Chapter 2

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Learning Objectives

1. Define and identify the basic elements of accounting-assets, liabilities, and owner’s equity.

2. Determine the net income through operation

3. Define and identify revenue, expense, net income, and net loss 4. Define and know the components of financial statements 5. Prepare properly classified financial statements

Types of Financial Statements

1. Balance Sheet- shows the financial condition/position of a business as of a given period. It consists of the Assets, Liabilities, and Capital.

2. Income Statement- shows the result of operations for a given period. It consists of the Revenue, Cost, and Expenses.

3. Owner’s Equity Statement- shows the changes in the Capital or Owner’s Equity as a result of additional investment or withdrawals by the owner, plus or minus the net income or net loss for the year.

4. Cash Flow Statement- summarizes the cash receipts and cash disbursements for the accounting period ( to be fully discussed in higher accounting).

Typical Account Titles Used Balance Sheet

Assets- these are economic resources owned by the business expected for future gain. They are property and rights of value owned by the business.

Liabilities- these include debts, obligations to pay, and claims of the creditors on the assets of the business.

Owner’s Equity or Capital- this includes the interest of the owners on the business; claims of the owners on the assets of the business; and the investment of the owner plus or minus the results of operations. Owner’s equity or capital comes from two main sources- investment of owner’s and earnings of the business.

The Fundamental Accounting Equation

Assets= Liabilities + Owner’s Equity Illustration:

1. Assets = Liabilities + Owner’s Equity P? = P 40,000 + P 60,000 Answer: P 100,000

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FINANCIAL STATEMENTS FOR A SERVICE BUSINESS AND THE FUNDAMENTAL ACCOUNTING EQUATION

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Simply add liabilities of P 40,000 and owner’s equity of P 60,000 to get assets of P 100,000.

2. Assets = Liabilities +Owner’s Equity P 150,000 = P? + P 70,000 Answer: P 80,000

Simply deduct owner’s equity of P70,000 from the assets of P150,000 to get liabilities of P80,000.

3. Assets = Liabilities + Owner’s Equity P200,000 = P 110,000 + P?

Answer: P90,000

Simply deduct liabilities of P110,000 from the assets of P200,000 to get owner’s equity P90,000.

DEBITS AND CREDITS- THE DOUBLE-ENTRY SYSTEM

Accounting is based on a double-entry system which means that the dual effects of a business transaction is recorded. A debit side entry must have a corresponding credit side entry. For every transaction, there must be one or more accounts debited and one or more accounts credited. Each transaction affects at least two accounts. The total debits for a transaction must always equal the total credits.

An account is debited when an amount is entered on the left side of the account and credited when an amount is entered on the right side. The abbreviations for debit and credit are Dr. and Cr., respectively.

The account type determines how increases or decreases in it are recorded. Increases in assets are recorded as debits (on the left side of the account) while decreases in assets are recorded as credits (on the right side). Conversely, increase in liabilities and owner’s equity are recorded by credits and decreases are entered as debits.

The rules of debit and credit for income and expense accounts are based on the relationship of theses accounts to owner’s equity. Income increase owner’s equity and expense

decreases owner’s equity. Hence, increase in income are recorded as credits and decreases as debits. Increases in expenses are recorded as debits and decreases as credits. These are the rules of debit and credit.

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The following summarizes the rules:

Balance Sheet Accounts

Assets Liabilities and Owner’s Equity

Debit Credit Debit Credit

(+) (-) (-) (+)

Increases Decreases Decreases Increases

Income Statement Accounts

Debit for Credit for

decreases in owner’s equity increases in owner’s equity

Expenses Income

Debit Credit Debit Credit

(+) (-) (-) (+)

Increases Decreases Decreases Increases

TYPES AND EFFECTS OF TRANSACTIONS

1. Increase in Assets = Increase in Liabilities a) Purchase of equipment on account

Dr Machinery and Equipment xxxx

Cr Accounts Payable xxxx

b) Advance payment received for services to be rendered next year

Dr Cash xxxx

Cr Unearned Income xxxx

2. Increase in Assets = Increase in Owner’s Equity a) Cash contribution of an owner or of a partner

Dr Cash xxxx

Cr A, Capital xxxx

b) Property contribution an owner or of a partner Dr Property and Equipment xxxx

Cr A, Capital xxxx

3. Increase in one Asset = Decrease in another Asset a) Cash purchase of company equipment

Dr Property and Equipment xxxx

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4. Decrease in Assets = Decrease in Liabilities a) Payment of accounts payable

