The Statement

of Financial
Position
Accountancy, Business and Management 2
 What is the Statement of
Financial Position?

•  Previously referred to as Balance Sheet

includes the amounts of the company’s
total assets, liabilities, and owner’s equity
which in totality provides the condition of
the company on a specific date. (Haddock,
Price, & Farina, 2012) The SFP is a report
based on the accounting equation: Assets
= Liabilities + Equity
 What are Permanent
Accounts?
• Permanent accounts or real accounts, are
accounts that you don’t close at the end of
the accounting period instead, balances are
carried forward to the beginning of the next
period. Examples of this accounts are:
• Assets – These are what the business owns.
• Liabilities – These are what the business
owes or claims of the creditors.
• Equity is what the business is worth.
 What are Assets?
• Are resources with future benefits that are
within the control of the company. Assets
must be classified in the SFP as current or
non-current assets. An asset which will
deliver economic benefits to the entity over
the long term is classified as non-current
whereas those assets that are expected to
be realized within one year from the
reporting date are classified as current
assets.
 Examples of Assets
1. Cash and Cash Equivalents
• Cash (bills, coins, bank checks) is money
owned by the company. Cash kept on the
company’s premises is called Cash on Hand
while Cash in Bank refers to money kept in
savings or checking account.
• Cash Equivalents are time deposits with
term maturities of ninety days or less. These
are considered short-term investments.
 Examples of Assets
2. Trade and other receivables – it includes
the amounts collectible from any of the
following accounts:
a. Accounts Receivable – amount collectible
from the customer to whom sales have
been made or services have been
rendered on account or credit.
b. Notes Receivable – evidenced by a
promissory note
 Examples of Assets
2. Trade and other receivables – it includes
the amounts collectible from any of the
following accounts:
c. Interest Receivable – amount of interest
collectible on promissory note received by
customers.
d. Advances to Employees – amount of
money obtained by employees payable in
cash or through deductions from salaries.
 Examples of Assets
2. Trade and other receivables – it includes
the amounts collectible from any of the
following accounts:
e. Accrued Income – income already earned
but not yet received.
 Examples of Assets
3. Inventories – these are the unsold goods
or merchandise at the end of the accounting
period. This is applicable only to
merchandising business.
Are consigned merchandise part of the seller’s
inventories? The answer is NO. Why?
 Consignment is an important issue in inventory
accounting. The owner places his goods “on consignment”
in the premises of the store owner. The store is not
obligated to purchase the goods. The owner may also
withdraw his unsold goods from the store at any time.
 Examples of Assets
4. Prepaid Expenses – refer to future expenses
of the company had paid for in advance.
Examples are Prepaid Rent, Insurance, Supplies.
5. Property, Plant and Equipment – PPE for
short, are long term assets that are used in the
operations of the company.. These are classified
as long-term asset (non-current) because these
assets will be used in the business for more than
one year. Examples are land, building,
equipment, furniture and fixtures.
 Examples of Assets

6. Intangible Assets - These are assets that you

cannot see or touch. There may be a piece of
paper as evidence of the asset but the actual
asset is intangible. Examples are patent,
trademark and brand name.
7. Long-Term Investments – these are
investments made by the company for long-
term purposes. Examples are bonds, stocks and
real estate.
 Examples of Assets

8. Contra-Assets Accounts - is an asset account

where the account balance is a credit balance.
Examples are Accumulated Depreciation and
Allowance for Bad Debts.
 What are Liabilities

are obligations that the company is required to

pay. Liabilities must be classified in the SFP as
current or non-current liabilities. Current
liabilities (short-term liabilities) are liabilities
that are due and payable within one year. Non-
current liabilities (long-term liabilities) are
liabilities that are due after a year or more.
Examples of Liabilities

1. Trade and other payables – include payables

from any of the following accounts:
a. Accounts Payable - are amounts due to
vendors or suppliers for goods or services
received that have not yet been paid for.
b. Notes Payable - refers to an obligation
evidenced by a promissory note.
c. Loan Payable – a liability to pay the bank or
other financial institutions.
Examples of Liabilities

1. Trade and other payables – include payables

from any of the following accounts:
d. Accrued Expenses – include amounts owed to
others for expenses already incurred but are not
yet paid. Examples are utilities payable, salaries
payable, interest payable and taxes payable.
e. Unearned Revenues – these are obligations of
the business arising from advance payments
from customers before goods and services are
provided to them.
Examples of Liabilities

2. Long-Term Liabilities - refer to obligations

with due dates that fall more than one year
from the date of the SFP.
 What is Equity

EQUITY is composed of the owner’s

investments and the accumulated net income
of the company. It is the owners' claim to
company assets after all of the liabilities have
been paid off.
Preparation of Statement
of Financial Position
Preparation of Statement of Financial Position
The Statement of Financial Position or Balance Sheet contains:
A. The Heading
1. Name of the Business - John Lee Trading
2. Title of the Report - Statement of Financial Position
3. Date of the Report (specific date) - as of December 31,
2019
4. Currency (in Philippine Peso)
B. The Asset Section
C. The Liability Section
D. The Owner’s Equity Section
The two forms of Statement
of Financial Position

1. Report Form – A form of the SFP that shows asset

accounts first and then liabilities and owner’s equity
after.
Report form Statement of
Financial Position
The two forms of Statement
of Financial Position
2. Account Form – A form of the SFP that shows assets on the left
side and liabilities and owner’s equity on the right side just like
the debit and credit balances of an account. Account form format
is based on the general ledger T-Account. Debit and Credit refers
to the sides of the T-account.
Account form Statement of
Financial Position