Unit 1: Statement of Financial Position

Lesson 1.2

Preparation of a Statement of Financial Position

Contents
Introduction 1

Learning Objectives 2

Quick Look 3

Learn the Basics 4

Statement of Financial Position of a Sole Proprietorship 4
Steps in Preparing a Statement of Financial Position 4
Forms of a Statement of Financial Position 5
Report Form 5
Account Form 6

Case Study 11

Keep in Mind 12

Try This 13

Practice Your Skills 14

Challenge Yourself 17

Photo Credit 19

Bibliography 19

1.2. Preparation of a Statement of Financial Position

Unit 1: Statement of Financial Position

Lesson 1.2
Preparation of a Statement of Financial Position

Introduction

Users of accounting information rely on financial statements to assess a company's

performance and position. Through the analysis of these documents, one can make
decisions about the company's future.

Does the company have enough current assets to pay its obligations? Out of the total
assets, what is the percentage of non-current assets? What is the ratio of obligations against
owner's equity? These are just some of the many questions that can be answered by
preparing and analyzing a Statement of Financial Position.

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Unit 1: Statement of Financial Position

Because major business decisions are based on the financial statements prepared by an
accountant, one cannot emphasize enough the importance of preparing accurate financial
statements. In this lesson, you will learn the different forms of the Statement of Financial
Position (SFP) and how to prepare them.

Learning Objectives DepEd Competencies

At the end of this lesson, you should be able to

● Prepare the SFP of a single
do the following: proprietorship (ABM_FABM12-Ia-b-3).
● Prepare an SFP using the report form
● Differentiate the report form and
and the account form with proper
account form of a Statement of
classification of items as current and
Financial Position. non-current ( ABM_FABM12-Ia-b-4).

● Prepare a Statement of Financial

Position for a single proprietorship
business.

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Unit 1: Statement of Financial Position

Quick Look

On Publishing Financial Statements Publicly

You will be surprised to find out that large companies make their financial statements
available to the public by publishing them online. They do this to indicate integrity and
transparency in the company's operations.

For users of accounting information, viewing, assessing, and analyzing a company's financial
statement can help them make an informed business decision. One of the financial
statements that can show a company's ability to pay its short-term and long-term debts is
the Statement of Financial Position (SFP).

Questions to Ponder
1. Search for an SFP published on the internet. How were the elements (assets,

liabilities, and equity) arranged?

________________________________________________________________________________________
________________________________________________________________________________________
________________________________________________________________________________________

2. Are there other ways to present a Statement of Financial Position besides the one

you found? If there are, provide the related details or description.

________________________________________________________________________________________
________________________________________________________________________________________
________________________________________________________________________________________

3. What are the advantages of each SFP form?

________________________________________________________________________________________
________________________________________________________________________________________
________________________________________________________________________________________

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Unit 1: Statement of Financial Position

Learn the Basics

In the previous lesson, you learned that a Statement of Financial Position shows the
financial condition of a business as of a reporting period. It is beneficial to a user of
accounting information because it can help determine if the company is liquid or solvent
enough to pay its short-term and long-term debts.

Essential Question

Why is it important to know a company’s ability to pay its short-term and

long-term debts?

Statement of Financial Position of a Sole Proprietorship

In this lesson, you will learn how to prepare a Statement of Financial Position for a Sole
Proprietorship business. Below are the steps in preparing a Statement of Financial Position:

Steps in Preparing a Statement of Financial Position

1. Prepare the list of balances from the Trial Balance or the worksheet as of reporting
date and the Ending Capital from the Statement of Changes in Owner’s Equity.

2. Write the headings. The headings consist of:

a. Name of the Business
b. Type of Financial Statement, i.e., Statement of Financial Position
c. Date of the end of the reporting period, written with the phrase, “As of” followed
by the Month, Day, Year e.g. As of December 31, 2021

3. Prepare the Asset section of the financial statement.

a. Include all asset accounts, classified as current and non-current.
b. Compute the total current assets and total non-current assets.
c. Compute the total assets. Double-rule the amount.

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Unit 1: Statement of Financial Position

4. Prepare the Liabilities and Owner’s Equity section of the financial statements.
a. Include all liabilities accounts first, classified as current and non-current.
b. Compute the total current liabilities, total non-current liabilities, and total
liabilities.
c. In the Owner’s Equity section of the financial statement, copy the ending capital
computed from the Statement of Changes in Owner’s Equity.
d. Compute the Total Liabilities and Owner’s Equity. Double-rule the amount.

5. Check if the Total Assets is equal to the Total Liabilities and Owner’s Equity. They must
be equal. Otherwise, double check the amounts and the computations.