Dr Accounts Payable xxxx

Cr Cash xxxx

5. Decrease in Assets = Decrease in Owner’s Equity a) Capital drawings

Dr A, Capital xxxx

Cr Cash xxxx

6. Increase in Liabilities = Decrease in Owner’s Equity a) Dividends payable

Dr Retained Earnings xxxx

Cr Dividends Payable xxxx

7. Increase in Owner’s Equity = Decrease in Liabilities a) Capitalization of dividends payable

Dr Dividends Payable xxxx

Cr A, Capital xxxx

8. Increase in one Liability = Decrease in another Liability a) From long term liability to short term liability

(reclassification based on due dates of liabilities)

9. Increase in one Owner’s Equity = Decrease in another Owner’s Equity b) Capitalization of net income

Dr Net Income xxxx

Cr A, Capital xxxx

Assets

Classification of Assets 1. Current Assets

Improvements to International Accounting Standards 1 (December 2003) classifies assets as current assets when it is:

a) Expected to be realized in, or is intended for sale or consumption in, the entity’s normal operating cycle;

b) Held primarily for the purpose of being traded;

c) Expected to be realized within twelve months of the balance sheet date; or d) Cash or a cash equivalent unless it is restricted from being exchanged or used to

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Classification of Current Assets

Cash includes coins, currencies, checks, bank deposits, and other cash items readily available for use in the operations of the business.

Cash Equivalents are short-term investments that are readily convertible to known amounts of cash which are subject to an insignificant risk to changes in value Marketable Securities are stocks and bonds purchased by the enterprise and are to be held for only a short span of time or short duration. They are usually purchased when a business has excess cash.

Accounts Receivable is the amount collectible from the customer to whom sales have been made or services have been rendered on account or credit.

Notes Receivable is a promissory note issued by the client or the customer in exchange for services or goods received as evidence of his/her obligation to pay. Inventories represent the unsold goods at the end of the accounting period. This is applicable only to merchandising business.

Prepaid Expenses are items that will be used in the operations of the business that have been paid in advance.

Classification of Non-Current Assets

Long-Term Investments are assets held by an enterprise for the accretion of wealth through capital distribution such as interest, royalties, dividends and rentals, for capital appreciation or for other benefits to the investing enterprise such as those obtained through trading relationships. Investments are classified as long-term when they are intended to be held for an extended period of time.

Property, Plant, and Equipment are tangible assets that are held by an enterprise for use in the production or supply of goods or services, or for administrative purposes and which are expected to be used for more than one period.

Examples of Plant, Property, and Equipment

Land is a piece of lot or real estate owned by the enterprise on which a building can be constructed for business purposes.

Building is an edifice or structure used to accommodate the office, store or factory of a business enterprise in the conduct of its operations.

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Equipment includes typewriter, air-conditioner, calculator, filing cabinet, computer, electric fan, trucks, cars used by the business in its office, store or factory. Specific account titles may be used such as Office Equipment, Store Equipment, Delivery Equipment, Transportation Equipment, Machinery and Equipment.

Furniture and Fixtures includes tables, chairs, carpets, curtains, lamp and lighting fixtures, and wall decors. Specific account titles maybe used such as Office Furniture and Fixtures and Store Furniture and Fixtures.

Accumulated Depreciation is a contra-asset account representing expired cost of plant, property and equipment as a result of usage and passage of time. This is deducted from the cost of the related asset account.

Intangible Assets are identifiable, non-monetary assets without physical substance held for use in the production or supply of goods or services, for rental to others, or for administrative purposes. These include goodwill, patents, copyrights, licenses, franchises, trademarks, brand names, secret processes, subscription lists and non-competition agreements.

Liabilities

Improvements to International Accounting Standards (December 2003) classifies a liability as current liability when it is:

a) Expected to be settle in the entity’s normal operating cycle; b) Held primarily for the purpose of being traded;

c) Due to be settle within twelve months after the balance sheet date; or the entity does not have an unconditional right to defer settlement of the liability for at least twelve months after the balance sheet date.

Classification of Current Liabilities

Accounts Payable includes debts arising from purchase of an asset or acquisition of services on account.

Notes Payable includes debts arising from purchase of an asset or acquisition of services on account evidenced by a promissory note.

