The document defines a Statement of Financial Position (balance sheet) as a financial statement that includes the total amounts of a company's assets, liabilities, and owner's equity on a specific date. It also introduces permanent accounts, which are accounts that retain their balances from one accounting period to the next, such as assets, liabilities, and equity accounts. The document further discusses contra assets, which reduce asset balances, as well as the report form and account form of the balance sheet and how accounts are grouped.
The document defines a Statement of Financial Position (balance sheet) as a financial statement that includes the total amounts of a company's assets, liabilities, and owner's equity on a specific date. It also introduces permanent accounts, which are accounts that retain their balances from one accounting period to the next, such as assets, liabilities, and equity accounts. The document further discusses contra assets, which reduce asset balances, as well as the report form and account form of the balance sheet and how accounts are grouped.
The document defines a Statement of Financial Position (balance sheet) as a financial statement that includes the total amounts of a company's assets, liabilities, and owner's equity on a specific date. It also introduces permanent accounts, which are accounts that retain their balances from one accounting period to the next, such as assets, liabilities, and equity accounts. The document further discusses contra assets, which reduce asset balances, as well as the report form and account form of the balance sheet and how accounts are grouped.
The document defines a Statement of Financial Position (balance sheet) as a financial statement that includes the total amounts of a company's assets, liabilities, and owner's equity on a specific date. It also introduces permanent accounts, which are accounts that retain their balances from one accounting period to the next, such as assets, liabilities, and equity accounts. The document further discusses contra assets, which reduce asset balances, as well as the report form and account form of the balance sheet and how accounts are grouped.
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Define the term Statement of Financial Position and introduce the term Permanent Accounts
STATEMENT OF FINANCIAL POSITION
– Also known as the balance sheet. This statement includes the amounts of the company’s total assets, liabilities, and owner’s equity which in totality provides the condition of the company on a specific date. (Haddock, Price, & Farina, 2012)
PERMANENT ACCOUNTS
– As the name suggests, these accounts are permanent in a sense that their balances remain intact from one accounting period to another. (Haddock, Price, & Farina, 2012) Examples of permanent account include Cash, Accounts Receivable, Accounts Payable, Loans Payable and Capital among others. Basically, assets, liabilities and equity accounts are permanent accounts. They are called permanent accounts because the accounts are retained permanently in the SFP until their balances become zero. This is in contrast with temporary accounts which are found in the Statement of Comprehensive Income (SCI). Temporary accounts unlike permanent accounts will have zero balances at the end of the accounting period.
CONTRA ASSETS
– Contra assets are those accounts that are presented under the assets portion of the SFP but are reductions to the company’s assets. These include Allowance for Doubtful Accounts and Accumulated Depreciation. Allowance for Doubtful Accounts is a contra asset to Accounts Receivable. This represents the estimated amount that the company may not be able to collect from delinquent customers. Accumulated Depreciation is a contra asset to the company’s Property, Plant and Equipment. This account represents the total amount of depreciation booked against the fixed assets of the company.
3.Differentiate the Report Form and Account Form
Report Form
– A form of the SFP that shows asset accounts first and then liabilities and owner’s equity accounts after. (Haddock, Price, & Farina, 2012) The balance sheet shown earlier is in report form.
Account Form
– A form of the SFP that shows assets on the left side and liabilities and owner’s equity on the right side just like the debit and credit balances of an account. (Haddock, Price, & Farina, 2012)
a. Emphasize that the two are only formats and will yield the same amount of total assets, liabilities and equity
b. Emphasize that assets should always be equal to liabilities and equity
4.Group accounts under Current Assets, Noncurrent Assets, Current Liabilities, Noncurrent Liabilities
and Owner’s Equity
Current Assets
– Assets that can be realized (collected, sold, used up) one year after year-end date. Examples include Cash, Accounts Receivable, Merchandise Inventory, Prepaid Expense, etc.
Current Liabilities
– Liabilities that fall due (paid, recognized as revenue) within one year after year- end date. Examples include Notes Payable, Accounts Payable, Accrued Expenses (example: Utilities Payable), Unearned Income, etc. Current Assets are arranged based on which asset can be realized first (liquidity). Current assets and current liabilities are also called short term assets and shot term liabilities.
