Hba Lap1 - SFP

STATEMENT OF FINANCIAL
POSITION
POSITION
Objective:
• Explain the nature and objectives of general

purpose financial statements
• Appreciate and understand the nature of
assets.
• Prepare the statement of financial position
POSITION
Financial Statements – are a structured financial position of
and the transactions undertaken by an enterprise.
The objective of general-purpose

financial statements is to provide information
about the financial position, performance
and cash flows of an enterprise that is
useful to a wide range of users in
making economic decisions.
ACCOUNT TITLES
• Assets
• Liabilities
• Equity
• Income and expenses including gain and

losses
• Cash flows
COMPLETE SET OF FINANCIAL
STATEMENTS
1. A statement of financial position or balance sheet
2. A statement of profit or loss and other

comprehensive income
3. A statement of changes in equity for the period
4. A statement of cash flows for the period
5. Notes of comprising a summary of significant

accounting policies and other explanatory
information
POSITION (SFP)
It was previously referred to as Balance Sheet.
Balance sheet is divided into two parts.

Assets are on the one side and the Claims
are on the other side.
Claims of creditors are called liabilities while

claims of owners are referred to as equity.
SNAPSHOT OF THE FINANCIAL
POSITION
The Accounting Equation

SFP - NATURE
The Statement of Financial Position is a
financial statement providing information about
the entity’s resources (assets), claims against
those resources (liabilities) and the remaining
claim, accruing to the owner (owner’s equity) as
of the end of a period.
It is also commonly known as the Balance

Sheet Statement
SFP - USEFULNESS
Liquidity : refers to the period of time before an asset
is converted to cash or until a liability is paid.
Long-term solvency: refers to the riskiness of a

company with regard to the amount of liabilities in its
capital structure.
Solvency: also provides information about financial

flexibility, that is the ability of a company to alter cash
flows in order to take advantage of unexpected
investment opportunities and needs.
ELEMENTS OF STATEMENT OF
FINANCIAL POSITION
ASSETS - Resources controlled by the entity as a
result of past events and from which future economic
benefits are expected to low the entity.
LIABILITIES Present obligations of the entity arising

from past events, the settlement of which is expected
to result in an outflow from the resources embodying
economic benefits.
EQUITY Represents residual interest in the assets of

the entity after deducting all its liabilities
PREPARATION OF SFP
Heading: include the name of the business,
name of statement and the date which is at the
end of the period being reported.
SFP - FORMAT
The elements may be presented using either
• Account form – reflects the basic accounting

equations where the assets are listed on the
left-hand side of the statement while liabilities
and owner’s equity are listed on the right-
hand side.
Assets = Liabilities + Owner’s Equity

ACCOUNT FORM
SFP - FORMAT
• Report form - lists the accounts in a

downward sequence, thus the assets are
listed at the top while the liabilities and
owner’s equity are shown below the assets
sections.
ASSET SECTION
ASSET SECTION
Classification of Current Assets
 It expects to realize the assets, or intends to
sell of consumer it, in its normal operating
cycle.
 It holds the assets primarily for the purpose of
trading
 It expects to realize the asset within twelve
months after the reporting period.
 The asset is cash or cash equivalents
CURRENT ASSETS
Includes:
Inventories and trade receivables that are sold,
consumed or realized as part of the normal
operating cycle even when they are not
exceeded to be realized within twelve months
after the reporting period.
Operating cycle of an entity is the time between

the acquisition of assets for processing and their
realization in cash or cash equivalents
EXAMPLE OF CURRENT ASSETS
1. Cash or cash equivalents
2. Short-term investments in marketable securities
3. Receivables
4. Inventories
5. Pre-payments
CURRENT ASSETS
Cash includes cash on hand consisting of coins,
currency, and un-deposited checks, money
orders and drafts and cash in banks.
Cash Equivalents includes short-term, highly
liquidated investment readily convertible
Short-term investment in Marketable securities

includes investment in debt and equity
securities which management intends to
convert to cash within one year.
CURRENT ASSETS
Receivables include trade accounts and note
receivable, non-trade short-term receivables
from affiliates, officers employees.
Inventories include goods (merchandise or

finished goods) held for sale in the normal
course of business plus, in the case of
manufacturing companies raw material and
goods in process.
CURRENT ASSET
Prepaid expenses
assets created by prepayment of cash or
incurrence of a liability.
Example:
Prepaid insurance
Prepaid rent
NON- CURRENT ASSET
Example:
Tangible, intangible and financial assets of a
long-term nature.
• Investments in long-term debit and equity

securities
• Property, plant and equipment
• Intangible assets
• Investment in funds/ investment property
NON - CURRENT ASSET
• Investment in Debt and Equity Securities
Held as either “Held-to-maturity or “Available-for-
sale”. – Amortized cost
• Property, Plant and Equipment
Tangible assets that are held by an enterprise for use
in the production or supply of goods or services or for
rental to others or for administrative purposes and which
are expected to be used during more than one period.
Example: land, buildings, machinery and equipment,