Loan Payable is a liability to pay the bank or other financing institution arising from funds borrowed by the business from these institutions.

Utilities Payable is an obligation to pay utility companies for services received from them. Examples of this are telephone services to PLDT, electricity to Meralco, and water services to Maynilad.

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Unearned Revenues represent obligations of the business arising from advance payments received before goods or services are provided to the customer. This will be settled when certain goods or services are delivered or rendered.

Accrued Liabilities include amounts owed to others for expenses already incurred but not yet paid. Examples of these are salaries payable, utilities payable, taxes payable, and interest payable.

Classification of Non-Current Liabilities

Non-Current Liabilities are long term liabilities or obligations which are payable for a period longer than one year. Examples of Non-Current Liabilities are as follows:

Mortgage Payable is a long-term debt of the business with security or collateral in the form of real properties. In case the business fails to pay the obligation, the creditor can foreclose or cause the mortgaged asset to be sold and the proceeds of the sale be used to settle the obligation.

Bonds Payable is s certificate of indebtedness under the seal of a corporation, specifying the terms of repayment and the rate of interest to be charged.

Owner’s Equity

Capital is an account bearing the name of the owner representing the original and additional investment of the owner of the business increased by the amount of net income earned during the year. It is decreased by the cash or other assets withdrawn by the owner as well as the net loss incurred during the year.

Drawing represents the withdrawals made by the owner of the business either in cash or other assets.

Income Summary is a temporary account used at the end of the accounting period to close income and expense accounts. The balance of this account shows the net income or net loss for the period before it is closed to the capital account.

Income Statement

Service Income includes revenues earned or generated by the business in performing services for a customer or client.

Examples: Laundry Services by a laundry shop Medical Services by a doctor Dental Services by a dentist

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Sales revenues earned as a result of sale of merchandise; for example, sale of building materials by a construction supplies firm.

Cost of Sales the cost incurred to purchase or to produce the products sold to customers during the period; also called cost of good sold.

Salaries or Wages Expense includes all payments made to employees or workers for rendering services to the company. Examples are salaries or wages, 13th month pay, cost of living allowances, and other related benefits given to them.

Utilities Expense is an expense related to the use of electricity, fuel, water, and telecommunications facilities.

Supplies Expense covers office supplies used by the business in the conduct of its daily operations.

Insurance Expense is the expired portion of premiums paid on insurance coverage such as premiums paid for health or life insurance, motor vehicles or other properties.

Depreciation Expense is the annual portion of the cost of a tangible asset such as buildings, machineries, and equipment charged as expense for the year.

Uncollectible Account Expense/Doubtful Accounts Expense/Bad Debts Expense means the amount of receivables charged as expense for the period because they are estimated to be doubtful of collection.

Interest Expense is the amount of money charged to the borrower for the use of borrowed funds.

Forms of Balance Sheet

1. Account Form follows the accounting equation where assets are listed on the left-hand column of the report with the liabilities and owner’s equity listed on the right-hand column.

2. Report Form shows in one straight column the assets, followed by the liabilities and owner’s equity.

Classification

Items in the balance sheet are classified, with assets and liabilities separated into two or more categories. Subclassification is as follows:

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2. Liabilities are either current liabilities or non-current liabilities.

Current assets are classified and presented according to liquidity with the most liquid first followed by those with lesser liquidity. Since cash is the most liquid, it is always listed first followed by other current assets according to their proximity to cash.

Liabilities are classified and presented based on their maturity. Obligations presently due for payment are listed first.

Examples of the four statement, namely 1) Balance Sheet (Report Form); 2) Balance Sheet (Account Form); 3) Income Statement; and 4) Statement of Owner’s Equity

