INTERMEDIATE ACCOUNTING 3
CHAPTER 1
STATEMENT OF FINANCIAL POSITION
(BALANCE SHEET)
FINANCIAL STATEMENTS
-ARE STRUCTURED FINANCIAL REPRESENTATION
OF THE ENTITY’S FINANCIAL POSITION AND THE
TRANSACTIONS TAKEN BY AN ENTERPRISE (RESULTS
OF OPERATIONS)
-IT ALSO SHOWS THE RESULTS OF MANAGEMENT'S
STEWARDSHIP OF THE RESOURCES ENTRUSTED TO IT.
IT PROVIDES INFORMATION ABOUT AN ENTERPRISE’S:
• ASSETS
• LIABILITIES
• EQUITY
• INCOME AND EXPENSES INCLUDING GAINS AND
LOSSES
• CONTRIBUTIONS BY, AND DISTRIBUTION TO OWNERS
• CASH FLOWS
GENERAL PURPOSE FINANCIAL STATEMENTS
(“FINANCIAL STATEMENTS”)
• Those intended to meet the needs of users who are not in a
position to require an entity
to prepare reports tailored to their particular informations needs.
PURPOSE OF FINANCIAL STATEMENTS
1. Primary Objective – To provide information about the
financial position, financial performance and cash flow of an
entity that is useful to wide range of users.
2. Secondary Objective – To show the results of management’s
stewardship over the entity’s resources.
Complete Set of Financial Statements
1. Statement of financial position or balance sheet statement as at
the end of the period;
2. Statement of profit and loss and other comprehensive income
for the period or statement of comprehensive income;
3. Statement of changes in equity for the period;
4. Statement of cash flows for the period;
5. Notes to the financial statements.
GENERAL FEATURES OF FINANCIAL STATEMENTS
1. Fair Presentation and Compliance with PFRS.
• Compliance with the PFRS is presumed to result in fairly
presented financial statements.
• Proper selection and application of accounting policies, proper
presentation of information and provision for additional
disclosures whenever relevant to the understanding of the
financial statements.
• PAS 1 permits a departure from a PFRS requirement if the
relevant regulatory framework requires or allows such departure.
2. Going Concern
• FS are normally prepared on going concern basis unless the the
entity has an intention to liquidate or has no alternative but to do
so.
• If the entity is not a going concern, its FS shall be prepared
using another basis and must be disclosed on the notes – the
basis used and the reason why the entity is not on going concern
basis.
3. Accrual Basis of Accounting
• Recognition of expense regardless when paid and recognition
of revenue regardless when received.
5. Offsetting
• Assets and liabilities or income amd expenses are presented
separately and are not offset unless offsetting is required or
permitted by a PFRS.
6. Frequency of reporting
• FS are prepared at least annually.
• If an entity changes reporting period to a period longer or
shorter than one year, it shall disclose the following:
- period covered by the financial statements
- reason for using a longer or shorter period
- fact that amounts presented in the FS are not entirely
comparable
7. Comparative Information
• PAS 1 requires an entity to present comparative information in
respect of the preceding period for all amounts reported in the
current period’s financial statement.
8. Consistency of presentation
• The presentation and classification of items in the financial
statement is retained from one period to the next unless a change
in presentation is (a) is required by PFRS and (b) results in
information that is reliable and more relevant.
STATEMENT OF FINANCIAL POSITION
NATURE
FINANCIAL STATEMENT PROVIDING INFORMATION
ABOUT THE ENTITY ’ S RESOURCES AVAILABLE FOR
THE COMPANY TO USE, CLAIMS AGAINST THOSE
RESOURCES OR OBLIGATIONS THAT THE COMPANY IS
REQUIRED TO SETTLE AND THE REMAINING CLAIM
ACCRUING TO THE OWNER AS OF THE END OF THE
PERIOD.
USEFULNESS
THIS REPORT IS USEFUL IN ASSESSING PRESENT AND
FUTURE CASH FLOWS, LIQUIDITY AND LONG TERM
SOLVENCY.
LIMITATIONS
SFP DOES NOT FULLY PORTRAY THE MARKET VALUE
OF THE ENTITY AS A GOING CONCERN NOR ITS
LIQUIDATION VALUE. MANY ASSETS ARE MEASURED
AT THEIR HISTORICAL COSTS.