furniture and fixtures, motor vehicles
NON - CURRENT ASSET
Intangible Assets:
identifiable non-monetary asset without
physical substance and form.
Example: Computer software, patents,

franchise, copyrights, et.,
Indefinite life ( goodwill, copyright,
trademark)
NON-CURRENT ASSET
Investment in Funds
Long-term investment in funds that are shown
at the accumulated amount which include all
contributions to the fund plus all interest earned
to date.
Example:
plant expansion fund, pension fund, sinking fund
to pay for a long-term debt)
NON-CURRENT ASSET
Investment in Property
includes an investment in land or building or
both held with the intention of earning rentals or
for capital appreciation or both
Example:
Condominium, vacant building
LIABILITIES SECTION
LIABILITIES SECTION
Classification of Current Liabilities
 It is expected to be settled in its normal
operating cycle.
 It is held primarily for the purpose of trading
 The liability is due to be settle within twelve
months after the reporting period
 It does not have an unconditional right to
defer settlement of the liability for at least
twelve months after the reporting period.
EXAMPLE OF CURRENT LIABILITIES
1. Trade Accounts and Notes payable
2. Loans payable
3. Accrued expense payable
4. Income taxes payable
5. Agency Liabilities
6. Unearned revenues or advances from

customers
CURRENT LIABILITIES
• Trade Accounts and Notes payable
Obligations arising from the firm’s on going
including the acquisition of merchandise,
materials, supplies and services used in the
production and sale of goods or services.
• Currently Maturing Portion of Long-term Debt
Portions of long-term liabilities which
becomes payable within the upcoming year.
Example: Bonds, notes
CURRENT LIABILITIES
• Accrued expense payable expenses incurred
as of the financial reporting date for which
cash has not been paid.
Example: Accrued wages accrued interest and

accrued property taxes
• Income Taxes Payable
Unpaid portion of income tax to be paid to
the BIR.
CURRENT LIABILITIES
• Agency Liabilities
collection for the third parties
example: SSS premiums payable, with holding tax, VAT,

union dues
• Unearned revenues or advances from customers
Advance collection from customers relating to future
delivery of goods and services.
Example: revenue collected in advance include gift

certificate, college tuition fee, rent and magazine
subscription
NON - CURRENT LIABILITIES
• All other liabilities that do not meet the criteria
for current liabilities are classified as non-
current liabilities
• Long-term Loan Payable
• Instalment Notes Payable

NON - CURRENT LIABILITIES
• All other liabilities that do not meet the criteria
for current liabilities are classified as non-
current liabilities

NON- CURRENT LIABILITIES
long-term debt which maturity extends
beyond one year and is evidenced by a formal
document called promissory note issued in
exchange for a loan from a bank.
represent indebtedness that is repaid through
instalment over a period exceed one year.
EQUITY SECTION
EQUITY SECTION
A. Contributed capital
• Share capital
• Contributed capital in excess of Par or share
premium
B. Accumulated Profit (Loss)/Retained Earnings
C. Other Components of Equity
• Asset Revaluation Surplus
• Foreign Currency Translation Differences
• Fair Value Difference
D. Treasury Shares
STATEMENT OF
FINANCIAL
POSITION
POSITION
STATEMENT OF
FINANCIAL
POSITION
THANK YOU

Hba Lap1 - SFP

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STATEMENT OF FINANCIAL

• Explain the nature and objectives of general

The objective of general-purpose

• Income and expenses including gain and

2. A statement of profit or loss and other

3. A statement of changes in equity for the period

4. A statement of cash flows for the period

5. Notes of comprising a summary of significant

Balance sheet is divided into two parts.

Claims of creditors are called liabilities while

The Accounting Equation

It is also commonly known as the Balance

Long-term solvency: refers to the riskiness of a

Solvency: also provides information about financial

LIABILITIES Present obligations of the entity arising

EQUITY Represents residual interest in the assets of

• Account form – reflects the basic accounting

Assets = Liabilities + Owner’s Equity

• Report form - lists the accounts in a

Operating cycle of an entity is the time between

2. Short-term investments in marketable securities

Short-term investment in Marketable securities

Inventories include goods (merchandise or

• Investments in long-term debit and equity

Example: land, buildings, machinery and equipment,

Example: Computer software, patents,

3. Accrued expense payable

4. Income taxes payable

6. Unearned revenues or advances from

Example: Accrued wages accrued interest and

example: SSS premiums payable, with holding tax, VAT,

Example: revenue collected in advance include gift

• Long-term Loan Payable

• Instalment Notes Payable

• Long-term Loan Payable

• Instalment Notes Payable

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