REPORT FORM BALANCE SHEET

ABC Fresh Laundry Services Balance Sheet December 31, 2010

Current Assets Assets

Cash P450,000

Accounts Receivable 31,000

Supplies 27,000

Prepaid Insurance 37,000

Total Current Assets P545,000

Non-Current Assets

Plan, Property, and Equipment

Land P200,000

Equipment P560,000

Less: Accumulated Depreciation 67,000 493,000

Total Non-Current Assets 693,000

Total Assets P1,238,000

Liabilities

Current Liabilities

Accounts Payable P75,000

Notes Payable 190,000

Unearned Laundry Revenue 39,000

Total Current Liabilities P304,000

Owner’s Equity

A, Capital 934,000

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ACCOUNT FORM BALANCE SHEET

ABC Fresh Laundry Services Balance Sheet

December 31, 2010

Assets Liabilities

Current Assets Current Liabilities

Cash P450,000 Accounts Payable P 75,000

Accounts Receivable 31,000 Notes payable 190,000

Supplies 27,000 Unearned Laundry Revenue 39,000

Total Current Assets P545,000 Total Current Liabilities P304,000

Non-Current Assets

Plant, Property, and Equipment Owner’s Equity

Land P200,000

Equipment P560,000 A, Capital 934,000

Less: Accumulated 67,000 493,000 Depreciation

Total Non-Current Assets 693,000 _______

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ABC Fresh Laundry Services Income Statement

For Year Ended December 31, 2010

Service Revenue P312,000

Less: Operating Expenses

Salaries Expense P125,000

Depreciation Expense 13,000

Supplies Expense 10,000

Rent Expense 7,000

Insurance Expense 2,000

Total Operating Expenses 157,000

Net Income P155,000

ABC Fresh Laundry Services Statement of Owner’s Equity For Year Ended December 31, 2010

A, Capital P759,000

Add: Additional Investment P50,000

Net Income 155,000 205,000

Total P964,000

Less: Drawings 30,000

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Exercise 1

Write the letter of the correct answer on the blank A. Balance Sheet

B. Income Statement

C. Owner’s Equity Statement D. Assets

E. Liabilities F. Owner’s Equity

________1. Shows the results of operations for a given period

________2. Economic resources owned by the business expected for future gain ________3. Shows the financial condition/position of a business as of a given period ________4. Interest of the owners on the business

________5. Shows the changes in the Capital or Owner’s Equity as a result of additional investment, withdrawals, net income or net loss for the year.

________6. Debts, obligations to pay, claims of the creditors on the assets of the business

Exercise 2

Write the letter of the correct answer on the blank.

A. Cash E. Notes Receivable

B. Cash Equivalents F. Inventories C. Marketable Securities G. Prepaid Expenses D. Accounts Receivable

________1. Promissory note issued by the client for goods received.

________2. Items that will be used in the operations of the business that have been paid in advance.

________3. Stocks purchased by the business to be held for a short time ________4. Unsold goods at the end of the accounting period.

________5. Amount collectible from customer to whom sales have been made or services have been rendered on account or credit.

________6. Includes coins, currencies, checks, and bank deposits

________7. Shot-term investments readily convertible to known amounts of cash subject to an insignificant risk to changes in value

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Exercise 3

Write the letter of the correct answer on the blank.

A. Land C. Equipment F. Accumulated Depreciation B. Building E. Furniture and Fixtures G. Intangible Assets

________1. Contra-asset account representing expired cost of plant, property, and equipment as a result of usage and passage of time

________2. Lot used by the business on which a building can be constructed

________3. Non-monetary assets without physical substance held for use in the production or supply of goods, for rental to others, or for administrative purposes e.g., goodwill, patents, copyrights

________4.tables, chairs, curtains, lighting fixtures, and wall decors ________5. Edifice, structure used to house the office, store or factory

________6. Typewriter, air-conditioner, calculator, filing cabinet, computer, electric fan, trucks, cars used in business

Exercise 4

Write the letter of the correct answer on the blank

A. Accounts Payable D. Utilities Payable G. Interest Expense B. Notes Payable E. Unearned Revenues

C. Loan Payable F. Accrued Liabilities

________1. Debts arising from purchase of an asset on account evidenced by a promissory note

________2. An obligation to pay utility companies for services received from them ________3. Amounts owed to others for expenses already incurred but not yet paid ________4. Liability arising from amount of money borrowed by the business ________5. Debts arising from acquisition of services on account

________6. Obligations of the business arising from advance payments received before services are provided to the customer

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Exercise 5

A. Mortgage Payable C. Drawing

B. Bonds Payable D. Income Summary

________1. Temporary account used at the end of the accounting period to close income and expense accounts

________2. Certificate of indebtedness under the seal of a corporation

________3. Long-term debt of the business with security or collateral in the form of real properties

________4. Represents the withdrawals made by the owner of the business either in cash or other assets

Exercise 6

A. Service Income D. Rent Expenses

B. Salaries Expense E. Supplies Expense C. Utilities Expense F. Insurance Expense

________1. Amount paid for the used of space, equipment or other rentals ________2. Amount of supplies used in the conduct of daily business ________3. Revenues earned by performing services for a customer ________4. Expired portion of premiums paid on insurance coverage

________5. Payments made to employees for rendering services to the company

________6. Expenses related to the use of electricity, fuel, water, and telecommunications facilities

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Exercise 7

Find the missing amounts.