Noncurrent Assets
– Assets that cannot be realized (collected, sold, used up) one year after year-end date. Examples include Property, Plant and Equipment (equipment, furniture, building, land), Long Term investments, Intangible Assets etc.
Sample questions:
Easy:
1.
Learning is Fun Company had current assets amounting to Php 100,000. Noncurrent assets for the year totaled Php 76,000. How much is the company’s total assets?
Answer: P176,000.
2.
Happy Selling Company’s total liabilities amounted Php 10,000. Total equity had an ending balance of Php 20,000. How much is total assets?
Answer: P30,000.
Medium:
1.
Happy Selling’s had the following accounts at year end: Cash-250,000, Accounts Payable-70,000, Prepaid Expense-15,000. Compute for the company’s current assets.
Answer: P265,000.
2.
Happy Selling’s Accounts Receivable amounted to Php 500,000. Prepaid Expense and Unearned Income totaled Php 30,000 and Php 10,000 respectively. Cash balance amounted to Php 100,000 while Accounts Payable and Inventory totaled to Php 20,000 and Php 10,000 respectively. How much is the company’s current assets? Current liabilities?
Answer: P
640,000 and P30,000
Difficult
1.Company’s Total Liabilities and Equity amounted to Php 285,000. Total noncurrent assets ended at Php 85,000. Cash totaled Php50,000. Inventory amounted to Php100,000. Assuming the company had no other assets, how much is Accounts Receivable? Answer: P50,000.
2.Total assets amounted to Php575,000. Total equity amounted to Php 250,000. Accounts Payable amounted to Php 50,000 while Unearned Income totaled Php 85,000. Assuming there are no other current liabilities, compute for the company’s noncurrent liabilities.
Answer: P
190,000
5. Difference of the Statement of Financial Position of a Service Company and of a Merchandising
Company The main difference of the Statements of the two types of business lies on the inventory account. A service company has supplies inventory classified under the current assets of the company. While a merchandising company also has supplies inventory classified under the current assets of the company, the business has another inventory account under its current assets which is the Merchandise Inventory, Ending.
Sample questions:
Easy:
1.
Learning is Fun Company had current assets amounting to Php 100,000. Noncurrent assets for the year totaled Php 76,000. How much is the company’s total assets?
Answer: P176,000.
2.
Happy Selling Company’s total liabilities amounted Php 10,000. Total equity had an ending balance of Php 20,000. How much is total assets?
Answer: P30,000.
Medium:
1.
Happy Selling’s had the following accounts at year end: Cash-250,000, Accounts Payable-70,000, Prepaid Expense-15,000. Compute for the company’s current assets.
Answer: P265,000.
2.
Happy Selling’s Accounts Receivable amounted to Php 500,000. Prepaid Expense and Unearned Income totaled Php 30,000 and Php 10,000 respectively. Cash balance amounted to Php 100,000 while Accounts Payable and Inventory totaled to Php 20,000 and Php 10,000 respectively. How much is the company’s current assets? Current liabilities?
Answer: P640,000 and P30,000
Difficult
1.
Company’s Total Liabilities and Equity amounted to Php 285,000. Total noncurrent assets ended at Php85,000. Cash totaled Php50,000. Inventory amounted to Php100,000. Assuming the company had no other assets, how much is Accounts Receivable?
Answer: P50,000.
2.Total assets amounted to Php575,000. Total equity amounted to Php 250,000. Accounts Payable amounted to Php 50,000 while Unearned Income totaled Php 85,000. Assuming there are no other current liabilities, compute for the company’s noncurrent liabilities.
Answer: P
190,000
Enrichment
Teacher can discuss how a company can have a lot of assets but still have very low equity. When the company has a lot of assets (example: cash, accounts receivable, prepaid expenses), owners may sometimes think that the company is doing well. There are instances that owners forget that they might also have a lot of liabilities which may result to their equities having a very small balance. With the preparation of the SFP, the owner can easily see the assets, liabilities and equity balances of his/her company which will show exactly the financial position of the company as of a given point in time.
2.Other important matters:
a. Discuss that without the SFP, the company cannot know if it truly owns anything because in case of bankruptcy, liabilities are paid first.
