Financial Position / Balance Sheet

•Is a statement that gives financial condition or status of

the assets, liabilities, and owners' equity (and their
interrelationships) of an organization, as reflected in its
financial statements.

• Three elements include:

1. Assets

2. Liabilities

3. Capital / Owner’s Equity

 ASSETS
• are the resources controlled by the entity as the result of past
events and from which the future economic benefits are
expected to flow the entity

• are resources with economic value that an individual,

corporation or country owns or controls with the expectation
that it will provide a future benefit.

• Assets = Liabilities + Owner’s Equity

 Types of Asset
- are expected to be consumed within one
•Current
Asset year, and commonly include the following
line items:
1. Cash and cash equivalents
- refer to the line item on the balance sheet that reports
the value of a company's assets that are cash or can be
converted into cash immediately
2. Prepaid expense
- is an expenditure paid for in one accounting period,
but for which the underlying asset will not be consumed
until a future period.
•Current Asset

3. Accounts Receivable
- is the amount owed to a seller by a customer. As such,
it is an asset, since it is convertible to cash on a future
date.

4. Inventory
- includes items purchased and held for resale. In the
case of services, inventory can be the costs of a
service for which related revenue has not yet been
recognized.
 Types of Asset
•Noncurrent - is an asset that is not expected to turn to cash
Asset within one year of date shown on a company's
balance sheet. (Long-term Asset)

1. Investments (long-term)
- ex. Cash surrender value of an insurance

2. Property, plant and equipment

- fixed asset considered as a long-term tangible asset that a
firm owns and uses to produce income, and it is not
expected to be used or sold within a year.
•Noncurrent Asset
3. Intangible asset
- is an asset that is not physical in nature. Goodwill, brand
recognition and intellectual property, such as patents,
trademarks, and copyrights,

4. Other assets

- may include other long-term assets not included in

investments, fixed or intangible assets categories.
 LIABILITIES

• “A liability is a present obligation of the enterprise arising

from past events, the settlement of which is expected to
result in an outflow from the enterprise of resources
embodying economic benefits.”

• Liabilities = Assets – Owner’s Equity

 Types of Liabilities
•Current - (short-term liabilities) are liabilities that are
Liability due and payable within one year.
1. Accounts Payable
- a liability incurred when an organization receives goods or
services from its suppliers on credit.

- are expected to be to be paid off within a year’s time, or

within one operating cycle (whichever is longer).

- is considered one of the most liquid forms of current liabilities

•Current Liability

2. Interest Payable
- is the interest expense that has been incurred (has already
occurred) but has not been paid as of the date of the balance
sheet. [Interest payable does not include the interest for
periods after the date of the balance sheet.]

3. Bills Payable
- is a document which shows the amount owed for goods or
services received on credit (meaning not paid at the time that
the goods or services were received).
•Current Liability
4. Income Taxes Payable
- is a term given to a business organization's liability that is owed
to the local government where it operates and that is based on
its profitability during a given period.

5. Bank Account Overdrafts

- An overdraft can happen when you write a check, withdraw

money from an ATM, use your debit card to make a purchase,
or make an automatic bill payment or other electronic payment
for more than the available funds in your checking account.
•Current Liability

6. Accrued Expenses

- is an expense that is recognized on the books before it

has been paid.

- is only an estimate, and likely will differ from the

supplier’s invoice scheduled to arrive at a later date.
•Current Liability
7. Short-Term Loans
- is a type of loan that is obtained to support a temporary
personal or business capital need. As it is a type of credit, it
involves a borrowed capital amount and interest that needs to
be returned or paid back at a given due date, which is usually
within a year from getting the loan.

- Advantages: - Disadvantages:
1. Shorter time for 1. Higher rate of interest
incurring interest
2. Smaller Loan Amounts
2. Quick funding time or Value
3. Easier to acquire
 Types of Liabilities
•NonCurrent - also called long-term liabilities or long-term
Liability debts, are long-term financial obligations listed
on a company’s balance sheet.

Examples:
- bonds payable.
- long-term loans.
- deferred compensation.
- deferred revenues.
 Types of Liabilities

•Contingent Liability

- a liability which may arise depending on the outcome

of a specific event. It is a possible obligation which may
or may not arise depending on how a future event
unfolds. A contingent liability is recorded when it can be
estimated, else it should be disclosed.
 CAPITAL / OWNER’S EQUITY
• is the amount of ownership you have in your business
after subtracting your liabilities from your assets. This
shows you how much capital your business has available
for activities like investing.

