Statement of Financial Position

FUNDAMENTALS OF
ACCOUNTANCY,
BUSINESS, AND
MANAGEMENT 2
At the end of the topic;
1. Identify the elements of the SFP
and describe each of these items
for a single/sole proprietorship
business
2. Prepare an SFP for a single/sole
proprietorship business using
the report form
3. Prepare an SFP for a single/sole
proprietorship business using
the account form
At the end of this topic, I should be able
to define the following terms:
 Statement of Financial Position/Permanent Accounts

 Assets  Contra Liability
 Contra Assets  Accrued Expense
 Accrued Income  Unearned Income
 Prepaid Assets  Equity
 Liabilities  Report Form
 Account Form
Read the statement very
carefully and write your answer
on the space provided before
each number.
1. An art of recording, classifying, and summarizing in a significant
manners and in terms of money, transactions and events, and
interpreting the result thereof.
2. Widely accepted set of rules, concepts & principles of accounting
procedures.
3. Assumes that all the business transactions are separate from the
business owner’s personal transactions.
4. All assets acquired should be valued and recorded based on
acquisition cost not the prevailing market value.
5. The principles that requires that expenses be matched with revenue
in a given accounting period.
6. Requires the business to complete the whole accounting process over
a specific operating period.
For items 7-15 identify the account title as
Assets, Liabilities and Owner’s Equity.
Classify each if current and noncurrent
assets, current and noncurrent liabilities:
can you still remember the following terms:
A. Accounting Equation
B. Assets
C. Liabilities
D. Equity
E. Single/sole Proprietorship
Business
Prepare a Personal SFP:
1. Get a ¼ piece of paper
2. Write your current savings and everything
that you own (clothes, pen, pencil, etc.)
3. Write the amount that you owe to your
friends, family members, parents (tuition)
4. Deduct the amount you owe from the amount
you own
STATEMENT OF FINANCIAL POSITION (SFP)
• Also known as the balance sheet
• This statement for reference. 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)
• Statement that shows the financial condition of the business as
of a particular date
• It presents the three (3) accounting elements which are
Assets, Liabilities and Owner’s Equity or Capital
An asset is a A liability is an Equity is the value
resource with obligation of a attributable to a
economic value that company that business.
an individual, results in the
corporation, or company's future
country owns or sacrifices of
controls with the economic benefits to
expectation that it other entities or
will provide a future businesses.
ASSETS LIABILITIES EQUITY
INCOME
EXPENSES
1. MAJOR ACCOUNTS
Assets are
the An asset is a
resources resource with
owned and economic value that
an individual,
controlled corporation, or
ASSETS by the firm country owns or
controls with the
expectation that it
will provide a future
MAJOR ACCOUNTS
Liabilities A liability is an
are obligation of a
company that
obligations
results in the
of the firm company's future
arising from sacrifices of
past events economic benefits to
which are to other entities or
LIABILITIES be settled in businesses.
the future.
MAJOR ACCOUNTS
Equity or Owner’s
Equity are the
owner’s claims in
the business. Equity is the
It is the residual value
interest in the assets
of the enterprise attributable to a
after business.
EQUITY deducting all its
liabilities
MAJOR ACCOUNTS
Income is the increase in
economic benefits during the
accounting period in the form of
inflows of cash or other assets or
decreases of liabilities that result
in increase in equity.
INCOME Income includes revenue and
gains.
MAJOR ACCOUNTS
Expenses are decreases in
economic benefits during the
accounting period in the form
of outflows of assets or
incidences of liabilities that
EXPENSES
result in decreases in equity.
MAJOR ACCOUNTS
cURRENT AND NON CURRENT
ASSETS
Assets that can be realized
CURRENT (collected, sold, used up) one
ASSETS year after year-end date.
Examples include Cash,
Accounts Receivable,
Merchandise Inventory,
Prepaid Expense, etc..
CURRENT AND NON CURRENT
ASSETS
Assets that cannot be realized
NON- (collected, sold, used up) one
CURRENT year after year-end date.
ASSETS Examples include Property,
Plant and Equipment
(equipment, furniture,
building, land), long term
investments, etc.
ASSETS
TANGIBLE
ASSETS Tangible Assets are physical
assets such as cash, supplies,
and furniture and fixtures.
ASSETS
Intangible Assets are
INTANGIBLE
ASSETS non-physical assets such
as patents and
trademarks
CURRENT ASSETS
1.Cash
2.Accounts Receivable
3.Notes Receivable
4.Inventories
5.Supplies
6.Prepaid Expenses
7.Accrued Income
8.Short term investments
CURRENT ASSETS
1.Cash is money on hand, or in banks, and other items
considered as medium of exchange in business
transactions.
2.Accounts Receivable are amounts due from customers
arising from credit sales or credit services.
3.Notes Receivable are amounts due from clients
supported by promissory notes.
4.Inventories are assets held for resale
CURRENT ASSETS
5. Supplies are items purchased by an enterprise which
are unused as of the reporting date.
6.Prepaid Expenses are expenses paid in advance. They
are assets at the time of payment and become expenses
through the passage of time.
7.Accrued Income is revenue earned but not yet collected
8.Short term investments are the investments made by
the company that are intended to be sold immediately
non-CURRENT ASSETS
1.Property, Plant and Equipment