Small businesses don’t usually account for their assets and liabilities as long as the owners see that cash is coming in. They sometimes forget that when liabilities become due, if they don’t have enough current assets to be able to pay those liabilities, then they can get in trouble with their debts.
discuss the importance of the format:
i. Report form vs Account form – these are just formats. Usually depends on the reader for preference.
ii. Report form is the normal format for those not familiar with accounting. Account form easily shows that the SFP is balanced and separates assets from liabilities and equities.
iii.Separation of the current and noncurrent – current liabilities are upcoming liabilities and the company should be prepared to pay them. Companies should prepare as early as today for payment of noncurrent liabilities as these usually have large balances. Current assets shows the company’s ability to sustain its current operations while noncurrent assets shows the company’s ability to sustain long-term operations side from the ones provided in the practice section, the teacher can make use of the following sample
questions:
1. If assets are Php17,000 and owner's equity is Php10,000, liabilities are ___________________.
Answer: Php 7,000 (Top
ic: Assets = Liabilities + Owner’s Equity)
2. At the end of the first month of operations for Juana’s Delivery Service, the business had the following accounts: Accounts Receivable, Php1,200; Prepaid Insurance, Php500; Equipment, Php36,200 and Cash, Php40,650. On the same date, Juana owed the following creditors: Nena’s Supply Company, Php12,000; Maria’s Equipment, Php9,500.The current assets for the Juana’s Delivery Service are _________.
Answer: Php42,350 (Topic: Identifying current assets)
3.At the end of the first month of operations for Juana’s Delivery Service, the business had the following accounts: Accounts Receivable, Php1,200; Prepaid Insurance, Php500; Equipment, Php36,200 and Cash, Php40,650. On the same date, Juana owed the following creditors: Nena’s Supply Company, Php12,000 (due in 6 months); Maria’s Equipment, Php9,500 (due after 2 years). Current liabilities are _________.
Answer: Php12,000 (Topic: Identifying current liabilities)
4.If during the year total assets increase by Php75,000 and total liabilities decrease by Php16,000, by how much did owner's equity increase/decrease?
Answer: Increase by Php 91,000 (Topic: Effect of changes in one account to the other accounts in 15
5.Prepare a Statement of Financial Position using the following accounts (one in report form and one in account form):
Cash – 5,000
Loans Payable – 77,500
Accounts Receivable – 2,600
Supplies – 2,300
Equipment – 17,000
Owner’s equity – 40,000
Accounts Payable – 22,400
Building – 113,000
Learners can use any business name and the end of the current year for the heading.
Suggested Answer: (Topic: Preparation of the statement)
16
NAME OF COMPANY
STATEMENT OF FINANCIAL POSITION
AS OF (YEAR-END)
Assets
Liabilities and Owner’s Equity
Current Assets
Current Liability
Cash
P 5,000.00
Accounts Payable
P 22,400.00
Accounts Receivable
2,600.00
Noncurrent Liabilitiy
Supplies
2,300.00
Loans Payable
77,500.00
Total Current Assets
P 9,900.00
Total Liabilities
P 99,900.00
Noncurrent Assets
Owner’s Equity
40,000.00
Building
P 113,000.00
Total Liabilities and Owner’s Equity
P 139,900.00
Equipment
17,000.00
Total Noncurrent Assets
P 130,000.00
Total Assets
P 139,900.00
6.
You were hired by Mr. Juan Dela Cruz to prepare his sari-sari store’s Statement of Financial Position. In order to prepare the statement, you identified the following assets and liabilities of Mr. Dela Cruz:
a.His sari-sari store has cash deposited in a bank account amounting to P50,000
b.His sari-sari store had a lot of uncollected sales from customers amounting to P75,000
c.The total amount of merchandise left inside the store is P30,000
d.He already paid one year’s rent in advance amounting to P12,000
e.
The value of all the company’s furniture amounted to P100,000
f.He bought merchandise from his supplier amounting to P25,000 and the supplier agreed that payment can be made 2 months after year-end
g.SSS, Philhealth and Pag-ibig Payables for his one employee totaled P5,000
h.The sari-sari store had outstanding liabilities to utility companies amounting to P3,000
i.He had a loan from the bank amounting to P50,000 to be paid in 3 years