ASSETS LIABILITIES OWNER’S EQUITY

A. P4,902,400 P__________ P2,153,800 B. _________ 9,656,000 987,200 C. 1,141,000 646,000 _________ D. 8,200,000 ___________ 3,250,000 E. 25,000,000 14,600,000 _________ Exercise 8

Find the missing amounts.

ASSETS LIABILITIES OWNER’S EQUITY

A. P___________ P 3,932,100 P5,100,000 B. ____________ 2,246,000 1,777,200 C. 1,141,000 __________ 646,000 D. 6,500,000 3,250,000 _________ E. 10,000,000 __________ 4,900,000 Exercise 9

For each of the following, write I if it is an income statement item and B if it is a balance sheet item.

_______1. Interest Expense _______9. Equipment _______2. Interest Receivable _______10. Building

_______3. Mortgage Payable _______11. Salaries Expense _______4. Interest Income _______12. Accounts Payable _______5. Miscellaneous Expense _______13. Prepaid Rent _______6. Drawing Account _______14. Insurance Expense _______7. Supplies Expense _______15. Cash

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Exercise 10

Below are the classifications commonly found on a classified balance sheet. On the blank provided before each number, write the classification to where it belongs.

A. Current Assets

B. Plant, Property and Equipment C. Current Liabilities

D. Non-Current Liabilities E. Owner’s Equity

F. Not a Balance Sheet Item

________1. Land _______9. Accounts Payable

________2. Rent Expense _______10. Notes Payable ________3. L, Capital _______11. Mortgage Payable ________4. Accounts Receivable _______12. Taxes Payable ________5. Unearned Rent _______13. Truck

________6. Supplies Used _______14. Equipment

________7. Supplies on Hand _______15. Commissions Earned ________8. Prepaid Insurance

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Exercise 11

Presented below are the income statement accounts for Willie’s Auto Repair Shop for the year ended December 31, 2010. Prepare a Single Step Income Statement for Willie’s Auto Repair Shop for year ended December 31, 2010 by completing the Income Statement.

Supplies Expense P 400

Bad Debts Expense 4,900 Taxes & Licenses 7,250 Depreciation Expense 9,750 Insurance Expense 10,000 Salaries Expense 45,000 Utilities Expense 46,750 Rent Expense 55,000 Repair Income 275,000

Willie’s Auto Repair Shop Income Statement

Repair Income P

Less: Operating Expenses P

Rent expense Utilities expense Salaries expense Insurance expense Depreciation expense Taxes & Licenses Bad Debts expense

Supplies expense 400

Total Operating Expenses __________

Net Income P 95,950

Exercise 12

Presented below are the income statement accounts for Carl’s Psychiatric Clinic. Prepare a Single Step Income Statement for Carl’s Psychiatric Clinic for year ended December 31, 2010 by completing the income statement.

Insurance Expense P 20,000

Salaries Expense 90,000

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Rent Expense 110,000 Professional Fees 600,000 Supplies Expense 800

Bad Debts Expense 9,800

Taxes & Licenses 15,000

Depreciation Expense 18,500

Carl’s Psychiatric Clinic Income Statement

Professional Fees P

Less: Operating Expenses

Rent Expense P110,000

Utilities Expense 92,000

Salaries Expense

Insurance Expense 20,000

Depreciation Expense Taxes & Licenses

Bad Debts Expense 9,800

Supplies Expense 800

Total Operating Expenses ________ 356,100

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Exercise 13

Presented below are the balance sheet accounts of Galvez Consultancy Firm. Prepare a report form balance sheet for the year December 31, 2010 by completing the balance sheet.

