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FUNDAMENTALS
Statement 1OF
– MODULE 1 (SFP)
ACCOUNTANCY,
of Financial Position
BUSINESS AND MANAGEMENT 2
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Introductory Message
Dear Teachers and Learners! The writer welcomes you all to this module for the
subject Fundamentals of Accountancy, Business and Management 2 in the ABM Strand of
Senior High School. The discussion focussed on the preparation of financial statements and
its analyses to determine the profitability, liquidity and solvency of the business.
As your partner in learning, I hope that you will not miss out every detail that the
writer would like you to learn in this material. Do enjoy as there are challenging and
interesting activities inside this learning modules. Congratulations in advance for this will
make you the master of your own learning.
Ops! you wait for a while, for an easy use of this material take note of some few
reminders
1. Take your time to read every detail that this module contains.
2. This material contains Module 1 and Module 2 and each of which is provided
with activities/tests that will surely lead you to learn.
3. Here are the Icons used as your guide in every part of the lesson.
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4. Please do follow the directions given per activity so your experience to the use
of this material will be meaningful and fruitful.
5. Answer all the tests in this material.
6. As a courtesy to the future users, PLEASE DO NOT WRITE ANYTHING ON
ANY PART OF THIS MODULE. Write your answer/s on a separate sheet of
paper, notebook, workbook or whichever is specified by your facilitator
DRAFT
iv
Table of Contents
Page
What This Module is About………………………………………………….. 1
Icons of this Module………………………………………………………….. 2
MODULE 1 Statement of Financial position…………………... 5
Activity
1.1.2 Classify Me…………………………………………… 11
1.1.3 Fill Me Now…………………………………………… 12
1.1.4 Can You Solve the Problem ……………………….. 13
1.1.5 Choosing the Right One……………………………. 14
DRAFT
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Module 1
Fundamentals of Accountancy, Business and
Management 2
Beloved Learner,
Hello! I hope that you are okay. This module will guide you as you keep on
asking many things on how financial statements are prepared and presented? How
is net income measured? How are equity transactions presented? How are assets
and liabilities classified? How are cash flows presented? How are financial ratios
utilized?
This module deals with the preparation and analysis of financial statements of
a service business and merchandising business using horizontal and vertical
analyses and financial ratios. Knowledge and skills in the analysis of financial
statements will aid the future entrepreneurs in making sound economic decisions.
1. Identify the elements of the SFP and describe each of them (ABM_FABM12-
Ia-b1);
2. Classify the elements of the SFP into current and noncurrent items
(ABM_FABM12-Ia-b-2);
3. Prepare the SFP of a single proprietorship (ABM_FABM12-Ia-b-3);
4. Prepare an SFP using the report form and the account form with proper
classification of items as current and noncurrent (ABM_FABM12-Ia-b-4);
5. Identify the elements of the SCI and describe each of these items for a
service business and a merchandising business (ABM_FABM12-Ic-d-5);
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6. Prepare an SCI for a service business using the single-step approach
(ABM_FABM12-Ic-d-6);
7. Prepare an SCI for a merchandising business using the multistep approach
(ABM_FABM12-Ic-d-7);
8. Discuss the different forms of business organization (ABM_FABM12-Ie-8);
9. Prepare an SCE for a single proprietorship (ABM_FABM12-Ie-9);
10. Discuss the components and structures of a CFS (ABM_FABM12-If-10);
11. Prepare a CFS (ABM_FABM12-If-11);
12. Define the measurement level namely, liquidity, solvency, stability, and
profitability (ABM_FABM12-Ig-h12);
13. Perform vertical and horizontal analyses of financial statements of a single
proprietorship (ABM_FABM12-Ig-h13)
14. Compute and interpret financial ratios such as current ratio, working capital,
gross profit ratio, net profit ratio, receivable turnover, inventory turnover, debt-to-
equity ratio, and the like (ABM_FABM12-Ig-h14)
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What I Have Activities designed to process what you have
Learned learned from the lesson
What I Know
Directions. Read and analyze each item carefully. Write the letter that corresponds the best
answer on your answer sheet. 1 point each.
2. An asset is an
A. Expense that will recur in more than one year
B. Obligation to transfer benefits as a result of past transactions
C. Interest of the owner in the business
D. Any financial resources that is used by the business in its operation
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A. Shows the changes of the owners interest
B. Reports the assets and claims of an enterprise at a specified moment in time
C. Presents revenue and expenses of an enterprise
D. Reports the inflow and outflow of cash in an enterprise
7. Which of the following transactions would increase cash as well as non-current
liabilities?
A. Long-term bank loan
B. Purchasing equipment on credit
C. Payment to suppliers
D. Payment from customers
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lesso STATEMENT OF FINANCIAL POSITION
n (SFP)
4
What’s In
What’s New
5
To achieve the objectives of this module, you must remember to do the
following:
Read the lessons carefully.
Follow all directions and given instructions.
Answer all given tests and activities.
Learn to familiarize the following terms:
TERM DEFINITION
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)
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A. Get a piece of paper.
B. Write your current savings and everything that you own (clothes,
money, gadgets, jewelry etc.)
C. Write the amount that you owe to your friends, family members,
parents (tuition)
D. Deduct the amount you owe from the amount you own
E. Associate amounts owned with assets and amount owed with
liabilities with the net amount as equity.
Processing Questions:
1. How much is your equity?
2. Do you have greater assets than your liabilities? Or vice versa?
3. There might be some cases your computation is zero or even
negative. This means that your liabilities to your friends, relatives
and/or parents are higher than your assets.
4. In business, having more assets does not mean that the business is
earning but usually companies have assets that are bigger than
their liabilities.
5. Reflect on the importance of having a personal statement of
financial position.
