Fundamentals

of
Accountancy, Business &
Management

2
Fundamentals of ABM 2 by: Ferrer & Millan
 Chapter 1
Statement of Financial Position
 

Learning Objectives
1. Identify the elements of the SFP and
describe each of them.
2. Classify the elements of the SFP into
current and noncurrent items.
3. Prepare the SFP of a single proprietorship.
4. Prepare an SFP using the report form and
the account form with proper classification
of items as current and noncurrent.

Fundamentals of ABM 2 by: Ferrer & Millan

Complete Set of Financial Statements 

Fundamentals of ABM 2 by: Ferrer & Millan

Elements of the Statement of Financial
Position 
a. ASSETS – are the resources you control that
have resulted from past events and can
provide you with future economic benefits.
b. LIABILITIES – are your present obligations
that have resulted from past events and can
require you to give up resources when
settling them.
c. EQUITY – is simply assets minus liabilities.
Other terms for equity are “capital,” “net
assets,” and “net worth.”
Fundamentals of ABM 2 by: Ferrer & Millan
Presentation of Statement of financial position (Balance sheet)
 
a. Classified (current/non-current distinction) –
a classified balance sheet shows information
on current and noncurrent assets and
liabilities; or
b. Unclassified (based on liquidity) – an
unclassified balance sheet does not show
distinction between current and noncurrent
assets and liabilities.

Fundamentals of ABM 2 by: Ferrer & Millan

 Current and Noncurrent Assets
 
• Assets are classified as current when they are
expected to be realized within 12 months from the
end of the reporting period. All other assets are
classified as noncurrent. “Realized” means
converted into cash or claim for cash.

Fundamentals of ABM 2 by: Ferrer & Millan

Current and Noncurrent Liabilities 
• Liabilities are classified as current when they are
expected to be settled within 12 months from the
end of the reporting period. All other liabilities are
classified as noncurrent.

Fundamentals of ABM 2 by: Ferrer & Millan

Trade and Nontrade receivables  
• Trade receivables are receivables arising from the
sale of goods or services in the ordinary course of
business. All other receivables are nontrade.

a. Trade receivables are presented as current

assets if they are collectible within the normal
operating cycle, even if the normal operating
cycle is longer than 12 months.
b. Nontrade receivables are presented as current
assets only if they are collectible within 12
months from the end of reporting period.

Fundamentals of ABM 2 by: Ferrer & Millan

 Normal Operating Cycle
• The normal operating cycle of an entity is
the time between the acquisition of assets
for processing and their realization in cash.
• When the entity’s normal operating cycle is
not clearly identifiable, it is assumed to be
12 months.

Fundamentals of ABM 2 by: Ferrer & Millan

Trade and Nontrade payables 
• Trade payables are obligations arising from
purchases of inventory that are sold in the ordinary
course of business. All other payables are nontrade.

a. Trade payables are presented as current liabilities

if they are payable within the normal operating
cycle, even if the normal operating cycle is longer
than 12 months.
b. Nontrade payables are presented as current
liabilities only if they are payable within 12
months from the end of reporting period.

Fundamentals of ABM 2 by: Ferrer & Millan

 Line items
• Accounts are presented in the financial
statements using “line items.” A line item is
a caption used to describe a group of
accounts with similar nature.
• Examples of line items in the balance sheet:
a. Cash and cash equivalents
b. Trade and other receivables
c. Inventory
d. Property, plant and equipment
Fundamentals of ABM 2 by: Ferrer & Millan
 Forms of balance sheet
 

Fundamentals of ABM 2 by: Ferrer & Millan

Fundamentals of ABM 2 by: Ferrer & Millan
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Fundamentals of ABM 2 by: Ferrer & Millan

 END

Fundamentals of ABM 2 by: Ferrer & Millan