.
(Horngren et al, 2005)
The Balance Sheet
The terms that can be found in a balance sheet:
Total Current Liabilities. This is the sum total of all current liabilities
owed to creditors that must be paid within a one-year time frame.
Long-Term Liabilities. These are any debts or obligations owed by
the business that are due more than one year out from the current date.
Owner’s equity. Sometimes this is referred to as stockholders’ equity.
Owners’ equity is made up of the initial investment in the business as well
as any retained earnings that are reinvested in the business.
(Horngren et al, 2005)
The Balance Sheet
The terms that can be found in a balance sheet:
Retained Earnings. These are earnings reinvested in the business
after the deduction of any distributions to shareholders, such as dividend
payments.
Total Liabilities and Owner’s Equity. This comprises all debts and money that
are owed to outside creditors, vendors or banks and the remaining money
that are owed to shareholders including retained earnings reinvested in the
business enterprise.
(Horngren et al, 2005)
The Balance Sheet
The Balance Sheet Equation maintains that:
TOTAL ASSETS = TOTAL LIABILITIES + TOTAL OWNER’S EQUITY
(Horngren et al, 2005)
The projected balance sheet of the project is presented in Schedule
15. The enterprise will have total assets which will also equal to total
liabilities and towner’s equity of P34,917.75 for June, P60,882.50 for July,
P86,847.25 for August and P112,812.00 for September.
The enterprise will be liquid since the majority of the assets will be in
the form of cash. The enterprise will be very stable since there will be no
liabilities. Also, the enterprise will be worthy of investment because the
equity investment will increase at the end of each week and in each month
of operation.
RHEMZ ABACA FIBER MAT ENTERPRISE
BALANCE SHEETS
As of June 27, 2020 (First Cycle)
As of September 27, 2020 (Second Cycle)
ITEMS
ASSETS
Cash
Inventory-Abaca Fiber Mat
TOTAL ASSETS
FIRST CYCLE
SECOND CYCLE
65,140.00
5,400.00
70,540.00
158,510.00
0.00
158,510.00
0.00
0.00
16,235.00
0.00
54,305.00
54,305.00
70,540.00
16,235.00
54,305.00
87,970.00
142,275.00
158,510.00
70,540.00
158,510.00
LIABILITIES AND OWNER'S EQUITY
LIABILITIES
OWNER'S EQUITY
RHEMZ Capital
Retained Income, Beginning
Add: Net Income for the Period
Retained Income, Ending
TOTAL OWNER'S EQUITY
TOTAL LIABILITIES AND OWNER'S EQUITY
In the first cycle, the enterprise had total assets which were equal to total
liabilities and owner’s equity of P70,540.00. The total assets were composed of
cash and inventory-abaca fiber mat. The total owner’s equity was comprised of
equity invested of P16,235.00 and retained income of P54,305.00.
In the second cycle, the enterprise had total assets which were equal to
total liabilities and owner’s equity of P158,510.00. The total assets were
composed of 100% cash. The total owner’s equity was comprised of equity
invested of P16,235.00 and retained income of P142,275.00.
The balance sheet indicated that the enterprise was very liquid since the
assets were majority in the form of cash in the first cycle and 100% in the form
of cash in the second cycle. The enterprise was very stable since there was no
liabilities. Also, the enterprise was worthy of investment because the equity
investment P16,235.00 increased to P70,540.00 at the end of first cycle and
further increased to P158,510.00 in the second cycle because of retained
income.
Summary
RHEMZ ABACA FIBER MAT ENTERPRISE
INCOME STATEMENTS
For the Period of May 29 to June 27, 2020 (First Cycle)
For the Period of August 5 to September 27, 2020 (Second Cycle)
ITEMS
SALES-ABACA FIBER MAT
LESS: COST OF PRODUCTION
Expense-Production Supplies
Expense-Transportation
Expense-Labor
Expense-Rent (Production Area)
Expense-Abaca Fiber
TOTAL COST OF PRODUCTION
GROSS PROFIT
LESS: OPERATING EXPENSE
Expense-Office Supplies
Management Fee
Expense-Marketing
TOTAL OPERATING EXPENSE
NET INCOME
FIRST CYCLE SECOND CYCLE
(P)
(P)
88,200.00
132,300.00
15,460.00
150.00
11,465.00
2,000.00
3,600.00
32,675.00
55,525.00
23,190.00
320.00
12,000.00
2,000.00
5,400.00
42,910.00
89,390.00
20.00
1,000.00
200.00
1,220.00
54,305.00
20.00
1,000.00
400.00
1,420.00
87,970.00
Note: Only the consumed/expended amount of abaca fiber mat is stated Income Statement
RHEMZ ABACA FIBER MAT ENTERPRISE
CASH FLOW STATEMENTS
For the Period of May 29 to June 27, 2020 (First Cycle)
For the Period of August 5 to September 27, 2020 (Second Cycle)
ITEMS
CASH INFLOW
RHEMZ Capital
Sales-Abaca Fiber Mat
TOTAL CASH INFLOW
CASH OUTFLOW
Expense-Production Supplies
Expense-Transportation
Expense-Labor
Expense-Rent (Production Area)
Expense-Abaca Fiber
Expense-Office Supplies
Management Fee
Expense-Marketing
TOTAL CASH OUTFLOW
NET CASH INFLOW
ADD: Beginning Cash Balance
ENDING CASH BALANCE
FIRST CYCLE SECOND CYCLE
(P)
(P)
16,235.00
88,200.00
104,435.00
0.00
132,300.00
132,300.00
15,460.00
150.00
11,465.00
2,000.00
9,000.00
20.00
1,000.00
200.00
39,295.00
65,140.00
0.00
65,140.00
23,190.00
320.00
12,000.00
2,000.00
0.00
20.00
1,000.00
400.00
38,930.00
93,370.00
65,140.00
158,510.00
RHEMZ ABACA FIBER MAT ENTERPRISE
BALANCE SHEETS
As of June 27, 2020 (First Cycle)
As of September 27, 2020 (Second Cycle)
ITEMS
ASSETS
Cash
Inventory-Abaca Fiber Mat
TOTAL ASSETS
FIRST CYCLE
SECOND CYCLE
65,140.00
5,400.00
70,540.00
158,510.00
0.00
158,510.00
0.00
0.00
16,235.00
0.00
54,305.00
54,305.00
70,540.00
16,235.00
54,305.00
87,970.00
142,275.00
158,510.00
70,540.00
158,510.00
LIABILITIES AND OWNER'S EQUITY
LIABILITIES
OWNER'S EQUITY
RHEMZ Capital
Retained Income, Beginning
Add: Net Income for the Period
Retained Income, Ending
TOTAL OWNER'S EQUITY
TOTAL LIABILITIES AND OWNER'S EQUITY
Due Date (May 12,2022, Hard Copy)
Laboratory Activity No. 4.1: Journalizing
Laboratory Activity No. 4.2: Posting
Due Date (May 19,2022, Online)
Laboratory Activity No. 5:
Laboratory Activity No. 6:
Preparation of Financial Statements
Financial Analysis