What Is It
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ABM COMPANY
Statement of Financial Position
As of December 31, 2020 Heading
ASSETS
Current Assets
Cash and Cash Equivalents P 1,119,250.00
Accounts Receivables 240,000.00
Less: Allowance for Bad Debts 20,000.00 220,000.00
Notes Receivables 22,000.00 Current
Inventories 220,000.00 Assets
Total Current Assets P 1,581,250.00
Noncurrent Assets
Property, Plant and Equipment P 407,000.00
Long-term Investment 1,100,000.00
Intangible Assets 198,000.00 Noncurrent
Total Noncurrent Assets 1,705,000.00 Assets
TOTAL ASSETS P 3,286,250.00
============
LIABILITIES & EQUITY
Current Liabilities
Accounts Payable P 220,000.00
Accrued Expenses 55,000.00
Unearned Income 99,000.00 Current
Notes Payable 110,000.00
Total Current Liabilities P 484,000.00
Liabilities
Noncurrent Liabilities
Mortgage Payable P 395,000.00
Loans Payable 100,000.00
Total Noncurrent Liabilities P 495,00.00 Noncurrent
TOTAL LIABILITIES P 979,000.00 Liabilities
OWNER’S EQUITY
Owner’s, Capital P 2,307,250.00
Owner’s
TOTAL LIABILITIES & OWNER’S EQUITY P 3,286,250.00
============= Equity
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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.
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.
ABM COMPANY
Statement of Financial Position
As of December 31, 2020
ASSETS LIABILITIES & EQUITY
Current Assets: Current Liabilities:
Cash and Cash Equivalents 1,119,250.0 Accounts Payable 220,000.00
0
Accounts Receivables 240,000.00 Accrued Expenses 55,000.00
Less: Allowance for Bad 20,000.00 220,000.00 Unearned Income 99,000.00
Debts
Notes Receivables 22,000.00 Notes Payable 110,000.00
Inventories 220,000.00 Total Current Liabilities 484,000.00
Total Current Assets 1,581,250.0 Noncurrent Liabilities:
0
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Noncurrent Assets: Mortgage Payable 395,000.00
Property, Plant & Equipment 407,000.00 Loans payable 100,000.00
Long-term Investment 1,100,000.0 Total Noncurrent Liabilities 495,000.00
0
Intangible Assets 198,000.00 TOTAL LIABILITIES 979,000.00
Total Noncurrent Assets 1,705,000.0 OWNER’S EQUITY
0
TOTAL ASSETS 3,286,250.0 Owner’s, Capital 2,307,250.00
0
==========
TOTAL LIABILITIES & 3,286,250.00
EQUITY ==========
Remember that the two are only formats and will yield the same amount of
total assets, liabilities and equity. The assets should always be equal to liabilities
and equity.
“There are many ways to skin a cat”. This is an expression that means there
are different ways of doing the same thing. And that also applies with the Statement
of Financial Position because there are different ways or forms to do it but still it’s the
same thing – the same content but different presentation or arrangement.
Total assets are double ruled and total liabilities and equity is double ruled
because they represent the end of a part of the financial statement.
What’s More
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the following accounts whether they are assets, liability, or equity accounts. For
asset and liability accounts, classify whether they are current or non-current.
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
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his/her company which will show exactly the financial position of the company as of a
given point in time. 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.
What I Can Do
Report form vs Account form – these are just formats. Usually depends on the
reader for preference. 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. 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
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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.
Construct the Report Form and Account Form of the Statement of Financial Position
using the Post-Closing Trial Balance of Dela Cruz Law Office.
Read and carefully examine the statements and choose the best answer.
2. An asset is an
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A. Expense that will recur in more than one year
B. Obligation to transfer benefits as a result of past transactions
C. Interest of the owner in the business
D. Any financial resources that is used by the business in its operation
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D. Machineries
Congratulations! You have just finished Lesson 1 of this module. Let’s recap!
The Statement of Financial Position (SFP) lists the business’s assets,
liabilities, and equity. It reflects the financial standing of a business in a given period.
An asset is defined as a resource controlled by the enterprise as a result of
past events and from which future economic benefits are expected to flow to the
enterprise. Simply, assets are possessions of a business that will bring business
benefits in the future. It adds value to your business!
Assets are classified as current and non-current assets. For an asset to be
classified as current it needs to meet some of the following criteria: 1. expected to be
realized, sold, or consumed in the entity’s normal operating cycle; 2. Held primarily
for trading; 3. Expected to be realized 12 months after the reporting period; and 4. an
asset is a cash or cash equivalent unless restricted for at least 12 months after the
reporting period.
Liability is officially defined as a present obligation arising from past events;
the settlement of which is expected to result in an outflow from the entity of
resources embodying economic benefits. Liabilities can be also classified as current
and non-current liabilities. Liabilities are classified as current if the entity has no
unconditional right to defer settlement for at least 12 months, otherwise it is non-
current.
The last element of the Statement of Financial Position is the owner’s equity.
Owner’s equity is the residual interest of the owner in the business.
Keep in mind that the total amount of the assets must equate to the total
amount of the liabilities and owner’s equity combined. To wit: Asset = Liabilities +
Owner’s Equity.
Answer Key
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5. A 10. C
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1. Report Form of Statement of Financial Position
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Total Noncurrent Assets 35,000.00 TOTAL LIABILITIES 160,500.00
TOTAL ASSETS 810,500.00 OWNER’S EQUITY
==========
Dela Cruz, Capital 650,000.00
Total Liabilities & Owner’s 810,500.00
Equity ==========
References
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Salazar, D. R. (2017). Fundamentals of Accountancy, Business and Management 2.
Rex Bookstore.
Additional References:
https://edge.pse.com.ph/openDiscViewer.do?
edge_no=5b3feb584ad68ec41db82e377ee70f3b)
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