Fundamentals of Accountancy, Business and Management 2 Grade 12

LESSON 1 ( Quarter 1 Week 1 )

Statement of Financial Position Name: _______________________

Section: ______________________

Content Standards: The learners demonstrate an understanding of account titles under the assets,
liabilities, and capital accounts of the Statement of Financial Position, namely, cash, receivables,
inventories, prepaid expenses, property, plant and equipment, payables, accrued expenses,
unearned income, long-term liabilities and capital that will equip him / her in the preparation of
the SFP using the report form and account form.

Performance Standards: The learners shall be able to solve exercises and problems that require
preparation of an SFP for a single proprietorship with proper classification of accounts as current
and noncurrent using the report form and the account form.

Most Essential Learning Competency: The learner identifies the elements of the SFP and
describes each of them (ABM_FABM12-Ia-b1)

PRETEST: Classify each of the following either as asset (A), liability (L), equity (E),
revenue (R), or expense (Ex). Write your answer on the space before each item. 10
points

_______ 1. Prepaid Rent

_______ 2. Furniture and Fixtures
_______ 3. Accounts Payable
_______ 4. Freight Out
_______ 5. Sales
_______ 6. Land
_______ 7. Notes Receivable
_______ 8. Accrued Utilities Expense
_______ 9. Inventories
_______ 10. Cash

Mylene Salvador Candido

Fundamentals of Accountancy, Business and Management 2 Grade 12

Objectives: At the end of this lesson, you should be able to

1. Identify and describe the elements of Statement of Financial Position or Balance Sheet

MOTIVATION: Do you still remember the Accounting Equation?

ASSETS = LIABILITIES + OWNER’S EQUITY

Questions to ponder:

What are the things you personally owned? Those are your assets.

Are there things or money you owed to someone? Those are your liabilities

What is now your equity?

For example: You have a mobile phone worth 7,000. You bought it using your own savings or
money worth 5,000 and borrowed 2,000 from your father. How much is your asset? Liability?
Equity?

LESSON: Statement of Financial Position

The Statement of Financial Position (SFP), previously referred to as Balance Sheet

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) The SFP is a report based on the accounting equation: Assets = Liabilities + Equity

Assets are what the business owns.

Liabilities are what the business owes or claims of the creditors.

Equity is what the business is worth.

Mylene Salvador Candido

Fundamentals of Accountancy, Business and Management 2 Grade 12

These accounts are called permanent accounts or real accounts, which means you don’t close
these accounts at the end of the accounting period instead, balances are carried forward to the
beginning of the next period. ) 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.

ASSETS are resources with future benefits that are within the control of the company. Assets
must be classified in the SFP as current or non-current assets. An asset which will deliver
economic benefits to the entity over the long term is classified as non-current whereas those
assets that are expected to be realized within one year from the reporting date are classified as
current assets.

Examples of Assets

1. Cash and Cash Equivalents

Cash (bills, coins, bank checks) is money owned by the company. Cash kept on the company’s
premises is called Cash on Hand while Cash in Bank refers to money kept in savings or checking
account.

Cash Equivalents are time deposits with term maturities of ninety days or less. These are
considered short-term investments.

How can you distinguish Cash (Cash on Hand and Cash in Bank) from Cash
Equivalents?

Jo Convenience Store, owned and managed by Jomar has the following cash balances
as of December 31, 2019.

a. He kept some bills and coins in the store. The cash count revealed 4 pieces of 100 peso bills, 2
pieces of 50 peso bills and 50 pieces 1 peso coin.

b. A customer gave a check as payment worth 1,000.00 dated December 31, 2019.

c. Jo Convenience Store has a savings deposit worth 5,865 as of December 31, 2019.

d. A 50,000 Time deposit for 90 days.

Mylene Salvador Candido

Fundamentals of Accountancy, Business and Management 2 Grade 12

How much are the balances of Cash and Cash Equivalents? How much is the Cash on Hand?
Cash in Bank? Cash Equivalents?

Denomination Pieces Peso Amount

100 4 400.00
50 2 100.00 The amount of Cash on Hand (bills, coins,
20 0 - checks) is One Thousand Five Hundred
10 coins 0 -
Ten Pesos P1,510.00. Cash in Bank is
5 coins 0 -
1 coins 50 10.00 worth Five Thousand Eight Hundred Sixty
0.25 coins 0 - Five Pesos P5,865.00. Cash Equivalents is
Checks 1,000.00
Total Cash on Hand 1,510.00 Fifty Thousand Pesos P 50,000.00.
Cash in Bank 5,865.00
Total Cash 7,375.00 The total amount of Cash and Cash
Cash Equivalents 50,000.00 Equivalents is P57,375.00
Total Cash and Cash Equivalents 57,375.00

2. Trade and other receivables – it includes the amounts collectible from any of the following
accounts:

a. accounts receivable – amount collectible from the customer to whom sales have been made or
services have been rendered on account or credit. Luna’s purchases are listed below;

How can you determine how much a customer owed a store?

