Silay Institute, Incorporated

Fundamentals of Accounting 2

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TOPICS:

▰ Two Forms of the Statement of Financial Position

▰ Parts of the Statement of Financial Position
▰ Accounting Equation

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 OBJECTIVES

The students should be able to acquire the following competencies

a. Make Statement of Financial Position using the account and report format
b. Discuss the five major accounts
c. Cite examples of each type of account
d. Illustrate the accounting equation and
e. Perform operations involving simple cases with the use of accounting
equation Silay Institute, Incorporated
 Introduction

As a means of telling interested people about business operations,

accounting performs important tasks of recording daily transactions,
classifying recorded data, summarizing recorded and classified data, and
interpreting the summarized facts. In all business enterprises, accounting
information is summarized in at least four basic financial reports.

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.
One of these financial reports shows what the business is worth in terms
of the properties it owns (assets), the debts it owes (liabilities), and the
investment of its owner/s (proprietorship). This report is called the Statement of
Financial Position and this statement informs the users of the financial condition
of the business at a given date, usually at the end of an accounting period.

Silay Institute, Incorporated

 Two Forms of the Statement of Financial
Position

The Statement of Financial Position can be prepared in two forms;

namely, the account form and the report form. Their difference lies only in the
presentation of the assets and the equities on the statement. No matter what
form you choose to present your Statement of Financial Position, you will
arrive at the same totals.

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Forms of Statement of Financial
Position
Account Form
Charlotte's Designer and Tailoring Shop
Statement of Financial Position
December 31, 2015
Assets Liabilities and Owner's Equity
Current Assets Current Liabilities
Cash P168,500 Accounts Payable P 20,000
A/R 23,000 Noncurrent Liabilities
Sewing Supplies 21,250 Notes Payable 80,000
--------- ---------
Total Current Assets P 212,750 Total Liabilities P 100,000
Noncurrent Assets Owner's Equity
Property,Plant and Jesus,Equipment 249,500 Charlotte De Jesus, Capital 362,250
Total Assets P 462,250 TotalLiabilities andOwner's Equity P 462,250
Silay Institute, Incorporated
======= ========
Account Form

In the account form of Statement of Financial Position, the assets

are listed on the left side of the report and the liabilities and proprietorship
on the right side.

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 Forms of Financial Statement Position
Charlotte's Designer Tailoring Shop
Statement of Financial Position
Report Form December 31, 2015
Assets
Current Assets
Cash P 168,500
Accounts Receivable 23,000
Sewing Supplies 21,250
Total Current Assets P 212,750
Noncurrent Assets
Property, Plant, and Equipment 249,500
Total Assets P 462,250
==========
Current Liabilities
Accounts Payable P 20,000
Noncurrent Liabilities
Notes Payable 80,000
Total Liabilities P 100,000
Owner's Equity Charlotte
De Jesus, Capital 362,250
Silay Institute, Incorporated
Total Liabilities and Owner's Equity P 462,250
Report Form

A Statement of Financial Position prepared in report form shows the

assets on the top section of the statement and the liabilities and owner’s equity
on the bottom section.

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 Charlotte De Jesus, who was determined to understand the
Statement of Financial Position, is currently reviewing the shop’s
latest financial statements. After a year of successful operation,
she is now looking at her latest Statement of Financial Position.
She observed that there are more items now included in the report
and the notes to the financial statement is much longer compared
to the initial report that her friend Vicky prepared during the first
year of her business operation.
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 She observed every detail of the report and scrutinized the
many line items that are new compared to the last report she
analyzed. The following is the latest Statement of Financial
Position of Charlotte’s business.

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 Charlotte’s Designer and Tailoring Shop

Statement of Financial Position

December 31, 2016
ASSETS
Current Assets Notes
Cash and Cash Equivalents (5) P 133,750
Investments in Trading Securities 50,000
Trade and Other Receivables (6) 51,500
Prepaid Expenses (7) 40,000
Total Current Assets P 275,250
Noncurrent Assets
Property, Plant and Equipment (8) 441,500
Total Assets P 716,750

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LIABILITIES AND OWNER’S EQUITY

Current Liabilities
Trade and Other Payables (9) P 137,000
Noncurrent Liabilities
Mortgage Payable 100,000
Total Liabilities P 237,000

Owner’s Equity
Charlotte De Jesus, Capital P 479,750
TOTAL LIABILITIES AND OWNER’S EQUITY P 716,750

Important: Numbering of notes to financial statement starts with the income statement.