• Owner’s Equity = Assets - Liabilities

• “A liability is a present obligation of the enterprise

arising from past events, the settlement of which is
expected to result in an outflow from the enterprise of
resources embodying economic benefits.”
Accounting
Process
 Example:
1. Identifying and
Analyzing
Business
Transactions
2. Journalizing /
Recording in
the Journals

Journals are also known

as A journal is a book – paper or electronic – in which transactions
Books of Original Entry. are recorded. Business transactions are recorded using the
double-entry bookkeeping system.
 Rules of
Debits &
Credits

Debit: an entry in the left hand

column of an account to record a
debt; debits increase asset and
expense accounts and decrease
liability, income, and equity
accounts
Double-entry bookkeeping system: A double-entry
Credit: an entry in the right hand column of bookkeeping system is a set of rules for recording
an account; credits increase liability, financial information in a financial accounting system in
income, and equity accounts and decrease which every transaction or event changes at least two
asset and expense accounts different nominal ledger accounts.
3. Posting to
the Ledger

General Ledger - also known as Books of Final Entry, the

ledger is a collection of accounts that shows the changes
made to each account as a result of past transactions, and
their current balances.
 4. Prepare
Trial Balance
- prepared to test the equality
of the debits and credits.

- Total debits should be equal

to total credits.
 Adjusting entries are prepared as an application of
the accrual basis of accounting.

5. Make
Adjusting
Entries
 6. Adjusted
Trial Balance

An adjusted trial balance may be prepared after

adjusting entries are made and before the financial
statements are prepared. This is to test if the debits are
equal to credits after adjusting entries are made.
7. Prepare
Financial
Statements
 FINANCIAL STATEMENTS
Statement of Financial Position or Balance Sheet

Statement of Financial Performance,

or Income Statement

Statement of Change in Equity

Statement of Cash flow

Notes to Financial Statements

 8. Close
Accounts
Take note that closing
entries are made only for
temporary accounts. Real
or permanent accounts, i.e.
balance sheet accounts, are
not closed.
 9. Post-
Closing Trial
Balance
*10. Reversing Entries:
Optional step at the
beginning of the new
accounting period
 Statement of Financial
Position

is a summary of the financial

balances of a business organization
such as their assets, liabilities and
ownership equity at a specific date,
such as the end of its financial year.
Two Forms of Statement of Financial Position
1. Account Form - Horizontal

2. Report Form - Vertical

 POST-CLOSING TRIAL BALANCE
December 31, 2018
DR CR
Cash in Bank 100,000
Accounts Receivable 480,000
Allowance for Bad Debts 5,000
Prepaid Rent 10,000
Office Equipment 660,000
Accumulated Depreciation
- Office Equipment 60,000
Salaries Payable 30,000
Accounts Payable 240,000
XYZ Capital 915,000
Total P 1,250,000 P 1,250,000
 XYZ CORPORATION
Statement of Financial Position
As of December 31, 2018

ASSETS
Cash 100,000.00
Accounts Receivable 480,000.00
Less: Allowance for Bad Debts 5,000.00 475,000.00
Prepaid Rent 10,000.00
Office Equipment 660,000.00
Less: Accumulated Depraciation 60,000.00 600,000.00

Total Assets 1,185,000.00

LIABILITIES
Salaries Payable 30,000.00
Accounts Payable 240,000.00

Total Liabilities 270,000.00

OWNER's EQUITY
XYZ Capital 915,000.00

Total Equity 915,000.00

TOTAL LIABILITY & OWNER'S EQUITY 1,185,000.00

 XYZ CORPORATION
Statement of Financial Position
As of December 31, 2018

ASSETS LIABILITIES
Cash 100,000.00 Salaries Payable 30,000.00
Accounts Receivable 480,000.00 Accounts Payable 240,000.00
Less: Allowance for Bad Debts 5,000.00 475,000.00
Prepaid Rent 10,000.00 Total Liabilities 270,000.00
Office Equipment 660,000.00
Less: Accumulated Depraciation 60,000.00 600,000.00 OWNER's EQUITY
XYZ Capital 915,000.00

Total Equity 915,000.00

TOTAL ASSETS 1,185,000.00 TOTAL LIABILITY & OWNER'S EQUITY 1,185,000.00

Assignment:
1. Compute the accounting equation for the below post-closing
trial balance of QMT Company as of December 31, 2018.

Assets = Liabilities + Capital

________ ________ _________
________ ________ _________
________ ________ _________

2. Prepare Statement of Financial Position as of December 31,

2018.
a. Account Form
b. Report Form
 QMT Company
Post-Closing Trial Balance
December 31, 2018
(in Philippine Peso)

ACCT TITLE DR CR
1110 Cash in Bank 123,153.00
1120 Petty Cash Fund 10,000.00
1130 Accounts Receivable 659,340.00
1131 Allowance for Bad Debts 15,000.00
1140 Notes Receivable 132,200.00
1150 Merchandise Inventory, December 31, 2018 774,307.00
1160 Prepaid Expense 3,200.00
1210 Furniture and Fixture 900,000.00
1211 Accumulated Depreciation - Fur & Fix 45,000.00
1220 Transportation Equipment 1,400,000.00
1221 Accumulated Depreciation - Trans. Equipment 140,000.00
2110 Accounts Payable 960,300.00
2120 Notes Payable - Noncurrent 234,000.00
2130 SSS, Philhealth, HDMF Payable 4,000.00
2140 Withholding Taxes Payable 2,600.00
2150 Accrued Expenses Payable 1,300.00
3110 QMT Capital 2,600,000.00
TOTALS 4,002,200.00 4,002,200.00