Fundamentals of

Accountancy, Business &

Management 2
Quarter 1 – SLM 1
STATEMENT OF FINANCIAL POSITION
 What I Need to Know

The SLM is composed of one lesson, namely:

• Lesson 1 – Identify the element of the Statement of Financial Position (SFP) and
describe each of them.

After going through this SLM, you are expected to:

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; and
3. appreciate the importance of the SFP in a business organization.

What I Know

Directions: Choose the letter of the best answer and write your answer on a separate sheet of
paper.
1. It pertains to resources which are controlled and owned by the business.
a. Assets c. Equity
b. Liabilities d. Resources
2. It is derived from deducting the total liabilities to the total assets of a
company.
a. Assets c. Equity
b. Liabilities d. Resources
3. Which of the following pertains to the obligations that the business owed to other
entities arising from past events which are to be settled in the future?
a. Assets c. Equity
b. Liabilities d. Resources
4. Which of the following is the correct Accounting Equation?
a. Assets + Liabilities = Equity c. Assets = Liabilities + Equity
b. Assets = Liabilities - Equity d. Assets + Equity = Liabilities
5. Which of the following is classified as Current Asset?
a. Prepaid Expenses c. Delivery Vehicle
b. Land d. Copyright
6. Which of the following financial statements presents the financial position of an
entity at a given or specific date?
a. Income Statement c. Statement of Changes in Equity
b. Statement of Financial Position d. Statement of Cash Flows
7. All of the following are classified as Assets, EXCEPT:
a. Accounts Receivable c. Building
b. Inventory d. Accounts Payable
8. Which of the following is classified as a non-current liability?
 a. Accounts Payable c. Utilities Payable
b. Mortgage Payable d. Unearned Revenue
9. Which of the following is classified as a current asset?
a. Prepaid Rent c. Investments
b. Unearned Rent d. Drawings
10. In which part of Statement of Financial Position does the Salaries
Payable be listed?
a. Assets c. Owner’s Equity
b. Liabilities d. Expenses
11. The following are elements of Statement of Financial Position EXCEPT:
a. Assets c. Equity
b. Liabilities d. Expenses
12. It is a form of the Statement of Financial Position that is presented in a horizontal
format.
a. Report form c. Digital form
b. Account form d. Line form
13. It is a form of the Statement of Financial Position that is presented in a vertical
format.
a. Report form c. Digital form
b. Account form d. Line form
14. An item is considered current when__________________________________________?
a. It is expected to be used or converted into cash or to be paid for more than one
year.
b. It cannot be converted or realizable into cash within a year.
c. It is expected to be used or realizable into cash or to be paid within a year.
d. It has an expected life for more than 12 months
15. A non-current item is _________________________________.
a. expected to be used/realizable into cash or to be paid for more than one year.
b. Expected to be converted or realizable into cash within a year.
c. expected to be used or paid within a year.
d. item bought for readily consumption

Lesson 1 Identify the element of

the Statement of Financial
Position (SFP) and describe
each of them.

The Statement of Financial Position (SFP), which is also known as the Balance
Sheet, shows the financial position of a business entity at a given period or a
specified date. Its purpose is to help the financial statement users in the assessment
of the financial health and soundness of a business entity in determining its
liquidity, financial, credit and business risks. It has three (3) elements: 1. Assets
(resources owned and controlled by the business); 2. Liabilities (obligations owed to
 someone by the business); and 3. Equity or Owner’s Equity (residual interest of the
owners of the business or what was left of the assets after paying the liabilities is the
right of the owners).
The assets, aside from the capital investment of the owners, maybe financed
from outside sources (like loans from banks and other financial institutions or from
other creditors). The total assets should always be equal to the sum of the total
liabilities and total equity. Thus, the Accounting Equation is stated as: Assets =
Liabilities + Equity.

What’s In

As what you have learned from your Fundamentals of the Accountancy, Business and
Management 1 about the types of major accounts (Assets, Liabilities, Equity, Income and
Expenses), let us focus on the three major accounts which are also the elements of the SFP or
the Balance Sheet. These are the Assets, Liabilities and Equity.

What’s New

The activity below will help you check how much you know about the key elements of
the Statement of Financial Position (SFP).

Activity 1: “HULA ME”

Directions:

1. Guess the account title being described in each sentence.

2. Identify what element of SFP (Assets, Liabilities or Equity) it is listed/ included.
3. Write your answers on the columns provided.
 What is It

In Activity 1, you were able to identify and describe some of the account titles and
the elements to which it belongs in relation to the Statement of Financial Position
(SFP). In this part of the module, you will learn further the preparation of SFP using
the report form and the account form with proper classification of items as current
and noncurrent.
The Statement of Financial Position (SFP): its classification, its preparation
and its form.
As mentioned earlier, the Statement of Financial Position (SFP) or the Balance Sheet
shows the financial position of a business entity at a given period or a specific date.
Following the accounting cycle the SFP and other financial statements (which will be
discussed in the succeeding modules) are prepared once the adjusted trial balance is
done to come- up with a fair balance sheet statement. Assets, Liabilities and Equity
are properly grouped and classified to give a meaningful information. Assets are
presented and classified by the order of its liquidity or those that are readily available
for use and can easily be converted into cash are listed first and assets that cannot
be easily converted into cash are listed last. When it comes to liabilities, maturity
matters. Those obligations that are currently due are listed first. The Balance Sheet
includes permanent and contra asset accounts. An account is said to be permanent
because their balances are carried over from one accounting date to another. The
Assets, Liabilities and Equity accounts are permanent accounts. Contra asset
accounts are accounts also presented in the SFP as a deduction to a particular asset.
These are Allowance for Doubtful Accounts and Accumulated Depreciation. The
Allowance for Doubtful Accounts, a contra- asset for Accounts Receivable, it is an
allowance made by the business for estimated uncollectible accounts. An
Accumulated Depreciation is an account that represents depreciation of Fixed
Assets (except for Land) due to its usual wear and tear.