Jomar sells to Luna on credit. Luna pays ebery 15th and 30th of the month

Balance 100.00
December 5, 2019 2 bottles of soy sauce (15.00 each)
December 8, 2019 1 tray egg (180.00 per tray)
December 15, 2019 Payment: 250.00
December 22, 2019 1 dozen shampoo (60.00 a dozen)
December 30, 2019 Payment:100.00

Answer:

Balance 100.00
December 5, 2019 2 bottles of soy sauce (15.00 each) 30.00

Mylene Salvador Candido

Fundamentals of Accountancy, Business and Management 2 Grade 12

December 8, 2019 1 tray egg (180.00 per tray) 180.00

December 15, 2019 Payment: 250.00 (250.00)
December 22, 2019 1 dozen shampoo (60.00 a dozen) 60.00
December 30, 2019 Payment:100.00 (100.00)
Net Receivable P 20.00

b. notes receivable – evidenced by a promissory note

c. interest receivable – amount of interest collectible on promissory note received by customers.

d. advances to employees – amount of money obtained by employees payable in cash or through

deductions from salaries.

e. accrued income – income already earned but not yet received.

3. Inventories – these are the unsold goods or merchandise at the end of the accounting period.
This is applicable only to merchandising business.

Are consigned merchandise part of the seller’s inventories? The answer is NO. Why?

Consignment is an important issue in inventory accounting. The owner places his goods “on
consignment” in the premises of the store owner. The store is not obligated to purchase the
goods. The owner may also withdraw his unsold goods from the store at any time.

4. Prepaid Expenses – refer to future expenses of the company had paid for in advance.
Examples are Prepaid Rent, Insurance, Supplies.

5. Property, Plant and Equipment – PPE for short, are long term assets that are used in the
operations of the company.. These are classified as long-term asset (non-current) because these
assets will be used in the business for more than one year. Examples are land, building,
equipment, furniture and fixtures.

6. Intangible Assets - These are assets that you cannot see or touch. There may be a piece of
paper as evidence of the asset but the actual asset is intangible. Examples are patent, trademark
and brand name.

7. Long-Term Investments – these are investments made by the company for long-term purposes.
Examples are bonds, stocks and real estate.

Mylene Salvador Candido

Fundamentals of Accountancy, Business and Management 2 Grade 12

8. Contra-Assets Accounts - is an asset account where the account balance is a credit balance.
Examples are Accumulated Depreciation and Allowance for Bad Debts.

LIABILITIES are obligations that the company is required to pay. Liabilities must be
classified in the SFP as current or non-current liabilities. Current liabilities (short-term liabilities)
are liabilities that are due and payable within one year. Non-current liabilities (long-term
liabilities) are liabilities that are due after a year or more.

Examples of Liabilities:

1. Trade and other payables – include payables from any of the following accounts:

a. Accounts Payable - are amounts due to vendors or suppliers for goods or services received that
have not yet been paid for.

Most suppliers give credit terms of 30 to 90 days.

*Credit Term 2/10, n/30 (reads: two ten net thirty) – means payment is due on 30 days but a 2%
discount may be taken if paid within 10 days (after delivery).

b. Notes Payable - refers to an obligation evidenced by a promissory note.

c. Loan Payable – a liability to pay the bank or other financial institutions.

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

e. Unearned Revenues – these are obligations of the business arising from advance payments
from customers before goods and services are provided to them.

2. Long-Term Liabilities - refer to obligations with due dates that fall more than one year from
the date of the SFP.

EQUITY is composed of the owner’s investments and the accumulated net income of the
company. It is the owners' claim to company assets after all of the liabilities have been paid off.

Can you remember it all? Let us look back!

Mylene Salvador Candido

Fundamentals of Accountancy, Business and Management 2 Grade 12

POST TEST: Modified Matching Type

Notes Payable Property, Plant & Equipment Prepaid Expense

Cash Owner’s Capital Accrued Expenses
Unearned Income Accounts receivable Inventory
Notes Receivable Service Vehicle Long-term Payable

True or False: Read each statement carefully and determine whether the statement is true or
false. Write your answers on the space provided before the number.

__________ 1. Assets = Liabilities + Equity is the governing equation of the SFP.

__________ 2. The SFP provides readers with the information as to the company’s financial
position as of a specified date.

__________ 3. Current liabilities are a company's short-term financial obligations that are due
within one year or within a normal operating cycle.

__________ 4. Liabilities are resources owned by the business.

__________ 5. Consigned items are part of the seller’s inventory.

References: Fundamentals of Accountancy, Business and Management: A Textbook in Basic

Accounting 2 By: Solita A. Frias, Erlinda C. Pefianco, Ed.D, Phoenix Publishing House 2016

Fundamentals of Accountancy, Business and Management 2. Dani Rose C Salazar, Rex

Publishing House, 2016.

Mylene Salvador Candido

Fundamentals of Accountancy, Business and Management 2 Grade 12

Mylene Salvador Candido