The total assets should equal the total of the claims. Hence,
statement was endearingly referred to as Balance Sheet because it
is a statement where the two parts must be balance.
ELEMENTS OF STATEMENT OF FINANCIAL POSITION
ASSETS
These are resources controlled by the entity as a result of past
events and from which future economic benefits are expected to
flow to the entity.
LIABILITIES
These are present obligations of the company arising from past
events, the settlement of which is expected to result in an outflow
from the resources embodying economic benefits
EQUITY
This represented residual interest in the assets of the entity after
deducting all its liabilities
Assets classified into two groups
Current Assets
a. It expects to realize the asset, or intend to sell or consume it in
its normal operating cycle;
b. It holds the asset primarily for the purpose of trading;
c. It expects to realize the asset within twelve month after the
reporting period; or
d. The asset is cash or cash equivalent unless the asset is restricted
from being exchanged or used to settle a liability for at least
twelve months after the reporting period.
Non Current Assets
a. All other assets not classified as current assets are non
current assets.
Current Assets
Cash and Cash Equivalents
Cash includes cash in hand consisting of coins, currency and
undeposited checks: money orders and drafts and cash in banks
that are readily available for current use of entity
Cash equivalents include short term, highly liquid
investments that are readily convertible to known amount of cash
and are so near their maturity that they present insignificant risk
of change in value because of changes in interest rate.
Short Term Investment in Marketable Securities
These includes investment in debt and equity securities
which management intends to convert in cash within one year of
the normal operating cycle (whichever is longer).
Receivables
These includes trade accounts and note receivable, non
trade short term receivables from affiliates, officers, employees.
Inventories
These includes goods (merchandise or finished goods)
held for sale in the normal course of the business plus in the case
of manufacturing companies, raw materials and goods in process.
Prepaid Expense
These are assets created by the prepayment (advance)
of cash or incurrence of a liability.
Non-Current Assets
Investment in Long term debt and equity securities
Held as either “Held to Maturity” or “Available for
Sales”.
Property, Plant and Equipment
These are tangible assets that are held by an enterprise
for use in the production or supply of goods or services or for
administrative purposes and which are expected to be used during
more than one period. Land, Building, Machinery, Equipment,
Furnitures and Fixtures
Intangible Assets
These are identifiable non monetary assets without
physical substance and from which future economic benefits are
expected to flow to the entity. Patents, Franchise, Copyright,
Goodwill, Trademark
Liabilities are classified into two groups
Current Liabilities
a. It expects to be settled in its normal operating cycle;
b. It is held primarily for the purpose of trading;
c. The liability is due to be settled within twelve months after the
reporting period; or
d. Its does not have an unconditional right to defer settlement of
the liability for at least twelve months after the reporting period.
Non Current Liabilities
a. All other liabilities not classified as current liabilities are non
current liabilities.
Current Liabilities
Trade Accounts and Notes Payable
These are obligations arising from the firm’s on going
operations including acquisition of merchandise, materials,
supplies and services used in the production of sales goods or
services
Current Portion of Long Term Debt
Portions of long term liabilities (bonds, notes) which
become payable with in the upcoming year.
Accrued Expense
These are expenses incurred as of the financial
reporting date for which cash has not been paid. (Accrued wages,
accrued interest and accrued property taxes).
Income Taxes Payable
Represents the unpaid portion of income tax to be paid
to the Bureau of Internal Revenue
Agency Liabilities
Collection for third parties (Withholding Taxes Payable, SSS
Premium Payable, VAT Payable).
Unearned Revenue
Advances from Customers – relating to future delivery
of goods or services.
Long Term Loan Payable
Long term debt whose maturity extends beyond one
year and is evidenced by a formal document called promissory
note issued in exchange for a loan from a bank.
Installment Notes Payable
This represents an indebtedness that is repaid through
installment over a period exceeding one year.

Equity Section
Sole Proprietorship
Partnership
Corporation
Owners’ Capital
Partners’ Equity
Shareholders' Equity

SHARE CAPITAL
This is the firm’s state capital or legal capital. It is the
par value of issued or outstanding shares of the corporation and
represent the that is not available for dividend declaration. Legal
capital is specified in the articles of the incorporation for the
corporation approved by the SEC.
ACCUMULATED PROFIT
This represents a corporation’s accumulated net
earnings, less dividends paid out, since the company’s inception.
A negative balance in retained earnings is called a “deficit” and
usually arises when the company experiences operating losses.

REFINANCING
Refers to the replacement of an existing debt with a new
one but with different terms.
Long term obligations that is currently maturing is
recorded as a CURRENT LIABILITIES when refinanced unless
the entity has the right, at the end of reporting period, to roll over
the obligation for at least 12 months.