Module

TNHS Main_SHS_Accountancy, Business and Management

1 Statement of Financial Position (SFP)

T he purpose of a Statement of Financial Position (SFP), aka Balance Sheet, is to show

the financial position of a given business entity at a specific date. Every business prepares a
balance sheet at the end of the year, and most companies prepare one at the end of each
month. A balance sheet consists of a listing of the assets, the liabilities, and the owner’s equity of
a business.

The primary purpose of this module is for learners to demonstrate an understanding of

account titles under the assets, liabilities, and capital accounts of the Statement of Financial
Position that will equip him / her in the preparation of the SFP using the report form and account
form. Likewise, the learners shall also be able to solve exercises and problems that require
preparation of an SFP for a single/sole proprietorship with proper classification of accounts as
current and noncurrent using the report form and the account form.

After studying this module, the learner should be able to meet these Learning Objectives:

1. identify the elements of the SFP and describe each of them (ABM_FABM12-Ia-b-1)

2. classify the elements of the SFP into current and noncurrent items (ABM_FABM12-Ia-b-2)

3. prepare the SFP of a single/sole 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)

Specific Learning Outcomes:

At the end of the topic, learners should be able to:

1. reflect on the importance of preparing the SFP;

2. reflect on the separation of current and noncurrent items in the SFP; and,

3. reflect on the difference of the report form and the account form.
 PRE-ASSESSMENT

Part 1

Classify whether they are current or non-current assets/liability or simply equity.

Account Element Classification
Accounts Payable
Accounts Receivable
Notes Payable
Cash
Cash in Bank
Cash on Hand
Interest Payable
Pangit Ka, Capital
Notes Payable - 5 years
Notes Receivable
Land
Furniture & Fixtures
Salaries Payable
Ganda Ko, Capital
Utilities Payable
Prepaid Expense
Accrued Payable
Intangibles
Merchandise Inventory
Loans Payable

Part 2 Accounting Terminology. For each of the following statements, indicate the term described.

a. Obligations of an entity arising from past transactions.

b. Economic resources owned by an entity.

c. Accounting reports describing the financial position, profitability, and cash transactions of a
business entity.

d. Assets minus liabilities.

e. The financial statement indicating the profitability of the business for a period of time.

f. Assets is equal to liabilities minus equity.

Part 3 A number of transactions are described below in terms of the balance sheet accounts debited
and credited:

1. Debit Cash, credit Accounts Receivable.

2. Debit Accounts Payable, credit Cash.

3. Debit Cash, credit Tom Hill, Capital.

4. Debit Equipment, credit Accounts Payable.

5. Debit Land, credit Cash and Notes Payable.

6. Debit Accounts Payable, credit Equipment.

Indicate the effects of each transaction upon the elements of the accounting equation,
using the code letters I for increase, D for decrease, and NE for no effect. Organize your
answer in a tabular form using the column headings shown below.

Transaction Assets = Liabilities + Equity

 THE STATEMENT OF FINANCIAL POSITION
(aka Balance Sheet)

ASSETS = LIABILITIES + OWNER’S EQUITY

THE ACCOUNTING EQUATION

The financial position of an enterprise comprises its assets, liabilities and equity (or capital) at a
particular time. It pertains to the economic resources, liquidity, solvency and financial structure of an
enterprise. It provides the condition of the company on a specific date.

Liquidity – is the availability of cash in the near future to cover currently maturing obligations.

Solvency – is the availability of cash over a long term to meet financial commitments when they fall due.

The information about liquidity and solvency is useful in predicting the ability of the entity to
comply with its future financial commitments.

Financial structure – is the source of financing for the assets of the entity. It indicates what amount of
assets has been financed by creditors (borrowed capital) and how much has been financed by
owners (invested capital).

Permanent Accounts
As the name suggests, these accounts are permanent in a sense that their balances remain
intact from one accounting period to another. (Haddock, Price, & Farina, 2012)

They are called permanent accounts because the accounts are retained permanently in the SFP
until their balances become zero.

Contra Asset Accounts

Accounts that are presented under the assets portion of the SFP but are reductions to the
company’s assets. These include Allowance for Doubtful Accounts and Accumulated
Depreciation.

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.

Current Liabilities
Liabilities that fall due (paid, recognized as revenue) within one year after year-end date.

Examples include Notes Payable, Accounts Payable, Accrued Expenses (example: Utilities
Payable), Unearned Income, etc.
Noncurrent Assets
Assets that cannot be realized (collected, sold, used up) one year after year-end date.

Examples include Property, Plant and Equipment (equipment, furniture, building, land), Long
Term investments, Intangible Assets etc.

Noncurrent Liabilities
Liabilities that do not fall due (paid, recognized as revenue) within one year after year-end date.
Examples include Loans Payable, Mortgage Payable, etc.

