FUNDAMENTALS OF

ACCOUNTANCY, BUSINESS,
AND MANAGEMENT 2
LESSON 1

LEARNING OBJECTIVE: Identify the elements of the SFP and

describe each of them.

Prepared by:

MISS. ROJANE L.
ALCANTARA TEACHER
 STATEMENT OF FINANCIAL POSITION
STATEMENT OF FINANCIAL POSITION – Also known as the balance sheet. This
statement 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)
•ASSETS
Things or resources owned by a company and which have future
economic value that can be measured and can be expressed in dollars.
Examples include cash, investments, accounts receivable, inventory,
supplies, land, buildings, equipment, and vehicles.
Examples of assets that are likely to be listed on a company's
balance sheet include: cash, temporary investments, accounts
receivable, inventory, prepaid expenses, long-term investments, land,
buildings, machines, equipment, furniture, fixtures, vehicles,
goodwill, and more.
LIABILITY

A liability is something a person or company owes,

usually a sum of money. The most common liabilities are
usually the largest like accounts payable and bonds payable.
Most companies will have these two line items on their
balance sheet, as they are part of ongoing current and long-
term operations.
Ex. Bank debt. Mortgage debt. Money owed to suppliers
(accounts payable) Wages owed. Taxes owed.
•OWNER’S EQUITY
Owner's equity is essentially the owner's rights to the assets of the
business. It's what's left over for the owner after you've subtracted all
the liabilities from the assets. If you look at your company's balance
sheet, it follows a basic accounting equation: Assets – Liabilities =
Owner's Equity.
Business owners may think of owner's equity as an asset, but it's
not shown as an asset on the balance sheet of the company. ...
Because technically owner's equity is an asset of the
business owner—not the business itself. Business assets are items of
value owned by the company.
PERMANENT ACCOUNTS – As the name suggests, these
accounts are permanent in a sense that their balances remain
intact from one accounting period to another. (Haddock, Price,
& Farina, 2012) Examples of permanent account include Cash,
Accounts Receivable, Accounts Payable, Loans Payable and
Capital among others. Basically, assets, liabilities and equity
accounts are permanent accounts. They are called permanent
accounts because the accounts are retained permanently in the
SFP until their balances become zero. This is in contrast with
temporary accounts which are found in the Statement of
Comprehensive Income (SCI). Temporary accounts unlike
permanent accounts will have zero balances at the end of the
accounting period.
CONTRA ASSETS – Contra assets are those accounts
that are presented under the assets portion of the SFP but
are reductions to the company’s assets. These include
Allowance for Doubtful Accounts and Accumulated
Depreciation. Allowance for Doubtful Accounts is a
contra asset to Accounts Receivable. This represents the
estimated amount that the company may not be able to
collect from delinquent customers. Accumulated
Depreciation is a contra asset to the company’s Property,
Plant and Equipment. This account represents the total
amount of depreciation booked against the fixed assets
of the company
 GROUP ACCOUNTS UNDER CURRENT ASSETS, NONCURRENT ASSETS,
CURRENT LIABILITIES, NONCURRENT LIABILITIES AND OWNER’S EQUITY

Current Assets – Assets that can be realized (collected, sold, used up) one year after year-end
date. Examples include Cash, Accounts Receivable, Merchandise Inventory, Prepaid Expense, etc.
Current Liabilities – Liabilities that fall due (paid, recognized as revenue) within one year after
yearend date. Examples include Notes Payable, Accounts Payable, Accrued Expenses (example:
Utilities Payable), Unearned Income, etc.
Current Assets are arranged based on which asset can be realized first (liquidity). Current assets
and current liabilities are also called short term assets and shot term liabilities.
Noncurrent Assets – Assets that cannot be realized (collected, sold, used up) one year after
yearend date. Examples include Property, Plant and Equipment (equipment, furniture, building,
land), Long Term investments, Intangible Assets etc.
Noncurrent Liabilities – Liabilities that do not fall due (paid, recognized as revenue) within one
year after year-end date. Examples include Loans Payable, Mortgage Payable, etc.
Noncurrent assets and noncurrent liabilities are also called long term assets and long term
liabilities.
1,
 
 REPORT FORM AND ACCOUNT FORM
Report Form – A form of the SFP that shows asset accounts first and then liabilities and
owner’s equity accounts after. (Haddock, Price, & Farina, 2012)The balance sheet shown earlier
is in report form.
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. (Haddock, Price, &
Farina, 2012) a. The two are only formats and will yield the same amount of total assets,
liabilities and equity b. Assets should always be equal to liabilities and equity
 DIFFERENCE OF THE STATEMENT OF FINANCIAL POSITION OF A
SERVICE COMPANY AND OF A MERCHANDISING COMPANY

