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The Ststemsnt of Finunciul Position

ond the Stotement of Owner's Equity

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rH lesson Objectives
. review the clossificotion of ossets
. know the occounts thot comprise the osset section of the stotement
of finonciol position
. prepore the osset section of the stotement of finonciol position including
the supporting notes

The statement of financial position or balance sheet shows the financial condition of
a company

as of a given time. It is a clear representation of the accounting equation Assets = Liabilities +

Owner's Equity. The first element of the statement of financial position is the asset.

REVIEW OF CTASSIFICATION OF ASSETS

Assets are subclassified as current assets and non-current assets.

A. CURRENT ASSEIS

Current Assets are classified and presented according to liquidity with the most liquid
followed by those with lesser liquidity. Since cash is the most liquid, it is always listed first
followed by other current assets according to their proximity to cash.

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Improvements to International Accounting Standards -7 [December 2003J classify asset as
current asset when it is:

a. expected to be realized in, or is intended for sale or consumption in, the entity's normal
operating cycle;
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b. held primarily for the purpose of being traded;

c. expected to be realized within twelve months of the balance sheet date; or

d. cash or a cash equivalent unless it is restricted from being exchanged or used to settle a
liability for at least twelve months after the balance sheet date.

Clossificqtion of Currenl Assets

Cash includes coins, currencies, checks, bank deposits, and other cash items readily available for
use in the operations of the business.

! Cash Equivalents are short-term investments that are readily convertible to known amounts of
cash which are subject to an insignificant risk to changes in value [per SE4S No. 22,revised 2000).

Marketable Securities are stocks and bonds purchased by the enterprise and are to be held
for only a short span of time or short duration. They are usually purchased when a business has
excess cash.

Trade and Other Receivables include the amounts collectible from any of the following accounts:
. Accounts Receivable - is the amount collectible from the customer to whom sales have
been made or services have been rendered on account or credit.
. Notes Receivable is a promissory note issued by the client or the customer in exchange
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for services or goods received as evidence ofhis/her obligation to pay.
o Interest Receivable - amount of interest collectible on promissory notes received from
customers and clients.
. Advances to Emplayees - certain amount of money loaned to employees payable in cash or
through saIary deductions.
. Accrued Income - income aiready earned but not yet received.
Inventories represent the unsold goods at the end of the accounting period. This is applicable
only to a merchandising business,

oF posrroN AND oF owNER's EeurTy

@-f THE
'TATEMENT
FTNANCTAL THE
'TATEMENT
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prepaid Expenses include supplies bought for use in the business or services and benefits to be
received by the business in the future paid in advance.

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Contra-Asset Accounts are accounts deducted from the related asset accounts. The following are
the contra-asset accounts.

Allowance for Bad Debts are losses due to uncollectible accounts. This is deducted from
:l the accounts receivable account to get the net realizable value. This is in line with the financial
statements' qualitative characteristic of conservatism wherein no profits would be anticipated
but all probable or estimable losses should be provided'

Accumulated Depreciation represents the expired cost of property, plant, and equipment as
r ior a result ofusage and passage oftime. This is deducted from the cost ofthe related
asset account

to get the carrying value or book value of the asset'

io f B. NON.CURRENI ASSEIS
Clossificotion ol Non-Currenl Assets
held Long-term Investments are assets held by an enterprise for the accretion of wealth through
; ras capital distribution such as interest, royalties, dividends and rentals, for capital appreciation or
for other benefits to the investing enterprise such as those obtained through trading relationships.
Investments are classified as long-term when they are intended to be held for an extended
period
of time flnternational Accounting Standards No. 25).
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property, plant, and Equipment are tangible assets that are held by an enterprise for use in the
production or supply of goods or services, or for administrative purposes and which are expected
to be used for more than one period llnternational Accounting Standards No. 16)' Examples of
Property, Plant, and EquiPment are:
-:rm . Land is a piece of lot or real estate owned by the enterprise on which a building can be
constructed for business purposes'
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. Buildingis an edifice or structure used to accommodate the office, store, or factory of a

business enterprise in the conduct of its operations'

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:l Equipmentincludestypewrite4, air-conditione4 calculato[ filing cabinet, compute{, electric
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fan, trucks, and cars used by the business in its office, store, or factory. Specific account
it titles may be used such as Office Equipment, Store Equipment, Delivery Equipment,
il Transportation Equipment, Machinery and Equipment.
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. Furniture and Fixtures include tables, chairs, carpets, curtains, lamp and lighting fixtures,
and wall decors. Specific account titles maybe used such as Office Furniture and Fixtures
and Store Furniture and Fixtures.

Intangible Assets are identifiable, nonmonetary assets without physical substance held for use in
the production or supply of goods or services, for rental to others, or for administrative purposes.
These iriclude goodwill, patents, copyrights, licenses, franchises, trademarks, brand names,
secret processes, subscription lists and noncornpetition agreements (International Accounting
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Standards No. 3B).

I presented below is the asset section of the statement of financial position or balance sheet and
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the supporting notes.

Assets Note

Current Assets
Cash F 450,000
Investment in Trading Securities 75,000
Trade and Other Receivables 100,000
Merchandise Inventory 90,000
Prepaid Expenses 95,000
Total Current Assets P 810,000

Non-Current Assets
Property, Plant, and EquiPment 700,000
Total Assets ru-10,9qq

THE sTATEMENT oF FTNANCTAL posrloN AND THE sTATEMENT oF owNER's EeutTY

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Note 5 - Cash

Cash on Hand F2oo,ooo

Cash in Bank 250,000
Total P45o,ooo

Note 6 - Trade and Other Receivables

Accounts Receivable F 65,000

Lessr Allowance for Bad Debts 5,000 F 60,000
Notes Receivable 15,000
Interest Receivable 10,000
Advances td Employees 10,000
Accrued Income 5,000
Total r4qplq
Note 7 - Prepaid Expenses

Supplies P25,000
Prepaid Insurance 70,000
Total F95,000

Note B - Property, Plant, and Equipment

Land :
F180,000
Building P500,000
Less : Accumulated Depreciation 20,000 480,000
Equiment F50,000
Less: Accumulated Depreciation 20,000 30,000
Furniture & Fixtures 10,000
Total rz!!p!a

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'aE Test Your Understonding

1. When is an asset classified as current?

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2. What are long term investments?

3. What are property, plant, and equipment?

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Presented below are the assets of RodNeddie Trading, Prepare the assets section ofthe
balance sheet for year ended December 3t,2016 together with the supporting notes.

Cash on Hand F200,000

Accounts Receivable 100,000
Allowance for Bad Debts 5,000
Notes Receivable 40,000
Interest Receivable 12,000
Advances to Employees 20,000
Accrued Income 10,000
Supplies 1,000
Prepaid Rent 7,000
Land 400,000
Building 700,000
Accumulated Depreciation - Building 50,000
Equipment 100,000
Accumulated Depreciation - Equipment 30,000
Furniture & Fixtures 80,000

THE sTATEMENT oF FTNANCTAL posrTloN AND THE sTATEMENT oF owNER's Eeurry

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