Report Form
A form of the SFP that shows asset accounts first and then liabilities and owner’s equity
accounts after. (Haddock, Price, & Farina, 2012)
ABM Merchandise
Statement of Financial Position
As of December 31, 2016

ASSETS
Current assets:
Cash P 800,000.00
Accounts receivable P 750,000.00
Less: Allowance for doubtful accounts 50,000.00 700,000.00
Inventories 900,000.00
Store supplies 150,000.00
Offi ce supplies 50,000.00
Total current assets 2,600,000.00

Noncurrent assets:
Notes receivable - 3 years 1,000,000.00
Investment in foreign deposits 200,000.00
Trademark 250,000.00
Property, plant and equipment
Land P 700,000.00
Building P 3,500,000.00
Less: Accumulated depreciation - Building 500,000.00 3,000,000.00
Building improvements 500,000.00
Equipment 1,000,000.00
Less: Accumulated depreciation - Equipment 250,000.00 750,000.00 4,950,000.00
Total noncurrent assets 6,400,000.00

Total assets 9,000,000.00

LIABILITIES AND OWNER'S EQUITY

Current liabilities:
Accounts payable P 500,000.00
Note payable 250,000.00
Mortgage payable, due December 31, 2017 100,000.00
Income tax payable 150,000.00
Total current liabilities 1,000,000.00

Noncurrent liabilities:
Note payable, due December 31, 2020 100,000.00
Mortgage payable 900,000.00
Total noncurrent liabilities 1,000,000.00

Owner's Equity:
ABM Capital 5,000,000.00
Net income 2,000,000.00
Total Owner's Equity 7,000,000.00

Total liabilities and owner's equity 9,000,000.00

Account Form
A form of the SFP that shows assets on the left side and liabilities and owner’s equity on the
right side just like the debit and credit balances of an account. (Haddock, Price, & Farina, 2012)
ABM Merchandise
Statement of Financial Position
As of December 31, 2016

ASSETS LIABILITIES AND OWNER'S EQUITY

Current assets: Current liabilities:
Cash P 800,000.00 Accounts payable P 500,000.00
Accounts receivable P 750,000.00 Note payable 250,000.00
Less: Allowance for doubtful accounts 50,000.00 700,000.00 Mortgage payable, due December 31, 2017 100,000.00
Inventories 900,000.00 Income tax payable 150,000.00
Store supplies 150,000.00 Total current liabilities 1,000,000.00
Offi ce supplies 50,000.00
Total current assets 2,600,000.00
Noncurrent liabilities:
Noncurrent assets: Note payable, due December 31, 2020 100,000.00
Notes receivable - 3 years 1,000,000.00 Mortgage payable 900,000.00
Investment in foreign deposits 200,000.00 Total noncurrent liabilities 1,000,000.00
Trademark 250,000.00
Property, plant and equipment
Land P 700,000.00 Owner's Equity:
Building P 3,500,000.00 ABM Capital 5,000,000.00
Less: Accumulated depreciation - Building 500,000.00 3,000,000.00 Net income 2,000,000.00
Building improvements 500,000.00 Total Owner's Equity 7,000,000.00
Equipment 1,000,000.00
Less: Accumulated depreciation - Equipment 250,000.00 750,000.00 4,950,000.00
Total noncurrent assets 6,400,000.00

Total assets 9,000,000.00 Total liabilities and owner's equity 9,000,000.00

Difference of the Statement of Financial Position of a Service Company and of a Merchandising

Company

The main difference of the Statements of the two types of business lies on the inventory
account. A service company has supplies inventory classified under the current assets of the company.
While a merchandising company also has supplies inventory classified under the current assets of the
company, the business has another inventory account under its current assets which is the Merchandise
Inventory, Ending.
 EXERCISES

Exercise 1-1 The following were taken from the books of Amihan Company December 31, 2017:

Long-term payable 500,000.00

Notes Payable 120,000.00
Property, Plant and Equipment 750,000.00
Accounts Receivable 56,000.00
Accounts Payable 65,000.00
Accumulated Depreciation 100,000.00
Cash 77,000.00
Owner’s Capital ?
Unearned Income 15,000.00
Notes Receivable 245,000.00
Prepaid Expense 59,000.00
Inventory 158,000.00
Intangible Assets 125,000.00
A.
Based on the data given above, identify, classify and compute the following:
Current Assets Non Current Assets Total Assets
Current Liabilities Non-Current Liabilities Total Liabilities
Equity
B. Prepare Statement of Financial Position of Amihan Company during year-end.

Exercise 1-2 A number of business transactions carried out by Green River Farms are shown below:
a. Purchased a computer on credit.
b. The owner invested cash in the business.
c. Purchased office equipment for cash.
d. Collected an account receivable.
e. Sold land for cash at a price equal to its cost.
f. Paid a liability.
g. Borrowed money from bank.

