Module 01 (Q1-Week 1): Statement of Financial Position (SFP)

I. LEARNING COMPETENCIES
1. Identify the elements of the SFP and describe each of them.
2. Prepare an SFP using the report form and the account form with proper classification
of items as current and noncurrent.
3. Reflect on the importance of preparing the SFP.

II. LESSON PRESENTATION

Review
Recall, define and give specific account titles (for Assets, Liabilities, and Equity) for each of the
terms below:
1. Accounting Equation

2. Assets

3. Liabilities

4. Equity

5. Single/sole Proprietorship Business

In your FABM 1, you had learned to work on Steps 1 to 8 of the accounting cycle and
within that, you had been briefly introduced to Step 7 Financial Statements specifically the
Statement of Comprehensive Income.

Image 1.1. The Accounting Cycle (Source: DepEd FABM 1Teaching Guide)

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 In Modules 1 to 4, you are going to comprehensively learn the different financial
statements. Let’s start with the Statement of Financial Position (SFP).
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.
Below is an example of a SFP:

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 Image 1.2. Sample SFP Report Form (Source: DepEd FABM 2 Teaching Guide)

Two Forms of the Statement of Financial Position

Report Form – A form of the SFP that shows asset accounts first and then liabilities and owner’s
equityaccounts after. (Haddock, Price, &Farina, 2012)This form is presented in a vertical
orientation, and is essentially one column that spans the entire width of a page.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). This form is presented in a horizontal format, with information in two columns
beside each other. The left column of the account form balance sheet lists assets, while the
right column lists liabilities and equity.

Image 1.3.
Sample SFP Account Form (Source: DepEd FABM 2 Teaching
Guide)

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 Both the report and account form will yield the same amount of total assets, liabilities
and equity. Take note that assets should always be equal to liabilities and equity.

Elements of the Statement of Financial Position

Heading – This is not considered an element of SFP but a part. It contains:
i. Name of the Company
ii. Name of the Statement
iii. Date of preparation (emphasis on the wording – “as of”)
To Note: The use of “as of” in the SFP means that the amounts are cumulative from the beginning of the life of
the company.
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
yearend 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
yearend date. Examples include Property, Plant and Equipment (equipment, furniture, building,
land), Long Term Investments, Intangible Assets etc.
Noncurrent Liabilities – Liabilities that do not fall due (paid, recognized as revenue) within one
year after year-end date. Examples include Loans Payable, Mortgage Payable, etc.
Owner’s Equity– The capital of the business.
To Note: Noncurrent assets and noncurrent liabilities are also called long term assets and long term liabilities.
Below is an SFP with its parts and elements labeled:

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 Image 1.4. Parts and Elements of SFP (Source: DepEd FABM 2 Teaching Guide)

To Note: Rules on single/sole rule and double rule. When there is an operation (addition, subtraction),
single/sole rule. Total assets is double ruled and total liabilities and equity is double ruled because they
represent the end of a part of the financial statement.

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.

The Importance of the Statement of Financial Position

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. Through the SFP the owner knows what the company
owns and owes, and would therefore help the owner in decision making and in strategizing the
business.

III. SUMMARY OF LESSON

 Statement of Financial Position is a financial statement that 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.
 Permanent Accounts are accounts permanent in a sense that their balances remain intact
from one accounting period to another until their balances become zero. Such accounts are
Cash, Loans Payable, Capital, among others.

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 Contra Assets are 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.
 The two forms of SFP are report form (vertical orientation) and account form (horizontal
orientation).
 The elements of SFP are Current Assets, Current Liabilities, Noncurrent Assets, Noncurrent
Liabilities and Owner’s Equity.
 Assets should always be equal to liabilities and equity on the SFP.
 The main difference of the SFPs of a service company and merchandising company lies on
the inventory account. A service company has supplies inventory, while a merchandising
company has both supplies inventory and merchandise inventory.

IV. PRACTICE
A. Problem Solving
Direction: Solve the following problems. Answer on a separate sheet. (5 pts. each)
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?
2. Happy Selling’s Accounts Receivable amounted to Php 500,000. Prepaid Expense and
Unearned Income totaled Php 30,000 and Php10,000 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?
3. 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.

B. Preparation of Statement of Financial Position

Direction: Prepare a Statement of Financial Position using the following accounts below. (One in
report form and one in account form). Answer on a separate sheet. (20 pts.; 10 pts. each for
report form and 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

V. ENRICHMENT
Direction: Answer the following questions in 3-5 sentences. Answer on a separate sheet. (5 pts.
each; Correctness of Ideas - 3, Organization of Ideas - 2)
1. When the company has a lot of assets (example: cash, accounts receivable, prepaid
expenses), is it right to conclude that the company is doing well?
2. For you, which is the better SFP form – Report Form or Account Form? Why?
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VI. EVALUATION
A. Problem Solving
Direction: Solve the following problems. Show your solutions. Answer on a separate sheet. (5
pts. each)
1. If assets are Php17,000 and owner's equity is Php10,000, liabilities are
___________________.
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 _________.
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’sSupply Company, Php12,000 (due in 6 months); Maria’s Equipment, Php9,500 (due after
2years).Current liabilities are _________.
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?

B. Preparation of Statement of Financial Position

Direction: Prepare a Statement of Financial Position for the company (one in report form and
one in account form). You may also use spreadsheet program for this or you may answer on a
separate sheet. (20 pts.; 10 pts. each for report form and account form)
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

VII. RESOURCES
DepEd FABM 1 and 2 Teaching Guide
https://smallbusiness.chron.com/difference-between-report-form-account-form-balance-sheets-54993.html
https://www.investopedia.com/articles/04/031004.asp#:~:text=A%20balance%20sheet%2C%20along%20with,a
%20company%20and%20its%20operations.&text=The%20purpose%20of%20a%20balance,the%20company
%20owns%20and%20owes.