Week 2-Fundamentals of

Accountancy, Business &

Management
Statement of Financial Position
PRELIMINARIES
 OBJECTIVES
At the end of the lesson you will be able to:
a. identify the elements of the SFP and describe each of them;
b. b. prepare an SFP using the report form and the account form with
proper classification of items as current and noncurrent;
c. appreciate the importance of the SFP in a business organization.
Pre-test
Directions: Choose the letter of the best answer and write your answer on a
separate sheet of paper.

1. It pertains to resources which are controlled and owned by the business.

a. Assets c. Equity
b. Liabilities d. Resources

2. It is derived from deducting the total liabilities to the total assets of a company.
a. Assets b. Equity c. Liabilities d. Resources

3. Which of the following is the correct Accounting Equation?

a. Assets + Liabilities = Equity c. Assets = Liabilities + Equity
b. Assets = Liabilities - Equity d. Assets + Equity = Liabilities

4. Which of the following is classified as Current Asset?

a. Prepaid Expenses c. Delivery Vehicle b. Land d. Copyright
 Importance of Balance
Take a look in the picture and answer the following
questions.

1. Have you seen this picture? If yes where?

2. Give your insights about this picture.
 What is Statement of Financial
Position?

The Statement of Financial Position (SFP), which is also known as the Balance
Sheet, shows the financial position of a business entity at a given period or a
specified date.
- Its purpose is to help the financial statement users in the assessment of the financial health
and soundness of a business entity in determining its liquidity, financial, credit and business
risks.
 Statement of Financial
Position?
It has three (3) elements:

1. Assets (resources owned and controlled by the business);

2. Liabilities (obligations owed to someone by the business); and
3. Equity or Owner’s Equity (residual interest of the owners of the business or what was
left of the assets after paying the liabilities is the right of the owners)
 Statement of Financial
Position?

The assets, aside from the capital investment of the owners, maybe financed from outside
sources (like loans from banks and other financial institutions or from other creditors).

The total assets should always be equal to the sum of the total liabilities and total equity.

Thus, the Accounting Equation is stated as: Assets = Liabilities + Equity.

 Statement of Financial
Activity 1: “HULA Me
Position?
Directions:

1. Guess the account title being described in each sentence.

2. Identify what element of SFP (Assets, Liabilities or Equity) it is listed/ included.
3. Write your answers on the columns provided.
Activity 1: “HULA Me

5
The Statement of Financial Position (SFP): its
classification, its preparation and its form.
Classification of Assets, Liabilities and Equity
1. Assets are divided into current or non- current.
Current Assets- are items that are listed on a business’ statement of financial position that are
expected to be used or realized into cash within one accounting period or a year.

It usually includes cash, accounts receivable, inventories and prepaid expenses.

Cash is considered the most liquid asset because it is readily available for use. It is used as a
medium of exchange in business transactions and may be held on hand or put in banks for
safekeeping.
Accounts Receivables are accounts due from customers as a result of sale of goods or for
services rendered that are collectible within one year. Inventories are regarded as a current
asset because these are items held for resale because they are readily available (either raw
materials or finished goods).
Prepaid expenses are considered current assets because they are expenses paid in advance to
be consumed within a year
2. Non- Current Assets- are items that are listed on a business’ statement of financial position
that cannot be used or realized into cash within one accounting period or a year.

It includes assets that are long- term in nature like fixed assets, long-term investments and
intangibles.

Fixed assets includes Property, Plant and Equipment (Furniture, equipment, land, building,
vehicles, etc.) that are used acquired for use in operations and have an estimated useful life of
more than one year.
Long- term investments are investments made by the owners of the business for long- term
purposes like marketable securities.
Intangible assets are non- physical assets like Patents, Copyright and Franchise.
2. Liabilities are also divided into current or non- current.

Current Liabilities- are liabilities that should be paid and realized within a year after the year-
end date.
These include Accounts Payable, Notes Payable, Accrued Expenses and Unearned
Income.
Accounts Payable is amount due to suppliers for the purchase of goods or services received
on account to be paid within a year.
Notes Payable is account due with supporting promissory notes with short-term mode of
payments.
Accrued Expenses are expenses incurred but not yet paid, examples are Salaries Payable,
Taxes Payable, etc.
Unearned Income is cash collected or given in advance from customers for future delivery of
goods or services to be performed
2. Non- Current Liabilities- are liabilities that are to be paid for more than a year from
the year- end date.

These include Loans Payable, Mortgage Payable, etc.

Loans Payable is account due from third parties which was agreed to be paid for longer
terms.

Mortgage Payable is account due from third parties with associated collaterals to be
paid for longer terms.
3. Equity Equity or Owner’s Equity is the residual interest of the owners of the
business or what was left of the assets after paying the liabilities is the right of the
owners.

It includes the Capital and Drawing accounts.

Capital -is the investment made by the owner to start- up a business in the form of cash
or other assets.
Drawing or withdrawal - is an amount taken by the owner from the business for
personal use
Steps in preparing a simple Statement of Financial Position (SFP):

1. You should start with a heading.

The heading includes the name of the business or entity (ex. JD Gardens), name of the
financial statement (ex. Statement of Financial Position) and the reporting date/ period
(ex. As of December 31, 2019).
We use as of in SFP because the amounts (in Philippine Peso) of the items are
cumulative from the start of the operations of the business up to the accounting date.
2. Assets are presented first. These are classified into current and non- current assets.
3. Next is to present the Liabilities. These should also be classified into current and non-
current liabilities.
4. Equity/ Owner’s Equity is then added after the liabilities to complete the accounting
equation (Assets= Liabilities + Equity).
The illustration is an example of a simple statement of financial position of a single/ sole
proprietorship.

Other forms of business organizations (partnership and corporation) have different

presentation depending on the nature of its business.

The total assets must be always equal to the total liabilities and owner’s equity.

The total assets, as well as, the total liabilities and equity are double ruled showing that it
is the end part of a financial statement.
Forms of Statement of Financial
Position (SFP)
The Statement of Financial Position (SFP) has two forms,
1. Report form
2. Account Form.

The format in the preparation of the SFP depends on the preference but most financial
users prefer to use the report form because it is easier to read especially when comparing
multiple years SFP.

Report Form- it is a form of SFP wherein accounts are presented vertically, the Assets
first, followed by the Liabilities and then the Equity. The above presented Balance Sheet
is an example of a Report Form SFP.
Account Form- it is a form of SFP wherein accounts are presented horizontally, the
Assets are presented on the left side while the Liabilities and the Equity are on the right
side of the Balance Sheet.

It will look like the debit and credit balances of an account. Dale’s Gard
Forms of Statement of Financial Position (SFP)
Activity no. 2 Make a group and share your answer in making account form
3
Assessment
Read and answer the following questions below. Write the letter of the correct

1. It is a form of the Statement of Financial Position that is presented in a horizontal

format.
a. Report form b. Digital form c. Account form d. Line form
2. The following are elements of Statement of Financial Position EXCEPT:
a. Assets b. Equity c. Liabilities d. Expenses
3. In which part of Statement of Financial Position does the Salaries Payable be listed?
b. Assets b. Owner’s Equity c. Liabilities d. Expenses
4. Which of the following is classified as a current asset?
c. Prepaid Rent b. Investments c. Unearned Rent d. Drawings
5. All of the following are classified as Assets, EXCEPT:
a. Accounts Receivable c. Building b. Inventory d. Accounts Payable
Activity (Modular time)
3
Activity (Modular time)

Make Statement of Financial Position of the ____________Company in Report Form