Senior High School

Fundamentals of Accountancy,
Business and Management 2
Module 1:
Statement of Financial Position

AIRs - LM
ABM – FUNDAMENTALS OF ACCOUNTANCY, BUSINESS AND
MANAGEMENT 2
Module 1: Statement of Financial Position
Second Edition, 2021

Copyright © 2021
La Union Schools Division
Region I

All rights reserved. No part of this module may be reproduced in any form
without written permission from the copyright owners.

Development Team of the Module

Authors: Kay Owen L. Boado

Editor: SDO La Union, Learning Resource Quality Assurance Team
Content Reviewers: Rudyna M. Minasalvas
Language Reviewer: Liza Antolin
Illustrator: Ernesto F. Ramos, Jr.
Design and Layout: Angela Pauline C. Ganuelas

Management Team:

Atty. Donato D. Balderas Jr.

Schools Division Superintendent
Vivian Luz S. Pagatpatan, Ph.D
Assistant Schools Division Superintendent
German E. Flora, Ph.D, CID Chief
Virgilio C. Boado, Ph.D, EPS in Charge of LRMS
Lorna O. Gaspar, EPS in Charge of ABM
Michael Jason D. Morales, PDO II
Claire P. Toluyen, Librarian II

Printed in the Philippines by: _________________________

Department of Education – SDO La Union

Office Address: Flores St. Catbangen, San Fernando City, La Union
Telefax: 072 – 205 – 0046
Email Address: launion@deped.gov.ph

LU_Fundamentals of Accountancy, Business and Management 2_Module1

 SHS
Fundamentals of Accountancy,
Business and Management 2
Module 1:
Statement of Financial Position

LU_Fundamentals of Accountancy, Business and Management 2_Module1

Introductory Message
This Self-Learning Module (SLM) is prepared so that you, our dear
learners, can continue your studies and learn while at home. Activities,
questions, directions, exercises, and discussions are carefully stated for you
to understand each lesson.

Each SLM is composed of different parts. Each part shall guide you
step-by-step as you discover and understand the lesson prepared for you.

Pre-tests are provided to measure your prior knowledge on lessons in

each SLM. This will tell you if you need to proceed on completing this module
or if you need to ask your facilitator or your teacher’s assistance for better
understanding of the lesson. At the end of each module, you need to answer
the post-test to self-check your learning. Answer keys are provided for each
activity and test. We trust that you will be honest in using these.

In addition to the material in the main text, Notes to the Teacher are
also provided to our facilitators and parents for strategies and reminders on
how they can best help you on your home-based learning.

Please use this module with care. Do not put unnecessary marks on
any part of this SLM. Use a separate sheet of paper in answering the exercises
and tests. And read the instructions carefully before performing each task.

If you have any questions in using this SLM or any difficulty in

answering the tasks in this module, do not hesitate to consult your teacher
or facilitator.

Thank you.

LU_Fundamentals of Accountancy, Business and Management 2_Module1

 Target

A Projection of a Financial Position

We begin our study of financial statements with Statement of Financial

Position. Statement of Financial Position (SFP) also known as balance sheet
shows the financial condition of the business entity at any given time.

This financial statement conveys information about the business entity’s

liquidity, solvency, stability, capital structure, and financial flexibility.

The accounting elements of the financial position are Assets, Liabilities and
Equity. (See Figure 1)

Assets Liabilities Equity

= +

Figure 1: The Accounting Equation

The assets are on the left side of the equation while liabilities and equity
are on the right side of the equation. The total assets should always be equal
to the total liabilities and total equity.

This module will provide you with information and activities that will
help you understand the Statement of Financial Position.

After going through this module, you are expected to:

1. Identify the elements of the Statement of Financial Position (SFP) and

describe each item (ABM_FABM12 – Ia-b-1):

2. Prepare an SFP using the report form and the account form with the proper
classification of items as current and noncurrent. (ABM_FABM12 – Ia-b-4).

Before going on, check how much you know about this topic. Answer
the pre-test on the next page in a separate sheet of paper.

LU_Fundamentals of Accountancy, Business and Management 2_Module1

 Jumpstart

Activity 1: Read me! Understand me!

Directions: Read the three elements of Statement of Financial Position. Understand
what you are reading.

The Statement of Financial Position or Balance Sheet reports the resources

available for the company to use, obligations that the company is required to settle
and the equity that belongs to the owner/s of the company.

Permanent/Real Accounts are Assets, Liabilities and Owner’s Equity.