2.Long term Investments
3.Intangible Assets
non-CURRENT ASSETS
1. Property, Plant and Equipment are long-lived
assets which have been acquired for use in
operations.
2. Long term Investments are the investments
made by the company for long-term purposes
3. Intangible Assets are assets without a physical
substance. Examples include franchise and
copyright.
liabilities
Liabilities are the debts and obligations of

the company to another entity.
• CURRENT LIABILITIES
• NON-CURRENT LIABILITIES
CURRENT AND NON-CURRET
liabilities
Current Liabilities are liabilities that fall due
(paid, recognized as revenue) within one year
after year-end date. Examples include
Accounts Payable, Utilities Payable and
Unearned Income.
liabilities
Current Liabilities are liabilities that fall due
(paid, recognized as revenue) within one year
after year-end date. Examples include
Accounts Payable, Utilities Payable and
Unearned Income.
CURRENT liabilities
1. Accounts Payable
2. Notes Payable
3. Accrued Expenses
4. Unearned Income
CURRENT liabilities
1. Accounts Payable are amounts due, or payable to,
suppliers for goods purchased on account or for services
received on account.
2. Notes Payable are amounts due to third parties supported
by promissory notes.
3. Accrued Expenses are expenses that are incurred but not
yet paid (examples: salaries payable, taxes payable)l
4. Unearned Income is cash collected in advance; the liability
is the services to be performed or goods to be delivered in
the future.
liabilities
Non-Current Liabilities are liabilities that do
not fall due (paid, recognized as revenue)
within one year after year-end date. Examples
include Notes Payable, Loans Payable,
Mortgage Payable, etc.
NON-CURRENT liabilities
1.Loans Payable
2.Mortgage Payable
equity
Owner’s Equity is the residual
interest of the owner from the
business.
It can be derived by deducting
liabilities from assets
equity
Capital is the value of cash and other assets
invested in the business by the owner of the
business.
Drawing is an account debited for assets
withdrawn by the owner for personal use
from the business.
income
Income is the Increase in
resources resulting from
performance of service or selling
of goods.
income
Income is the Increase in resources
resulting from performance of
service or selling of goods.
• Service revenue for service
entities, Sales for merchandising
and manufacturing companies
expense
Expense is the decrease in resources
resulting from the operations of
business
• Salaries Expense
• Communication Expense
• Utilities Expense
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)
PERMANENT ACCOUNTS
• Cash
• Accounts Receivable
• Accounts Payable
• Loans Payable
• Capital
PERMANENT ACCOUNTS
• 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
CONTRA ASSETS
• 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.
STATEMENT OF FINANCIAL POSITION (SFP)
1. 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.
2. 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)
REPORT FORM
ACCOUNT FORM
REMEMBER
Group accounts under;
Current Assets
Noncurrent Assets
Current Liabilities
Noncurrent Liabilities
Owner’s Equity
REMEMBER
Current Assets – Assets that Current Liabilities – Liabilities that
can be realized (collected, fall due (paid, recognized as
sold, used up) one year revenue) within one year after
after year-end date yearend date.
 Examples include Cash, Examples include Notes Payable,
Accounts Receivable, Accounts Payable, Accrued
Merchandise Inventory, Expenses (example: Utilities
Prepaid Expense, etc. 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.
REMEMBER
Noncurrent Assets – Assets Noncurrent Liabilities – Liabilities
that cannot be realized that do not fall due (paid,
(collected, sold, used up) one recognized as revenue) within
year after yearend date. one year after year-end date.
Examples include Property, Examples include Loans
Plant and Equipment Payable, Mortgage Payable, etc.
(equipment, furniture,
building, land), Long Term
investments,Intangible
Assets etc.
Noncurrent assets and noncurrent liabilities are also called long

