Definition of the Statement of Financial Position and Its Element

SFP stands for statement of financial position, is statement that gives the
financial condition of a business as of a given date.
Another name of SFP is balance sheet.
Composed of 3 elements and they are assets, liabilities and capital.
Assets are the things owned by the business.
Liabilities are the debts owed by the business to persons other than the
owner.
Capital refers to the investment or equity of the owner in the business.
Example of financial information:

ASSET
Are properties of rights on properties owned by the business. They are
items of value that belong to the business. In general, common examples of
assets are cash, tools and equipment, building and land.

THE FOLLOWING DESCRIBE FURTHER WHAT AN ASSET IS:

 Assets are controlled by the enterprise.
 Assets result from past events.
 Assets give future economic benefits.
 Assets can be used by themselves alone to yield income.
 LIABILITIES

Think of debts to be paid by the business to its suppliers of products for sale, or
supplies to be used.
Us a debt of the entity resulting from a previous transaction such as a loan, a purchase
from a supplier, or an agreement to assume the debt of another party.
Liabilities can be settled in various items, but the terms should conform to the
established agreement between the parties involved or rules set by a governing body.
Is incurred to realize a transfer of economic benefits.
Past transactions may give birth to a liability, as in the case of the Notes Payable.
The payment of a liability may be done through
1. Cash payment
2. Distribution of other assets
3. Rendering of services
4. Substitution with another liability
5. Conversion of the liability into ownership interest of the lender in the borrower’s
entity.

CAPITAL

Capital is also reflected in the SFP.

A proprietor invests capital in the form of funds, merchandise, equipment or any
other property to operate his or her business.
The capital will grow when the business earns profits, but will decrease when the
business incurs a loss.
Equity in a single proprietorship is termed as capital account.

CLASSIFICATION OF THE SFP ELEMENTS INT OCURRENT AND NONCURRENT

A. BASIS OF CHECKING ASSETS AND LIABILITIES

Examples of Current and Noncurrent Assets

CURRENT ASSETS NONCURRENT ASSETS

Cash Land
Trading account securities Building

Receivables (accounts, notes) Equipment

Merchandise inventory Furniture and fixtures

Prepaid expenses Leasehold right

 Current Liabilities
Are debts or obligation normally expected to be settled in the normal
course of the company’s operating cycle or within one year by using
current assets or creating other current liabilities.
Noncurrent Liabilities
Are long term debts which will be settled beyond one year.

Examples of Current and Noncurrent Liabilities

Current Liabilities Noncurrent Liabilities

Accounts payable Note payable (due more than 1
Loans payable year)
Utilities payable Mortgage payable
Interest payable Bond payable

CONCEPT OF NORMAL OPERATING CYCLE FOR A MERCHANDISING BUSINES

Description of Acount Titles in the SFP

The following are the account titles usually used in the SFP.

a. Cash