Real/Permanent accounts are reported in SFP. They are not closed at the end of
accounting period.

Elements of the Statement of Financial Position (SFP)

a. Assets these are the resources that are within the control of the company
and have future benefits.

b. Liabilities are obligations that the company is required to pay.

c. Equity is the residual interest of the owner of the company/business.

Directions: Choose your answer from the given choices. Use separate paper.

Q1. What element of the SFP are debts and obligations of the company to
another entity?
A. Assets B. Liabilities C. Equity D. None of the above
Q2. What basic financial statement is also called a Balance Sheet?
A. Statement of Cash Flows
B. Statement of Financial Position
C. Statement of Comprehensive Income
D. Statement of Changes in Owner’s Equity
Q3. What element of SPF is the net assets of the company?
A. Assets B. Liabilities C. Equity D. None of the above
Q4. Which of the following IS NOT an element of SFP?
A. Asset B. Real Accounts C. Liability D. Equity
Q5. What is the residual interest of the owner of the business?
A. Asset B. Real Accounts C. Liability D. Equity

LU_Fundamentals of Accountancy, Business and Management 2_Module1

 Discover

I. THE ELEMENTS OF THE STATEMENT OF FINANCIAL POSITION

1. Assets are the resources with future benefits that are within the control of the
company. Resources are classified into accounts based on its future use to the
company. Assets are recorded in the books of accounts with a normal debit balance.
There are the classification of assets; current and noncurrent assets.

Current assets are assets that can be realized (collected, sold, used up) one
year after year-end date. Examples include Cash, Receivable, Merchandise
Inventory and Prepaid Expenses.

a. CASH is any item on hand with monetary value that a bank will accept for deposit
and all small amounts currently on deposit with the bank in the name of business.
This includes coins and currencies, personal checks, money orders, traveler’s checks
made payable to the business and bank drafts. Also included are any funds that are
currently on deposit at a bank and readily available as checking and savings account

b. RECEIVABLES refers to the company’s right to collect or claim payment. Accounts

Receivables are amounts due from customers arising from credit sales or credit
services. Notes Receivable is another kind of receivable. It is evidenced by promissory
notes. Promissory notes is a legal document that says the borrower promises to pay
on scheduled payments dates, a specific sum called the principal and interest based
on principal and stated interest to sign a promissory note. The company may also
lend to its employees or other companies is the company has excess cash.

c. INVENTORIES are assets held for sale in the normal operation of the business, in
the process of production for sale, or in the form of materials or supplies to be
consumed in the production process or in the rendering of services. Examples are
merchandise inventory, work-in-process inventory, and raw materials inventory.

d. PREPAID EXPENSES are expenses paid in advance. It is placed in this account

until the services or items are used and become expenses. Recall the concept of
accrual discussed in FABM 1, expenses are recorded only when purchased goods
and services are used.

For example, prepaid subscribers in buying load or cards, they essentially pay
the phone companies prior to using their services. On the other hand, post paid
subscribers pay only after they are billed for the services used. Accrual accounting
states that expense is recognized only when phone services are used, regardless of
whether they are prepaid or post-paid subscribers – it is Prepaid Expense. When the
load is consumed, the cost of the card is transferred out to Prepaid Expense and into
Communication/Telephone Expense.

LU_Fundamentals of Accountancy, Business and Management 2_Module1

 Another kind of prepaid expense is Insurance. The insured will pay premium
at the beginning of contract period and the insurer (insurance company) will
reimburse the insured party for losses if the insured event occur.

Noncurrent assets are assets that cannot be realized (collected, sold, used
up) one year after the year-end date. Examples include Property, Plant and
Equipment (equipment, furniture, building, land) and Long-term investments.

a. PROPERTY, PLANT AND EQUIPMENT or PPE for short, are long-lived assets
which have been acquired for use in operations. Only those assets owned and
controlled by the company will be recorded as PPE. Rented facilities and equipment
are excluded from PPE.

b. LONG-TERM INVESTMENTS are intangible assets like PPE. The allocation of the
cost of intangible assets to the year it was used is called amortization. It is computed
like depreciation such that the cost of the asset is amortized evenly over its useful
life. The main difference between the two assets is that intangible assets have no
tangible properties. These are assets that you cannot touch or see. There may be a
piece of paper as evidence of the asset, but the actual asset is “intangible”. Some
examples of Intangible assets are patent, brand name and trademark. A patent is a
grant conferred by the government to the creator of an invention for a specified
period. In recent years, the patent infringement cases between Samsung and Apple
filled the business news. Brand-name refers to word or words used to identify a
specific product and its manufacturers. Famous brands include Jollibee,
McDonalds, Apple, Coca-Cola, Samsung, and Nike. Trademark is the symbol that
represents the brand. For example, red happy bee for Jollibee, tall clown in stripes
for McDonalds, a checkmark for Nike.