The main difference of the Statements of the two

types of business lies on the inventory account. A
service company has supplies inventory classified
under the current assets of the company. While a
merchandising company also has supplies inventory
classified under the current assets of the company, the
business has another inventory account under its
current assets which is the Merchandise Inventory,
Ending.
THE DIFFERENT PARTS OF THE STATEMENT OF
FINANCIAL POSITION
1. A company can have a lot of assets but still have very low
equity. When the company has a lot of assets (example: cash,
accounts receivable, prepaid expenses), owners may sometimes
think that the company is doing well. There are instances that
owners forget that they might also have a lot of liabilities which
may result to their equities having a very small balance. With the
preparation of the SFP, the owner can easily see the assets,
liabilities and equity balances of his/her company which will
show exactly the financial position of the company as of a given
point in time.
2. Other important matters: a. Without the SFP, the company cannot know if it truly owns anything
because in case of bankruptcy, liabilities are paid first. - Small businesses don’t usually account for
their assets and liabilities as long as the owners see that cash is coming in. They sometimes forget
that when liabilities become due, if they don’t have enough current assets to be able to pay those
liabilities, then they can get in trouble with their debts. b. Discuss the importance of the format: i.
Report form vs Account form – these are just formats. Usually depends on the reader for
preference. ii. Report form is the normal format for those not familiar with accounting. Account
form easily shows that the SFP is balanced and separates assets from liabilities and equities. iii.
Separation of the current and noncurrent – current liabilities are upcoming liabilities and the
company should be prepared to pay them. Companies should prepare as early as today for payment
of noncurrent liabilities as these usually have large balances. Current assets shows the company’s
ability to sustain its current operations while noncurrent assets shows the company’s ability to
sustain long-term operations.
 QUESTIONS TO ANSWERS:
1. If assets are Php17,000 and owner's equity is Php10,000, liabilities are ___________________.
2. At the end of the first month of operations for Juana’s Delivery Service, the business had the following
accounts: Accounts Receivable, Php1,200; Prepaid Insurance, Php500; Equipment, Php36,200 and Cash,
Php40,650. On the same date, Juana owed the following creditors: Nena’s Supply Company, Php12,000;
Maria’s Equipment, Php9,500.The current assets for the Juana’s Delivery Service are _________.
3. At the end of the first month of operations for Juana’s Delivery Service, the business had the following
accounts: Accounts Receivable, Php1,200; Prepaid Insurance, Php500; Equipment, Php36,200 and Cash,
Php40,650. On the same date, Juana owed the following creditors: Nena’s Supply Company, Php12,000 (due
in 6 months); Maria’s Equipment, Php9,500 (due after 2 years).Current liabilities are _________.
4. If during the year total assets increase by Php75,000 and total liabilities decrease by Php16,000, by how
much did owner's equity increase/decrease? Answer: Increase by Php 91,000 (Topic: Effect of changes in one
account to the other accounts in the statement)
5. Prepare a Statement of Financial Position using the following accounts (one in report form and one in
account form): Cash – 5,000 Loans Payable – 77,500 Accounts Receivable – 2,600 Supplies – 2,300
Equipment – 17,000 Owner’s equity – 40,000 Accounts Payable – 22,400 Building – 113,000 Learners can
use any business name and the end of the current year for the heading.
Answer the ff questions:
1. Learning is Fun Company had current assets amounting to Php 100,000. Noncurrent assets for the year totaled Php
76,000. How much is the company’s total assets?
2. Happy Selling Company’s total liabilities amounted Php 10,000. Total equity had an ending balance of Php 20,000.
How much is total assets?
3. Happy Selling’s had the following accounts at year end: Cash-250,000, Accounts Payable-70,000, Prepaid Expense-
15,000. Compute for the company’s current assets.
4. Happy Selling’s Accounts Receivable amounted to Php 500,000. Prepaid Expense and Unearned Income totaled Php
30,000 and Php 10,000 respectively. Cash balance amounted to Php 100,000 while Accounts Payable and Inventory
totaled to Php 20,000 and Php 10,000 respectively. How much is the company’s current assets? Current liabilities?
5. Company’s Total Liabilities and Equity amounted to Php 285,000. Total noncurrent assets ended at Php 85,000. Cash
totaled Php50,000. Inventory amounted to Php100,000. Assuming the company had no other assets, how much is
Accounts Receivable?
6. Total assets amounted to Php575,000. Total equity amounted to Php 250,000. Accounts Payable amounted to Php
50,000 while Unearned Income totaled Php 85,000. Assuming there are no other current liabilities, compute for the
company’s noncurrent liabilities.
1.
2. Dr. Furniture – 7,000
Cr. – Cash 7,000
8. Dr. Goods- 3, 000
Cr. Cash- 2,000
Account payable- 1, 000
NORMAL BALANCES OF ACCOUNT
EQUITY-CREDIT ASSET- DEBIT, INCREASE DEBIT, DECREASE CREDIT
INCOME- CREDITLIABILITY- CREDIT, INCREASE CR, DECREASE DR.
EXPENSES- DEBIT
14. Sold goods Dr. 12,000 receivable
Dr. 5,000 cash
Cr. Account