Check Your Progress

Why do Statements of Financial Position for sole proprietorships only have

one entry in the owner’s equity section?
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________

Forms of a Statement of Financial Position

A Statement of Financial Position has two forms: the report form and the account form.
The two formats do not have much difference, and it is up to the preference of the business
on what form of Statement of Financial Position to use. However, some prefer the report
form of Statement of Financial Position because it is “easier to read” than the account form.

Report Form
The report form presents assets, liabilities, and equity vertically. Assets are listed first and
are classified as current and non-current, followed by liabilities, also classified as current
and non-current. On the other hand, Equity is listed last. Below is an example of a
Statement of Financial Position in report form:

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Unit 1: Statement of Financial Position

Company Industrious
Statement of Financial Position
As of December 31, 2021

Assets
Current Assets
Cash ₱26,300
Accounts Receivable 3,200

Total current assets ₱29,500

Non-current Assets
Land 15,000

Total Assets ₱44,500

Liabilities and Owner’s Equity

Current Liabilities
Accounts Payable ₱500
Long-Term Liabilities
Notes Payable (3 years) 10,000

Total Liabilities ₱10,500

Owner’s Equity
Mr. Chu, Capital 34,000

Total Equity ₱34,000

Total Liabilities and Owner’s Equity ₱44,500

Account Form
On the contrary, a Statement of Financial Position in account form follows the accounting
equation format. The accounts are presented horizontally, where Assets are listed on the
left side while Liabilities and Equity are listed on the right side. Below is an example of a
Statement of Financial Position in account form:

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Unit 1: Statement of Financial Position

Company Industrious
Statement of Financial Position
As of December 31, 2021

Assets Liabilities and Equity

Liabilities

Current Assets Current Liabilities

Cash 26,300 Accounts Payable 500
Accounts Receivable 3,200
Total Current Assets ₱29,500 Non-current Liabilities
Notes Payable 10,000
Non-current Assets Total Liabilities ₱10,500

Land 15,000

Owner’s Equity

Mr. Chu, Capital 34,000

Total Owner’s Equity 34,000

Total Assets ₱44,500

Total Liabilities and Owner’s ₱44,500
Equity

Check Your Progress

What is the difference between the report form and the account form of a
Statement of Financial Position?
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________

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Unit 1: Statement of Financial Position

Closer Look

Sommerset Merchandising’s Statement of Financial Position

You are the accountant of Sommerset Merchandising and you were asked to
make a Statement of Financial Position as of December 31, 2021.

Step 1: Prepare the list of balances from the Trial Balance or from the worksheet
as of reporting date and the Ending Capital from the Statement of Changes in
Owner’s Equity.

The following are the account balances of Sommerset Merchandising as of

December 31, 2021:

Cash 34,000

Accounts Receivable 27,000

Supplies 5,400

Inventory 57,800

Equipment 155,400

Accumulated Depreciation-Equipment 43,700

Land 1,450,700

Accounts Payable 508,900

Notes Payable 134,000

Mortgage Payable 400,000

Mr. Sommerset, Capital, Ending 643,700

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Unit 1: Statement of Financial Position

Step 2: Write the headings.

SOMMERSET MERCHANDISING
Statement of Financial Position
As of December 31, 2021

Step 3: Prepare the Asset section of the financial statement.

SOMMERSET MERCHANDISING
Statement of Financial Position
As of December 31, 2021

Assets

Current Assets
Cash ₱34,000
Accounts Receivable 27,000
Supplies 5,400
Inventory 57,800
Total Current Assets ₱124,200
Non-current Assets
Equipment ₱155,400
Less: Accumulated Depreciation - Equipment 43,700 111,700
Land 1,450,700
Total Non-current Assets ₱1,562,400

Total Assets ₱1,686,600

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Unit 1: Statement of Financial Position

Step 4: Prepare the Liabilities and Owner’s Equity section of the financial
statement.

SOMMERSET MERCHANDISING
Statement of Financial Position
As of December 31, 2021

Assets

Current Assets
Cash ₱34,000
Accounts Receivable 27,000
Supplies 5,400
Inventory 57,800
Total Current Assets ₱124,200
Non-current Assets
Equipment ₱155,400
Less: Accumulated Depreciation - Equipment 43,700 111,700
Land 1,450,700
Total Non-current Assets ₱1,562,400

Total Assets ₱1,686,600

Liabilities and Owner’s Equity

Current Liabilities
Accounts Payable 508,900
Notes Payable 134,000
Total Current Liabilities 642,900
Non-current Liabilities
Mortgage Payable 400,000
Total Liabilities ₱1,042,900
Owner’s Equity
Mr. Sommerset, Capital 643,700

Total Liabilities and Owner’s Equity ₱1,686,600

Step 5: Check if the Total Assets is equal to the Total Liabilities and Owner’s
Equity. They must be equal. Otherwise, double check the amounts and the
computations.

