Statement of Financial Position

Prepared by:
Ray Allen H. Silva, CPA
What is “Financial Statements”?
• Financial statements are the structured presentation of
an entity’s financial position and results of its
operations.
• It is the end product of the accounting cycle.
• The financial statements provide information on:
• How much resources are controlled by an entity and
how these resources were generated (financial
position)
• How well the entity performed during a certain
period (results of operation)
What are the five major kinds of
Financial Statements?
• Statement of Financial Position
• Statement of Profit/Loss and Other
Comprehensive Income
• Statement of Changes in Equity
• Statement of Cash Flows
• Notes to Financial Statements
What are the elements of Financial
Statements?
• The following are the elements of the financial
statements:
• Assets;
• Liabilities;
• Equity/Capital;
• Income; and
• Expenses
What is “Assets”?
• Assets are the economic resources you control
that have resulted from past events and can
provide you with future economic benefits.
Essential Elements in the definition of Assets:
• Control
• Past Events
• Future economic benefits
What is “Liabilities”?
• Liabilities are present obligations that have
resulted from past events and can require you to
give up resources when settling them.
Essential Elements in the definition of Liabilities:
• Present Obligation
• The responsibility of an entity to pay someone because of
an obligating event.
• Obligating Event is an event that creates either (a) a legal
obligation or (b) constructive obligation.
• Giving up of resources to settle the obligation
What is “Equity”?
• Equity is simply assets minus liabilities.
• Other term for equity are capital, net assets, and
net worth.
What are the classification of Assets?
• Assets are normally classified as current and
non-current.
• Assets are classified as current when they are
expected to be realized within 12 months from the
end of the reporting period.
• “Realized” means converted into cash or claim for
cash.
• All assets that are not classified as current assets
are considered non-current.
Classify the following as current or non-
current assets:
• Land
• Property, Plant, and Equipment
• Accounts Receivable
• Prepaid Expenses
• Cash
• Building
• Cash
• Inventory
What are the classification of Liabilities?
• Liabilities are also classified as current and non-
current.
• Liabilities are classified as current when they are
expected to be settled within 12 months from the
end of the reporting period.
• All liabilities that are not classified as current
liabilities are considered non-current.
Classify the following as current or non-
current liabilities:
• Accounts Payable
• Long-term Note Payable
• Unearned Income
• Salaries Payable
• Interest Payable
• Mortgage Payable
• Utilities Payable
Is it possible to record a receivable/payable
as current even if it is collectible/payable
beyond 12 months?
• Yes. Some receivables and payables are presented as
current even if they are collectible or payable beyond 12
months. These are called TRADE RECEIVABLES and
TRADE PAYABLES.
• Trade Receivables are receivables arising from the sale
of goods or services in the ordinary course of business.
• Trade Payables are obligations arising from purchases of
inventory that are sold in the ordinary course of
business.
Find the total amount of current and non
current assets:
• Cash P 10,000
• Accounts Receivable 55,000
• Notes Receivable (trade)-
P25,000 due in 3 years 60,000
• Inventory 30,000
• Prepaid Supplies 21,000
• Land 200,000

• Accumulated Depreciation (80,000)

• Building 160,000
Find the total amount of current and non
current liabilities:
• Accounts Payable P 100,000
• Notes Payable (nontrade)- P160,000 due within 1 year 600,000
• Rent Payable 120,000
• Utilities Payable 50,000
• Salaries Payable 150,000
• Mortgage Payable 250,000
• Unearned Revenue 130,000
Forms of Balance Sheet
• Report Form- Assets, liabilities, and equity
are presented in a vertical manner
• Account Form-Assets, liabilities, and equity
are presented in a horizontal manner,
somewhat similar to the basic accounting
equation.
The line items in the Statement of
Financial Position
ASSETS
• Cash and Cash Equivalents
• Trade and other receivables
• Inventory
• Prepaid Assets/Expenses
• Property, Plant, and Equipment
Cash and Cash Equivalents:
Formula:
Cash P xx
Cash Equivalents xx
Cash and Cash Equivalents xx

• Cash- includes cash on hand and cash in bank

• Cash Equivalents- are short-term debt securities
that are acquired 3 months prior the maturity date.
Trade and other Receivables
Formula:
Accounts Receivable P xx
Allowance for bad debts (xx)
Notes Receivable* xx
Advances to Supplier* xx
Trade and other receivables xx
Prepaid Assets/Expenses
Formula:
Prepaid Supplies P xx
Prepaid Rent xx
Prepaid Insurance xx
Prepaid Assets xx
Property, Plant, and Equipment
Formula:
Land P xx
Building xx
Accumulated Depreciation-Bldg. (xx)
Equipment xx
Accumulated Depreciation-Equip. (xx)
Property, Plant, and Equipment xx
The line items in the Statement of
Financial Position
LIABILITIES
• Trade and other payables
• Short-term borrowings
• Current portion of long-term borrowings
• Long term borrowings
• Income tax payable
Trade and other Payables
Formula:
Accounts Payable P xx
Notes Payable* xx
Interest Payable * xx
Salaries Payable* xx
Utilities Payable * xx
Unearned Income xx
Trade and other receivables xx
XYZ Co.’s post-closing trial balance on December 31 2018 shows the
following account balances:

Cash P 20,000
Accounts Receivable 122,000
Allowance for bad debts (30,000)
Notes Receivable (trade) 8,000
Inventory 200,000
Prepaid supplies 15,000
Prepaid rent 25,000
Prepaid insurance 10,000
Land 1,000,000
Building 2,000,000
Accumulated Depreciation- Building (1,600,000)
Equipment 800,000
Accumulated Depreciation- equipment (250,000)
Accounts Payable P 100,000
Notes Payable- short term loan 200,000
Notes Payable- long term loan
(P50,000 due within 1 year) 1,450,000

Interest Payable 65,000

Salaries Payable 105,000
Utilities Payable 8,000
Unearned Income 35,000
Owner’s Capital 357,000

Required: Prepare the statement of financial position