Classification of Assets, Liabilities and Equity

1. Assets are divided into current or non- current.
Current Assets- are items that are listed on a business’ statement of financial
position that are expected to be used or realized into cash within one accounting
period or a year. It usually includes cash, accounts receivable, inventories and
prepaid expenses. Cash is considered the most liquid asset because it is readily
available for use. It is used as a medium of exchange in business transactions and
may be held on hand or put in banks for safekeeping. Accounts Receivables are
accounts due from customers as a result of sale of goods or for services rendered
that are collectible within one year. Inventories are regarded as a current asset
because these are items held for resale because they are readily available (either raw
materials or finished goods). Prepaid expenses are considered current assets
because they are expenses paid in advance to be consumed within a year.

Non- Current Assets- are items that are listed on a business’ statement of financial
position that cannot be used or realized into cash within one accounting period or a
year. It includes assets that are long- term in nature like fixed assets, long-term
investments and intangibles. Fixed assets includes Property, Plant and Equipment
(Furniture, equipment, land, building, vehicles, etc.) that are used acquired for use in
operations and have an estimated useful life of more than one year. Long- term
investments are investments made by the owners of the business for long- term
purposes like marketable securities. Intangible assets are non- physical assets like
Patents, Copyright and Franchise.

2. Liabilities are also divided into current or non- current.

Current Liabilities- are liabilities that should be paid and realized within a year
after the year- end date. These include Accounts Payable, Notes Payable, Accrued
Expenses and Unearned Income. Accounts Payable is amount due to suppliers for
the purchase of goods or services received on account to be paid within a year. Notes
Payable is account due with supporting promissory notes with short-term mode of
payments. Accrued Expenses are expenses incurred but not yet paid, examples are
Salaries Payable, Taxes Payable, etc. Unearned Income is cash collected or given in
advance from customers for future delivery of goods or services to be performed.

Non- Current Liabilities- are liabilities that are to be paid for more than a year from
the year- end date. These include Loans Payable, Mortgage Payable, etc. Loans
Payable is account due from third parties which was agreed to be paid for longer
terms. Mortgage Payable is account due from third parties with associated
collaterals to be paid for longer terms.

3. Equity
Equity or Owner’s Equity is the residual interest of the owners of the business or
what was left of the assets after paying the liabilities is the right of the owners. It
includes the Capital and Drawing accounts. Capital is the investment made by the
owner to start- up a business in the form of cash or other assets. Drawing or
withdrawal is an amount taken by the owner from the business for personal use.

Steps in preparing a simple Statement of Financial Position (SFP):

1. You should start with a heading. The heading includes the name of the business
or entity (ex. JD Gardens), name of the financial statement (ex. Statement of
Financial Position) and the reporting date/ period (ex. As of December 31, 2019). We
use as of in SFP because the amounts (in Philippine Peso) of the items are
cumulative from the start of the operations of the business up to the accounting
date.
2. Assets are presented first. These are classified into current and non- current
assets.
3. Next is to present the Liabilities. These should also be classified into current and
non- current liabilities.
4. Equity/ Owner’s Equity is then added after the liabilities to complete the
accounting equation (Assets= Liabilities + Equity).

Dale’s Garden
Statement of Financial Position
As of December 31, 2019

ASSETS
Current Assets
Cash PhP 250,000.00
Accounts Receivable 85,000.00
Garden Supplies and Materials 185,000.00
Expenses 48,000.00
Total Current Assets Php 568,000.00

Non- Current Assets

Garden Tools and Equipment PhP 285,000.00
Accumulated Depreciation ( 95,000.00) PhP 190,000.00
Delivery Vehicle 500,000.00
Accumulated Depreciation ( 62,500.00) 437,500.00
Land 1,500,000.00
Building 550,000.00
Accumulated Depreciation ( 55,000.00) 495,000.00
 Total Non- Current Assets PhP 2,622,500.00

TOTAL ASSETS PhP 3,190,500.00

================

LIABILITIES

Current Liabilities
Accounts Payable PhP 355,000.00
Notes Payable, 1 year 150,000.00
Salaries Payable 35,500.00
Total Current Liabilities PhP 540,500.00

Non-Current Liabilities
Notes Payable, 7 years 350,000.00

TOTAL LIABILITIES PhP 890,500.00

OWNER’S EQUITY

Owner’s Equity

D. Ramos, Capital PhP 2,300,000.00

TOTAL LIABILITIES AND OWNER’S EQUITY PhP 3,190,500.00

================

The illustration is an example of a simple statement of financial position of a single/

sole proprietorship. Other forms of business organizations (partnership and
corporation) have different presentation depending on the nature of its business. The
total assets must be always equal to the total liabilities and owner’s equity. The total
assets, as well as, the total liabilities and equity are double ruled showing that it is
the end part of a financial statement.
Forms of Statement of Financial Position (SFP)
The Statement of Financial Position (SFP) has two forms, the Report form and the
Account Form. The format in the preparation of the SFP depends on the preference
but most financial users prefer to use the report form because it is easier to read
especially when comparing multiple years SFP.
Report Form- it is a form of SFP wherein accounts are presented vertically, the
Assets first, followed by the Liabilities and then the Equity. The above presented
Balance Sheet is an example of a Report Form SFP.
Account Form- it is a form of SFP wherein accounts are presented horizontally, the
Assets are presented on the left side while the Liabilities and the Equity are on the
right side of the Balance Sheet. It will look like the debit and credit balances of an
account.