Land P 68,000

Building 350,000

Furniture & Fixtures 4,500

Accumulated Depreciation- Building 50,000

Allowance for Bad Debts 6,000

Cash 101,000 Supplies 700 Accounts Receivable 46,500 Galvez, Capital 469,200 Accounts Payable 5,000 Loans Payable 50,000 Utilities Payable 500 Prepaid Insurance 10,000

Galvez Consultancy Firm Balance Sheet December 31, 2010 Assets Current Assets Cash P Accounts Receivable P 46,500

Less: Allowance for Bad Debts 6,000

Supplies 700

Total Current Assets P

Non-Current Assets

Plant, Property and Equipment

Land P

Equipment P350,000

Less: Accumulated Depreciation 50,000 300,000 Furniture & Fixtures 4,500

Total Non-Current Assets _________

Total Assets P 524,700 Liabilities Current Liabilities Accounts Payable P Loans Payable Utilities Payable 500

Total Current Liabilities P 55,500

Owner’s Equity

Galvez, Capital 469,200

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Exercise 14

Presented below are the balance sheet accounts of Forever Bridal Consultancy. Prepare an account form balance sheet for the year December 31, 2010 by completing the balance sheet.

Supplies P 1,000 Notes Receivable P 35,000

Equipment 20,000 F, Capital 421,000

Building 384,000 Accounts Payable 5,000 Furniture & Fixtures 4,500 Loan Payable 39,000

Accumulated Notes Payable 45,000

Depreciation-Building 50,000 Prepaid Rent 4,000 Cash 111,500

Forever Bridal Consultancy Balance Sheet December 31, 2010 Assets Current Assets Cash P Notes Receivable Supplies Prepaid Rent 4,000

Non-Current Assets

Plant, Property and Equipment

Building P

Less: Accumulated Depreciation 50,000 P 334,000 Equipment

Furniture & Fixtures 4,500

Total Assets P 510,000 Liabilities Current Liabilities Accounts Payable P 5,000 Notes Payable Loan Payable 39,000

Total Current Liabilities P 89,000

Owner’s Equity

F, Capital ________

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Exercise 15

From the information given from the records of Gracia’s Consultancy Services, prepare a statement of owner’s equity for year ended December 31, 2010.

G, Capital P400,000 G, Drawing 40,000

The company generated a P150,000 net income. Gracia made an additional investment of P80,000.

Exercise 16

Using the same information from exercise 13, except that, instead of a net income, the company incurred a net loss of P 55,000. Complete the statement of owner’s equity of Gracias Consultancy Services.

Gracias Consultancy Services Statement of Owner’s Equity For Year Ended December 31, 2010

G, Capital P

Add: Additional Investment P

Net Income 150,000 ___________

Total P630,000

Less: Drawings ___________

Total Owner’s Equity P590,000___

Gracias Consultancy Services Statement of Owner’s Equity For Year Ended December 31, 2010

G, Capital P400,000

Add: Additional Investment 80,000

Total

Less: Drawings P 40,000

Net Loss ________ __95,000

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Exercise 17- Comprehensive Problem

Presented is the trial balance of Niko Ong Art Gallery. From the information given, prepare the following by completing the incomplete statements:

1. Income Statement 2. Balance Sheet 3. Statement of Owner’s Equity Niko Ong Art Gallery

Trial Balance Dec. 31, 2010 Cash P 840,500 Accounts Receivable 50,000 Art Supplies 12,000 Prepaid Rent 30,000 Prepaid Insurance 18,000 Transportation Equipment 300,000 Office Equipment 50,000 Accounts Payable P 37,000 Notes Payable 200,000 Utilities Payable 900

Unearned Painting Revenue 250,000

Ong, Capital 500,000 Ong, Drawing 30,000 Painting Revenue 350,000 Salaries Expense 2,500 Utilities Expense 4,900 _________ Total P1,337,900 P1,337,900

Niko’s Ong Art Gallery Income Statement

Painting Revenue P

Less: Operating Expense

Utilities Expense P

Salaries Expense __2,500

Total Operating Expenses __________

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Niko Ong Art Gallery Balance Sheet December 31, 2010 Assets Current Assets Cash P 840,500 Accounts Receivable Art Supplies Prepaid Rent Prepaid Insurance 18,000

Non-Current Assets

Plant, Property, and Equipment

Transportation Equipment P

Office Equipment 50,000

Total Assets P 1,300,500 Liabilities Current Liabilities Accounts Payable P 37,000 Notes Payable Utilities Payable

Unearned Painting Revenue 250,000

Total Current Liabilities P

Owner’s Equity

Ong, Capital _812,600

Total Liabilities and Capital P________

Niko Ong Art Gallery Statement of Owner’s Equity For Year Ended December 31, 2010

Ong, Capital P

Add: Net Income _342,600

Total P 842,600

Less: Drawings ________

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