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Note 5 Cash and Cash Equivalents

Cash on Hand P 10,000

Cash in Bank 123,750
Total Cash and Cash Equivalents P 133,750

Note 6 Trade and Other Receivables

Accounts Receivable P 40,000

Less: Allowance for Bad Debts 2,000 P 38,000
Notes Receivable 10,000
Interest Receivable 500
Advances to Employees 3,000
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Total Trade and Other Receivables P 51,500
Note 7 Prepaid Expenses
Sewing Supplies P 17,000
Prepaid Insurance 20,000
Prepaid Advertising 3,000
Total Prepaid Expenses P 40,000

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Note 8 Property, Plant and Equipment
Land P 200,000
Building P180,000
Less: Accumulated Depreciation 36,000 144,000
Sewing Equipment 100,000
Less: Accumulated Depreciation 25,000
75,000
Furniture and Fixtures 25,000
Less: Accumulated Depreciation 2,500
22,500
Carrying Value P 441,500 18
Note 9 Trade and Other Payables
Accounts Payable P 40,000
Notes Payable 80,000
Interest Payable 2,000
Accrued Salaries Expense 5,000
Unearned Service Income 10,000
Total Trade and Other Payables P 137,000

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Parts of the Statement of Financial
Position
Statement Heading This includes the name of the business. It tells what kind of statement it is, and gives
the date for which the report is prepared.

Assets, Liabilities, Proprietorship Items are grouped and each group of items is identified by special captions.

Captions Classifications of each group of items appear against the left margin of the statement

Account Titles Individual account titles in each classification are indented.

Current Assets The individual current assets are usually listed in order of their liquidity, with the most
liquid asset, cash appearing first.

Plant, Property, Equipment The plant assets are often listed in order of their expected useful life. Land, having the
longest expected useful life, appears first.

Note (#) The separate computational schedule attached to the report explaining in detail the
aggregated amount presented on the face of the financial statement.
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Current Liabilities The current liabilities are in theory listed in order of due date, with the earliest due
date appearing first.

Captions Indicating Totals Each group of items (i.e, total current assets, total plant, property and equipment, total
current liabilities, etc) is indented further.

Single Rule Line The last figure in each group of items is underlined.
Final Tools The two final tools (i.e. , total assets and total liabilities and owner’s equity) appear as
the last line in their respective sections and are underlined twice (double ruled) to
indicate a final total.

Peso Sign Peso signs are used (a) to the left of the first amount of a group of amounts being
combined and (b) to the left of each final total.

Peso Amount The peso amount for the detailed items is shown in one column; the total of each
classification is extended into the last column on the right-hand side of the statement.

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Accounting Equation
One important feature of the Statement of Financial Position
relates to a very simple fact that any business must show total assets
exactly equal in amount to the sum of the liabilities and the capital.
This relationship exists regardless of the size of the enterprise or the
variety of its assets, liabilities, and ownership interest. This identity is
called the basic accounting equation.
Often it is stated as:
Assets = Liabilities + Owner’s Equity
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This equation connotes that the total resources (assets) equals to the total
amount owed (liabilities) plus proprietorship (owner’s equity). Other times
the equation appears as:
Assets – Liabilities = Owner’s Equity
or
Assets – Owner’s Equity = Liabilities

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Assets
This includes anything owned or possessed by the business which is capable of being
expressed in terms of money or possessing monetary values, and which, consequently, is
available for the payment of the debt of the business. In short, assets, represent the resources of
the business.
Liabilities
These are economic obligations(i.e. debts) payable to an individual or an organization
outside the business.
Owner’s Equity
This represents the claim of an owner of a business over the assets of the business
after the claims of the creditors have been satisfied.
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 Exercises

1. Prepare the Statement of Financial Position of Mary Imaculata

Company together with the accompanying notes to the financial
statement as of September 30, 2015, the end of its fiscal year
.
2. Compute for the missing amount of “Mary Imaculata, Capital” by
using the accounting equation framework:
1. Total Assets – Total Liabilities = Capital

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Cash 57, 535

Accrued Utilities Expense 12,500

Accounts Payable 24,900

Accounts Receivable 38,900

Accrued Interest Income 3,420

Accumulated Depreciation – Furniture & 28,750

Fixtures
Advances to Employees 5,000

Allowance for Doubtful Accounts 3,890

Furniture and Equipment 195,950

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Mary Immaculata, Capital ?
Mortgage Capital 50,000
Notes Payable 25,000
Notes Receivable 32,000
Office Supplies 8,740
Prepaid Taxes and Licenses 6,500

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THANK YOU!

Silay Institute, Incorporated