Contra Valuation Accounts:

• Allowance for doubtful accounts – refers to an amount estimated

uncollectible on receivable in compliance with the principle of conservatism.
It is credited to serve as a contra account for the related receivable. Other terms
used to describe this account are “allowance for uncollectible account” and
“allowance for bad debts”.
• Accumulated Depreciation – the aggregate periodic costs of using a
depreciable plant asset. In accordance with the systematic cost allocation
principle, the acquisition cost or depreciable plant asset should be allocated
as expense over its useful life. Examples are accumulated depreciation of
building, accumulated depreciation of equipment, etc.

2. Liabilities these are present obligations to pay cash or cash equivalents by an

entity. In other words, they represent claims against the assets of the business.
Liabilities have normal credit balance. These are the classification of liabilities,
current and noncurrent liabilities.

LU_Fundamentals of Accountancy, Business and Management 2_Module1

 Current Liabilities are liabilities that fall due (paid, recognized as revenue)
with one year after year-end date. Examples include Accounts payable, Notes
payable, Accrued Expenses, Unearned Income.

a. ACCOUNTS PAYABLE an obligation or debt to creditors for money borrowed or

merchandise and other assets bought on credit.

b. NOTES PAYABLE a promissory note issued by the business to its creditors for
money borrowed or merchandise and other assets bought on credit.

c. ACCRUED EXPENSES are expenses that are incurred but not yet paid. Examples
are salaries payable, taxes payable)

d. UNEARNED INCOME is cash collected in advance; the liability is the services to

be performed or goods to be delivered in the future.

NON-CURRENT LIABILITIES are liabilities that do not fall due (paid,

recognize as revenue) within one year after year-end date.

a. LOANS PAYABLE

b. MORTGAGE PAYABLE

3. Equity is the residual amount after deducting liabilities from assets. It comprises
the capital contribution of the owner and withdrawals by the owner. It is increased
by capital contribution of the owner and net income of the business and decreased
by the owner’s withdrawals and net losses of the business.

Owner’s Equity is described as owner’s capital (sole proprietorship), partner’s capital

(partnership) and shareholders’ equity (corporation). These accounts have normal
credit balances.

• Drawing is a temporary account used initially the amount taken by the owner
from the business. This is closed to the capital account of the owner at the
end of accounting period.

LU_Fundamentals of Accountancy, Business and Management 2_Module1

II. CLASSIFICATIONS IN PREPARING SFP
1. ACCOUNT FORM

2. REPORT FORM
The Statement of Financial
Position, SFP (Balance Sheet)
shows the financial condition of the
business at any given time. It also
starts with the heading
compromised the following:

• Name of the business

(who?)
• Name of the statement
(what?)
• Date of the statement
(when?)

Observe that the date of the

business starts with the words “as
of”. This means the SFP can be
prepared anytime even if the
operation of the business has not
yet started yet. As long as the
business has assets contributed by
owners or creditors, the SFP can be
prepared.

The SFP presented on the left side

is an example of a report form. The
SFP can also be presented in its
account form as shown above.

LU_Fundamentals of Accountancy, Business and Management 2_Module1

 Explore

Enrichment Activity 1: HERE WE GO A-COUNTING!

Directions: The following items are taken from the records of XYZ Company. Classify
whether they belong to the Assets, Liabilities, Owner’s Equity of the business. Use
separate sheet for your answers.
Items: Amount: Items: Amount:

1. Merchandise Inventory P 50,000 13. Owner’s Equity ?

2. Accounts Receivable 30,000 14. Furniture and Fixtures 6,000

3. Worthless Receivable 500 15. Accum. Dep’n – Store Bldg.5,000

4. Prepaid Rent 8,000 16. Sales (80% cash) 200,000

5. Obsolete Merchandise 1,000 17. Accum. Dep’n – F and F 600

6. Rent Expense 4,000 18. Depreciation Expense 3,300

7. Notes Receivable 10,000 19. Cash 25,000

8. Accrued Interest Receivable 200 20. Accounts Payable 20,100

9. Unused Supplies 1,200 21. Notes Payable 60,000

10. Used Supplies 800 22. Interest Income 200

11. Land 100,000 23. Mortgage Payable 1,200

12. Store Building 50,000 24. Owner’s drawings 5,000

Assessment 1: COUNT ME IN!

