FUNDAMENTALS

OF ABM 2
Lesson 1
 RULE!!!!!

• ALWAYS BE RESPECTFUL TO
YOUR TEACHER AND TO YOUR
CLASSMATES!!!!!!!!
 Objective
1. Identify the elements of
the SFP and describe
each of them.
ABM_FABM12-Ia-b-1
 Objective
2. Prepare an SFP using the
report form and the account form
with proper classification of items
as current and
noncurrent. ABM_FABM12-Ia-b-4
 Recall your stock
knowledge
I.
1. The book of original entry.
2. Assets are equal to liabilities and owner’s
equity.
3. Are what the company owns.
4. Are what the company owed.
5. Inflows of cash because of services
rendered.
6. Assets from cash spent because of sales
of goods.
7. The second accounting cycle.
8. Is called the book of the final entry.
9. Is the next cycle after journalizing
 Write True if the statement is correct and False if
the statement is incorrect

1.The left side of the account is Debit.

2. The permanent accounts are the nominal
account.
3. The right side of the account is credit.
4. The elements of the statement of financial
position are Assets and expenses.
5. Current Assets are easily convertible into cash
within the normal operating cycle of the business.
 Write True if the statement is correct and False if
the statement is incorrect

6. The elements of Statement of financial

position are Assets, Liabilities and Owner’s
Equity account.
7. Kinds of Assets are Current Assets and
Non-Current Assets.
8. Kinds of Liabilities are Current Liabilities
and Non-Current Liabilities.
Write True if the statement is correct and False if
the statement is incorrect

9. Under owner’s Equity Account

includes Capital, Owner’s withdrawal,
Revenue and Expenses.
10. Account form and Report form are
the two kinds of forms of the Statement
of Financial Position.
 Check your answer:
I.
1.Journal 6.Expenses
2.Accounting Equation 7.Journalizing
3.Assets 8.Ledger
4.Liabilities 9.Posting to the
5.Income Ledger
 ACTIVITY
Read the article and
give your opinion by
answering the
questions given.
Joel Cruz photocopying
business has been
profitable. It has
attracted a lot of clients
and Joel has already
bought another
photocopying machine
and has requested
his good friend Maria
Lucas to help her out in
business operations .
Seeing how successful
his friend’s business
has been ,Maria also
wanted to set up
her own business. She
has decided to rent the
vacant space beside
Joel’s own business
She has decided to rent
the vacant space
beside Joel’s
photocopying center,
But is still undecided on
what type of business
she is going to put up.
One day, while helping
out the photocopying
center, Maria overheard
a group of students
Having the following
conversation:
Student 1: How I wish
the school bookstore
Would sell notebooks
with face of my favorite
Korean celebrity on the
cover!!!
Student 2:
I agree with you. I wish they
should also sell other school
supplies with cool designs
and cute characters.
Student 3: And I don’t get why
they run out of stock most of
the time. Remember we had
to rush after our class to ride
a tricycle and go to the
nearest mall in order to buy
worksheets for our
accounting class the next day!
Student 1: Yes, I remember .
That was really tiring , but
right now, I’m hungry.
Student 3: Oh, the
photocopies are done! Let’s
go buy some snacks on our
way home.
 Questions:
a. What kind of business
Maria is planning to set
up?
b. Is the business operation
will be the same with Joel?
 Questions:
c. What do you think is the
difference in the nature of
business operation?
 STATEMENT OF FINANCIAL
POSITION (SFP)
-a statement that shows the
financial condition of the
business as of a particular
date.
-This statement was
previously
known as “Balance Sheet”.
-It presents the three (3) accounting
elements of which are considered
“permanent” accounts:
(1.) Assetss; (2.) Liabilities;
(3.) Owner’s Equity
 Permanent Accounts

- Life or usefulness continues throughout the

life of the company
 ASSETS
– resources controlled by the
enterprise as a result of past
transactions and events and
from which economic benefits
flow to the enterprise.
 ASSETS
Ex :
Cash,
Accounts Receivable,
Inventory, Building,
Equipment,
Land
Assets are classified into:

1.Current Assets and

2. Non-Current Assets
 Current Assets
- all assets that are expected to be
realized, sold or consumed within
twelve months after the reporting
period, or within the enterprise's
normal operating cycle.
 Current Assets
Examples:
Cash,
Accounts Receivable,
Merchandise Inventory,
Prepaid Expense
 Non-Current Assets
- these are long-lived assets or simply
put all other assets that do not qualify
as current are classified as non-
current.
- And that cannot be realized sold or
consumed, within twelve months after
the reporting period.
 Non-Current Assets
Examples
Property, Plant and Equipment (equipment,
furniture, building, land),

Long Term investments

Intangible Assets etc.
 LIABILITIES

– financial obligations of the business to

creditors.

-It represents the claim of the creditors

over the assets
of the business.
Liabilities are classified into:
Current Liabilities and Non-
Current Liabilities.
 Current Liabilities –

- are financial obligations of the

business which are expected to be
settled in the normal course of the
operating cycle or fall due (paid)
within one year from the Statement
of Financial Position date.
 Current Liabilities –

Ex:
Accounts Payable,
Loans Payable (short-term)
Notes Payable (short-term)
Accrued Expense,
Unearned Income,
 Non-Current Liabilities

– are long term liabilities that

do not fall due (paid) within
one year after year-end date.
Examples:
include Notes Payable (long-term),
Loans Payable,(long-term)
Mortgage Payable, etc.
 OWNER’S EQUITY

– residual interest in the assets of the

business after deducting all its liabilities.

- It is expressed in the equation as Assets

less Liabilities equals Owner’s Equity or
Capital.
A – L = Owner’s Equity
Other terms for Owner’s Equity :
_ Capital
_ Net Assets
_Net Worth
Capital will increase when there is
Profit or Additional contribution
by the owner or decreased when
there is loss or withdrawal by the
owner.
If you can answer scrambled words,
you can answer this question :

What are 2 forms of Statement of

Financial Position?
1. CCAONTU 2.OEPRT
 FORMS OF STATEMENT OF FINANCIAL
POSITION

Report Form
- assets are listed first followed by
liabilities and Owner’s Equity.
-vertical position
-used when there are few accounts
involved.
 Account Form
– this is patterned after the basic
accounting equation, Assets = Liabilities
and Owner’s Equity
where the assets are shown at left-hand
side while the liabilities and owner’s
equity at the right-hand side.
 Account Form
-The statement is in a horizontal position.

-This form is used when there are plenty of

accounts involved.
 HEADING OF THE STATEMENT OF
FINANCIAL POSITION

Regardless of what format is followed,

each statement should bear the
following headings:
Who – the name of the company or
proprietor’s name if there is no trade
name
What – the name or title of the reports
When – the date covered by the report (as of
particular date)

The date of Statement of Financial Position is

worded “as of” a particular date
STEPS IN PREPARING STATEMENT
OF FINANCIAL POSITION:
 ACTIVITY
After closing all the nominal accounts of
Mr. Cristian Visaya, he requested you to
prepare a classified Statement of
Financial Position in both Report and
Account Forms.
Presented below are the accounts with
debit and credit balances:
 ASSIGNMENT
Identify and make a drawing of all the
assets,liabilities, and owner’s equity of
your family. Make a reflection
afterwards on how to make your family’s
Statement of Financial Condition more
“attractive”. Use short bondpaper.