Indicate the effects of each of these transactions upon the total amounts of the
company’s assets, liabilities, and owner’s equity. Organize your answer in a
tabular form using the column headings shown below and the code letters I for
increase, D for decrease, and NE for no effect. The answer for transaction a is provided
as an example:

Transaction Assets = Liabilities + Equity

a I I NE
Exercise 1-3 At the end of 2017, the accountant for C Abrams & Sons, a construction company,
prepared a year-end balance sheet with the following heading:

ABRAMS CONSTRUCTION
Statement of Financial Position for the year 2017

a. Identify any errors in this heading.

b. Prepare a corrected heading.

Exercise 1-4 Compute the missing amount in each of the following lines.
Assets = Liabilities + Owner's Equity
a. 379,000.00 55,000.00 ?
b. ? 161,000.00 75,000.00
c. 110,000.00 ? 65,000.00
d. 250,000.00 130,000.00 ?
e. ? 88,000.00 109,000.00
f. 145,000.00 ? 50,000.00

Exercise 1-5 The balance sheet items for Gremlin Auto Wash (arranged in alphabetical order) were as
follows at June 30, 2017:
Accounts payable 4,000.00 Land 40,000.00
Accounts receivable 300.00 Notes payable 46,000.00
Building 20,000.00 Supplies 2,800.00
Cash 4,600.00 Susan Young, capital ?
Equipment 26,000.00

During the next two days, the following transactions occurred:

July 1 Young invested additional P15,000 cash in the business. The accounts payable
were paid in full. (No payment was made on the notes payable.)

July 2 Equipment was purchased at a cost of P9,000 to be paid within 10 days.

Supplies were purchased for P500 cash from another car-washing concern
which was going out of business.

a. Prepare a balance sheet at June 30, 2017.

b. Prepare a balance sheet at July 2, 2017.

Include a proper heading for your balance sheet and arrange the accounts
according to their liquidity.
 PROBLEMS

Problem 1.1 The items making up the balance sheet of Travel Corp. at December 31, 2017 are listed
below:
Owner's
ASSETS = LIABILITIES +
Equity
Accounts Offi ce Notes Accounts Walker,
+ + + = + +
Cash Receivable Automobiles Equipment Payable Payable Capital
9,500.00 58,400.00 9,000.00 3,800.00 20,000.00 25,200.00 35,500.00

During a short period, Travel Corp. had the following transactions:

1. Bought office equipment at a cost of P5,700, paid cash.
2. Collected P4,000 of accounts receivable.
3. Paid P7,200 of accounts payable.
4. Borrowed P10,000 from a bank. Signed a note payable for that amount.
5. Purchased an automobile for P25,000. Paid P5,000 cash and signed a note payable for
the balance.

Requirement:
a. List the December 31 balances of assets, liabilities, and owner’s equity in tabular form
as shown above.
b. Record the effects of each of the five transactions in the tabular arrangement
illustrated above.
Show the totals for all columns after each transaction.

Problem 1.2 You were hired by Mr. Juan Dela Cruz to prepare his sari-sari store’s Statement of
Financial Position.

In order to prepare the statement, you identified the following assets and liabilities of
Mr. Dela Cruz:
a. His sari-sari store has cash deposited in a bank account amounting to P50,000
b. His sari-sari store had a lot of uncollected sales from customers amounting to P75,000
c. The total amount of merchandise left inside the store is P30,000
d. He already paid one year’s rent in advance amounting to P12,000
e. The value of all the company’s furniture amounted to P100,000
f. SSS, Philhealth and Pag-ibig Payables for his one employee totaled P5,000
g. The sari-sari store had outstanding liabilities to utility companies amounting to P3,000
h. He had a loan from the bank amounting to P50,000 to be paid in 3 years

Prepare a Statement of Financial Position for the company in Report and Account
Format.
 Problem 1.3 You have been engaged to examine the financial statements of ABM Merchandise for
the year 2018. The client provides you with the following information given
below:

Current Assets 3,100,000.00 Current Liabilities 1,000,000.00

Other Assets 5,900,000.00 Long Term Liabilities 1,000,000.00
Capital 7,000,000.00

Current Assets include the following: 9,000,000.00 Current liabilities include:9,000,000.00

Cash (including P200,000 invested in restricted foreign deposit) 1,000,000.00 Accounts payable 500,000.00
Accounts receivable less allowance of P50,000 700,000.00 Note payable (P100,000 due December 31, 2020) 350,000.00
Inventories 900,000.00 Income tax payable 150,000.00
Building Improvements 500,000.00 1,000,000.00
3,100,000.00

Other Asset include: Long term liabilities include:

Store supplies 150,000.00 Mortgage payable (P100,000 due on December 31, 2018) 1,000,000.00
Building less accumulated depreciation of P500,000 3,000,000.00
Equipment less accumulated depreciation of P250,000 750,000.00 Capital includes:
Notes receivable - 3 years 1,000,000.00 ABM Capital 5,000,000.00
Offi ce supplies 50,000.00 Net Income (loss) 2,000,000.00
Trademark 250,000.00 7,000,000.00
Land 700,000.00
5,900,000.00

9,000,000.00 9,000,000.00

Required:
Prepare in good form a properly classifed balance sheet on December 31, 2018 with supporting computations.