term assets and long term liabilities.
RECALL…RECALL..RECALL
Select the correct statement you
think is true by underlining the letter
only. Two different sentences are
given select your answer from the
four (4) choices after every
statements 1 and ll
1
Statement 1 - Statement of Financial Position was previously

known as Balance Sheet
Statement 2 - Statement of Financial Position is composed of
three
accounting elements or values which are Assets, Liabilities
and Owner’s Equity
a. both statements are true c. only statement 1 is true
b. only statement 2 is true d. both statements are false
2
Statement 1 – The Statement of Financial Position answers the

question on how much is owned by business, which refers to
“Assets”
Statement 2 - The accounting equation, Assets equals
Liabilities plus Owner’s Equity reflects the normal balances of
accounts
3
Statement 1 – Cash is the most liquid assets of the business.

Liquidity means ready conversion to cash
Statement 2 - Receivable is presented ahead of merchandise
inventory because when merchandise is sold on account, it has
to pass through receivables before it can be converted to cash
4
Statement 1 – Current assets are expected to be realized

within twelve months after the reporting period
Statement 2 - Current liabilities are liabilities that are expected
to be settled within twelve months after the reporting period
a. Both statements are true c. Only statement 1 is true
b. Only statement 2 is true d. Both statements are false
5
Statement 1 – Operating cycle refers to the time between the

acquisition of the assets for processing and realization to cash.
Statement 2 - Owner’s Equity is the residual interest of the
business. It is arrived by deducting assets from liabilities
6
Statement 1 – Report form of statement of Financial Position

is patterned from the accounting equation, A= L + OE.
Statement 2 - Account form of Statement of Financial Position
lists first the Assets followed by Owner’s Equity and Liabilities
Let’s have more enhancement of
learning SFP
Don’t give up young dreamers in the

field of accountancy. This is for you.
As the saying goes: “Practice
makes someone perfect”!
Do you agree?
Read and analyze the following transactions
of a merchandising kind of business
operation owned and managed by Keyth
John Rizal for the month of
January 2019. Make the complete journal
entries.
1. Investment by the owner: Cash P 900,000; Merchandise Inventory P 45,000
2. Cash withdrawal by the owner: P30,000
3. Loan from Bank of Manila with interest deducted in advance P500,000
4. Purchased one (1) unit L-3 van in cash, P700,000
5. Purchased merchandise in cash, P200,000
6. Purchased merchandise on credit, P 475,000
7. Returned merchandise purchased in cash, P6,500
8. Payment of account to supplier with a discount, P 176,400 (discount is P3,600)
9. Advance payment by a customer for merchandise nor yet delivered (customer deposited in the
bank) P35,000
10. Sold merchandise for cash: P 140,000
11. Sold merchandise on credit: P762,000
12. Received returned merchandise sold for cash: P8,000
13. Collection from customer’s account: P 130,000
14. Collection from customer’s accounts with sales discounts: P 245,000 (sales discount is 5,000)
15. Freight on Shipment from suppliers : 3,920; from customers: 5,000
16. Payment of various expenses: Salaries expense P50,000; Rent expense P30,000 Taxes and
Licenses P 15,000

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FUNDAMENTALS OF

 Statement of Financial Position/Permanent Accounts

1.Property, Plant and Equipment

Liabilities are the debts and obligations of

Current Assets are arranged based on which asset can be realized

Noncurrent assets and noncurrent liabilities are also called long

Statement 1 - Statement of Financial Position was previously

Statement 1 – The Statement of Financial Position answers the

Statement 1 – Cash is the most liquid assets of the business.

Statement 1 – Current assets are expected to be realized

Statement 1 – Operating cycle refers to the time between the

Statement 1 – Report form of statement of Financial Position

Don’t give up young dreamers in the

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