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Unit 1: Statement of Financial Position

Case Study

The Top 1000 Corporations in the Philippines

For the past 34 years, BusinessWorld has been publishing a magazine
about the top 1000 corporations in the Philippines. Its objective is to
provide its readers with useful information about a company’s financial
performance.

The magazine, Top 1000, ranks the top 1000 public and private
corporations based on their latest annual gross revenue in their financial
statements. Aside from the gross revenue, the publication also looks at a
corporation’s net income, receivables, payables, and financial ratios.

Researchers from BusinessWorld tick items from a guide identifying items

in the financial statements such as cost of sales, debt, and inventory.
These items depend on the industry that a corporation belongs to.

One of the financial statements, the Statement of Financial Position, is

useful for publications such as the Top 1000. Researchers can have
insight into a company’s financial condition and the country’s
macroeconomy through the analysis of financial statements.

An in-depth publication of financial information

“An in-depth publication of financial information,” Business
World (Business World Publishing, September 6, 2021),
https://www.bworldonline.com/special-reports/2021/09/06/39
3806/an-in-depth-publication-of-financial-information/, last
accessed on May 30, 2022.

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Unit 1: Statement of Financial Position

Keep in Mind

● There are two forms of Statement of Financial Position: report form and account
form.
● The report form is presented vertically for easier comparison of SFPs from other
years. On the other hand, the account form is presented horizontally, dividing the
Statement of Financial Position into two columns: the asset column and the liabilities
and equity column.
● Current assets should be listed first before non-current assets; the same applies to
Liabilities.

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Unit 1: Statement of Financial Position

Try This

A. True or False. Write true if the statement is correct. Otherwise, write false.

_______________ 1. More people prefer the account form of the Statement of

Financial Position because it is easier to analyze the financial
data of different years.

________________ 2. The report form of the Statement of Financial Position presents

accounts vertically.

________________ 3. Non-current assets are presented after current assets.

________________ 4. The Statement of Financial Position can only be accomplished

after the trial balance is finished.

________________ 5. The report form of the Statement of Financial Position is more

difficult to prepare than the account form.

B. Short-Answer Response. Determine if the following phrases describe a report form

or an account form of the Statement of Financial Position. Write report form or
account form on the blank before the number.

________________ 1. Divided into two columns

________________ 2. Easier to compare to different years

________________ 3. Presented vertically

________________ 4. Comprising only one column

________________ 5. Presented horizontally

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Unit 1: Statement of Financial Position

Practice Your Skills

DH Merchandising Statement of Financial Position

Presented below are the balances of DH Merchandising on January 31, 2022. Prepare a
report form of Statement of Financial Position and answer the questions that follow:

Cash ₱ 25,000
Accounts Receivable 14,000
Supplies 2,300
Inventory 46,300
Building 2,734,000
Accumulated Depreciation-Building 230,000
Furniture & Fixtures 60,000
Accumulated Depreciation - Furniture & Fixtures 5,000
Accounts Payable 340,000
Interest Payable 87,600
Bonds Payable 576,000

Ms. Han, Capital ?

1. How much is Ms. Han’s Capital as of January 31, 2022?

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2. How much is DH Merchandising’s Total Current Assets and Total Non-current Assets?

3. How much is DH Merchandising’s Total Current Liabilities and Total Non-current

Liabilities?

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Unit 1: Statement of Financial Position

4. How much is DH Merchandising’s Total Assets and Total Liabilities and Owner’s Equity?

5. Prepare the report form of DH Merchandising’s Statement of Financial Position. Put

your answer on the space provided.

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Unit 1: Statement of Financial Position

Challenge Yourself

Listed below are account balances for Cookies Enterprise owned by Ms. Dane for the year
ended Dec. 31, 2021. Answer the questions that follow.

Accounts Payable ₱ 44,000

Accounts Receivable 23,000
Cash 47,000
Equipment 56,000
Furniture and Fixtures 75,000
Insurance Expense 6,000
Ms. Dane, Capital, Jan 1, 2021 72,000
Notes Payable 23,000
Rent Expense 32,000
Salaries Expense 46,000
Sales 166,000
Supplies Expense 3,000
Withdrawals 17,000

1. How much is the company’s Net Income?

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2. How much is Ms. Dane’s Ending Capital?

3. How much is the company’s Total Assets and Total Liabilities and Owner’s Equity?

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Unit 1: Statement of Financial Position

Photo Credit

A Mobile Phone and Documents Near the Laptop by Olya Kabruseva is licensed via Pexels.

Bibliography

Annand, David., Marchand, Donna. 2019. Introduction to Financial Accounting: U.S. GAAP
Adaptation. Alberta, CA: Lyryx.

Bragg, Steven, M. 2020. Accountants' Guidebook: Fourth Edition. Newfoundland and Labrador,
CA: Accounting tools Inc.

Gilbertson, Claudia and Mark Lehman. Century 21 Accounting. Ohio: South-Western Cengage
Learning, 2008.

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