Professional Documents
Culture Documents
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This module was designed and written with you in mind. It is here to help you
master the Statement of Financial Position (SFP). The scope of this module permits
it to be used in many different learning situations. The language used recognizes
the diverse vocabulary level of students. The lessons are arranged to follow the
standard sequence of the course. But the order in which you read them can be
changed to correspond with the textbook you are now using.
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What I Know
Directions: Choose the letter of the best answer and write your answer on a
separate sheet of paper.
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
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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
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Lesson Identify the element of the
1 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.
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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).
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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.
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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.
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.
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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
Prepaid Expenses 48,000.00
Total Current Assets Php 568,000.00
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
OWNER’S EQUITY
Owner’s Equity
D. Ramos, Capital PhP 2,300,000.00
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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.
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.
Dale’s Garden
Statement of Financial Position
As of December 31,2019
ASSETS LIABILITIES AND OWNER’S EQUITY
Current Assets Current Liabilities
Cash ₱250,000.00 Accounts Payable ₱355,000.00
Accounts Receivable 85,000.00 Notes Payable, 1 year 150,000.00
Garden Supplies and Materials 185,000.00 Salaries payable 35,500.00
Prepaid Expenses 48,000.00 Total Current Liabilities ₱540,500.00
Total Current Assets ₱568,000.00
Non-Current Liabilities
Non- Current Assets Notes Payable, 7 years ₱350,000.00
Total Non-Current
Garden Tools and Equipment ₱285,000.00 Liabilities ₱350,000.00
Accumulated Depreciation (95,000.00) ₱190,000.00
Delivery Vehicle 500,000.00 Total Liabilities ₱890,500.00
Accumulated Depreciation (62,500.00) 437,500.00
Land 1,500,000.00 Owner's Equity
Building 550,000.00 D. Ramos, Capital ₱2,300,000.00
Accumulated Depreciation (55,000.00) 495,000.00 Total Owner's Equity ₱2,300,000.00
Total Non- Current Assets ₱2,622,500.00
TOTAL LIABILITIES &
TOTAL ASSETS ₱3,190,500.00 OWNER'S EQUITY ₱3,190,500.00
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What’s More
Activity 2: “LET’S CLASSIFY”
Directions: Determine the classification of the following accounts as to ASSET,
LIABILITY AND EQUITY. For Asset and Liability accounts, determine also how it is
treated as to CURRENT OR NON- CURRENT.
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