Directions: Use separate sheet for your answers. With the same information above
(Enrichment 1), fill the amounts of the following SFP elements:

Current Assets: ________________________

Noncurrent Assets: ________________________

Current Liabilities: ________________________

Noncurrent Liabilities: ________________________

Owner’s Equity: ________________________

LU_Fundamentals of Accountancy, Business and Management 2_Module1

 Deepen

Comprehensive Problem: Walang Oras Store

On February 1, 20x1, Walang Oras opened a store that sells schools
supplies. Her main customers are the students and teachers of Malayang
Guro School that is located in front of her store. Walang Oras wanted to know
the financial position of the store. Walang Oras knew you were studying
accounting, so she asked for your help.
The following information were made available for you:
1. Walang Oras invested Php 42,535 in the business.
2. As of December 31, 20x1, cash on hand from sales and collections is
amounted to Php 22,000.
3. Walang oras showed you a delivery receipt for Php 875. The receipt dated
December 29, 200x showed that various school supplies were delivered to
Juan Luna who is a SHS Teacher at Malayang Guro School. Juan Luna will
pay Walang Oras on January 5, 20x2.

4. Walang Oras is renting the space for her store. It costs her Php 4,500 for
the monthly rent. As of December 31, 20x1, Walang Oras store has a
remaining one month advance rent.

5. Walang Oras purchased furniture and fixtures amounting to Php 55,000

with an estimated useful life of 5 years. Walang Oras started using the
furniture and fixtures on December 1, 20x1.
6. Walang oras has an eding inventory of Php 25,275.
7. A LUELCO bill for electricity consumption from December 1-31, 20x1 for
Php 5,600 payable on January 10, 20x2.

8. A December 20x1 PLDT telephone bill amounting to Php 1,200 is payable

on January 12, 20x2.

9. Walang Oras hired Gabriela Silang as helper with a wage of Php 450/day.
Gabriela’s wages were paid on December 28, 20x1 for work rendered until
December 29, 20x1. Gabriela’s pay for December 30 and 31 will be included
in her January wage.

10. Mrs. Ling Briones ordered some various materials to Walang Oras. These
materials are hi-tech pens, dividers and logbooks amounting to Php 5,143.
These materials are pre-ordered and will delivered on January 20, 20x2.
Walang Oras showed you an official receipt stating that Mrs. Briones paid
half of its price as down payment.

LU_Fundamentals of Accountancy, Business and Management 2_Module1

 11. On December 30, 20x1, Walang Oras borrowed Php 87,500 to Land Bank
of the Philippines payable within 3 years. Interest is payable monthly.

12. Walang oras open a checking account depositing Php 50,000, On August
1, 20x1, Walang oras deposited Php 15,000 on the business checking
account. Walang oras also withdrew Php 20,000 for personal use.

Requirements: Use separate sheet for the comprehensive problem.

1. Prepare a Pro-forma SFP (Account form) of Walang Oras Store as of
December 31, 20x1.
2. Determined the Net Income for the month-ended December 31, 20x1.

LU_Fundamentals of Accountancy, Business and Management 2_Module1

 Gauge

ANSWER ME, PLEASE?

Directions: Carefully read each item. Use a separate sheet for your answers.
Write only the letter of the best answer for each test item.

1. Which of the following is not recorded in the SFP?

A. Assets B. Equity C. Liabilities D. Revenues

2. Which of the following assets is NOT a current asset?

A. Cash B. Equipment C. Inventories D. Receivables

3. What are the resources or things value owned by an enterprise?

A. Assets B. Equity C. Expenses D. Liabilities

4. What do you call the transferring of cost of asset to expense?

A. Allowance for Bad debts B. Accounts Payable
C. Accumulated Depreciation D. Accrued Interest Payable

5. What is a Current Assets?

A. It is cash or cash equivalent which is not restricted for current use.
B. It is expected not to be realized or is held for sale or consumption in
the normal course of the business operating cycle.
C. It is held primarily for trading purposes or for the long term, and it
is expected to be realized more than twelve months of the SFP date.
D. It is expected to be settled in the normal course of the business
operating cycle.

