ACC 102: Financial Statements and Account Titles – Study Notes
Course: ACC 102 – Accounting Concepts and Principles
Topic: Chapter 3 – Financial Statements and Account Titles
Prepared for: ABM Students
Tags: Accounting Basics, Financial Statements, Measurement Bases, Account Titles
I. Financial Statements
● Financial statements are the key or end product of the accounting process.
● They present the financial performance and position of a business entity.
Elements of Financial Statements
● 1. Assets – Resources controlled by the entity as a result of past events that are expected
to provide future economic benefits.
● 2. Liabilities – Present obligations to transfer economic resources as a result of past
events.
● 3. Owner’s Equity – Residual interest in the assets of the entity after deducting
liabilities.
● 4. Income – Increases in economic benefits that result in increases in equity, excluding
owner contributions.
● 5. Expenses – Decreases in assets or increases in liabilities that result in a decrease in
equity.
Main Financial Statements
● 1. Statement of Financial Position (Balance Sheet) – Shows the company’s financial
condition as of a specific date.
● 2. Statement of Financial Performance (Income Statement) – Shows income, expenses,
and profit or loss for a period.
● 3. Statement of Changes in Owner’s Equity – Shows changes in owner’s capital,
investments, and withdrawals.
● 4. Statement of Cash Flows – Summarizes cash inflows and outflows during a period.
, ● 5. Notes to Financial Statements – Provide additional details, accounting policies, and
disclosures.
II. Account Titles
● Account Titles – Identifications or short descriptions of items that belong to the same
kind or class.
● They are used to classify financial information under five main categories: Assets,
Liabilities, Owner’s Equity, Income, and Expenses.
A. Assets
● • Current Assets – Expected to be used, sold, or converted into cash within one year
(e.g., Cash, Accounts Receivable, Supplies, Prepaid Expenses).
● • Non-Current Assets – Long-term resources used in business operations (e.g., Land,
Building, Equipment, Furniture, Intangibles).
B. Liabilities
● • Current Liabilities – Obligations expected to be settled within one year (e.g., Accounts
Payable, Notes Payable, Accrued Expenses, Unearned Income).
● • Non-Current Liabilities – Obligations payable beyond one year (e.g., Mortgage Payable,
Long-term Notes Payable).
C. Owner’s Equity
● Represents the owner’s investment after liabilities are deducted from assets.
● Equation: Assets – Liabilities = Owner’s Equity.
● Increased by profits and owner contributions; decreased by losses and withdrawals.
D. Income and Expenses
● Income – Earnings from services, sales, rent, or interest (e.g., Service Income,
Professional Fees, Rental Income, Interest Income).
● Expenses – Costs incurred in operations (e.g., Salaries, Rent, Supplies, Utilities,
Depreciation).
III. Measurement Bases of Financial Statements
● 1. Historical Cost – Assets recorded at purchase price.
● 2. Current Cost – Value at which the asset could currently be acquired.
Course: ACC 102 – Accounting Concepts and Principles
Topic: Chapter 3 – Financial Statements and Account Titles
Prepared for: ABM Students
Tags: Accounting Basics, Financial Statements, Measurement Bases, Account Titles
I. Financial Statements
● Financial statements are the key or end product of the accounting process.
● They present the financial performance and position of a business entity.
Elements of Financial Statements
● 1. Assets – Resources controlled by the entity as a result of past events that are expected
to provide future economic benefits.
● 2. Liabilities – Present obligations to transfer economic resources as a result of past
events.
● 3. Owner’s Equity – Residual interest in the assets of the entity after deducting
liabilities.
● 4. Income – Increases in economic benefits that result in increases in equity, excluding
owner contributions.
● 5. Expenses – Decreases in assets or increases in liabilities that result in a decrease in
equity.
Main Financial Statements
● 1. Statement of Financial Position (Balance Sheet) – Shows the company’s financial
condition as of a specific date.
● 2. Statement of Financial Performance (Income Statement) – Shows income, expenses,
and profit or loss for a period.
● 3. Statement of Changes in Owner’s Equity – Shows changes in owner’s capital,
investments, and withdrawals.
● 4. Statement of Cash Flows – Summarizes cash inflows and outflows during a period.
, ● 5. Notes to Financial Statements – Provide additional details, accounting policies, and
disclosures.
II. Account Titles
● Account Titles – Identifications or short descriptions of items that belong to the same
kind or class.
● They are used to classify financial information under five main categories: Assets,
Liabilities, Owner’s Equity, Income, and Expenses.
A. Assets
● • Current Assets – Expected to be used, sold, or converted into cash within one year
(e.g., Cash, Accounts Receivable, Supplies, Prepaid Expenses).
● • Non-Current Assets – Long-term resources used in business operations (e.g., Land,
Building, Equipment, Furniture, Intangibles).
B. Liabilities
● • Current Liabilities – Obligations expected to be settled within one year (e.g., Accounts
Payable, Notes Payable, Accrued Expenses, Unearned Income).
● • Non-Current Liabilities – Obligations payable beyond one year (e.g., Mortgage Payable,
Long-term Notes Payable).
C. Owner’s Equity
● Represents the owner’s investment after liabilities are deducted from assets.
● Equation: Assets – Liabilities = Owner’s Equity.
● Increased by profits and owner contributions; decreased by losses and withdrawals.
D. Income and Expenses
● Income – Earnings from services, sales, rent, or interest (e.g., Service Income,
Professional Fees, Rental Income, Interest Income).
● Expenses – Costs incurred in operations (e.g., Salaries, Rent, Supplies, Utilities,
Depreciation).
III. Measurement Bases of Financial Statements
● 1. Historical Cost – Assets recorded at purchase price.
● 2. Current Cost – Value at which the asset could currently be acquired.