6. What is a contra-validation account that refers to the amount estimated

uncollectible?
A. Accounts Payable B. Accrued Interest Payable
C. Allowance for Bad Debts D. Accumulated Depreciation

7. Which of the following is an example of noncurrent liability?

A. Accrued Expenses B. Deferred Income
C. Loans Payable D. Short-term Liabilities

8. What accounts are reported in the SFP?

A. Assets B. Equity C. Liability D. Revenue

10

LU_Fundamentals of Accountancy, Business and Management 2_Module1

 9. What are these various materials which remain unused at the end of the
accounting period?
A. Accounts Receivable B. Accounts Payable
C. Prepaid Supplies D. Withdrawal Account

10. What pro forma of the SFP that presents its elements in horizontal order
following the accounting equation?
A. Account Form B. Direct Method
C. Indirect Method D. Report Form

11. A promissory note issued by the business to its creditors for money
borrowed or merchandise and other assets bought on credit. What example
of current liability it is?
A. Accounts Payable B. Accrued Interest Payable
C. Notes Payable D. Premium Payable

12. Which of the following compromises the portion payable beyond one year
of a long-term liability?
A. Assets B. Current Liability
C. Equity D. Noncurrent Liability

13. What plant asset is NOT subject to depreciation?

A. Building B. Equipment
C. Land D. Land Improvements

14. Which of the following is NOT reported in the SFP?

A. Accrued Interest B. Accumulated Depreciation
C. Bad Debt Expense D. Owner’s Drawings

15. Which of the following is NOT a current asset?

A. Accounts Receivable
B. Cash
C. Equipment
D. Inventories

11

LU_Fundamentals of Accountancy, Business and Management 2_Module1

LU_Fundamentals of Accountancy, Business and Management 2_Module1
12
DEEPEN #1:
Walang Oras Store
Statement of Financial Position
For the year-ended, December 31, 20x1
Assets Liabilities and Owner’s Equity
Current Assets: Current Liabilities
Cash Php 64,535 Utilities Payable Php 6,800
Accounts Receivable 875 Salaries Payable 900
Prepaid Rent 4,500 Unearned Income 2,751.50
Inventory 25,275 Php 95,185 Noncurrent Liabilities
Noncurrent Assets: Long term Payable 87,500
PPE 55,000 Owner’s Equity:
Accum. Dep’n (917.67) 54,083.33 Walang Oras, Capital 51,316.83
TOTAL ASSETS Php 149,268.33 TOTAL LIABILITIES and Php 149,268.33
OWNER’S EQUITY
Deepen #2:
Walang Oras, Capital – Beginning Php 0
Add: Initial Investment 50,000
Additional Contribution 15,000
Net Income 6,316.83
Less: Withdrawals 20,000
Walang Oras, Capital – Ending Php 51,316.83
JUMPSTART
1. B
2. A
3. A
4. B
5. D
GAUGE
1. D. 9. C. ENRICHMENT ACTVITY 1: HERE WE GO ACCOUNTING!
2. B. 10. A. 1. A 2. A 3. (A) 4. A 5. (A)
3. A. 11. A. 6. E 7. A 8. A 9. A 10. E
4. C. 12. D. 11. A 12. A 13. OE 14. A 15 (A)
5. A. 13. C. 16. R 17. (A) 18. E 19. A 20. L
6. C. 14. C. 21. L. 22. R. 23 L 24. OE
7. C. 15. C.
8. A/B/C.
ASSESSMENT 1: COUNT ME IN!
Current Assets: Php 282,900
Noncurrent Assets: Php 150,400
Current Liabilities: Php 80,100
Noncurrent Liabilities: Php 1,200
Owner’s Equity: Php 324,900
Answer Key
References
Printed Materials:
Salazar, Dani Rose C. (2017). Fundamentals of Accountancy, Business and
Management 2 First Edition. Manila, Philippines: Rex Bookstore, Inc.

Department of Education. (2016). Fundamentals of Accountancy, Business and

Management 1, Teacher’s Guide for Senior High School. Quezon City,
Philippines.

Book:

Valencia, Edwin G; Roxas, Gregorio F. Basic Accounting Concepts, Principles,

Procedures and Applications 4th Edition 2014-2015. Baguio City,
Philippines: Valencia Educational Supply.

13

LU_Fundamentals of Accountancy, Business and Management 2_Module1

 For inquiries or feedback, please write or call:

Department of Education – SDO La Union

Curriculum Implementation Division
Learning Resource Management Section
Flores St. Catbangen, San Fernando City La Union 2500
Telephone: (072) 607 - 8127
Telefax: (072) 205 - 0046
Email Address:
launion@deped.gov.ph
lrm.launion@deped.gov.ph

14

LU_Fundamentals of Accountancy, Business and Management 2_Module1