ACCOUNTING 2

MODULE

LESSON : STATEMENT OF FINANCIAL POSITION

MELC : A. Identify the elements of the SFP and describe each of them
(ABM_FABM12- Ia-b-1)

Introduction:

 The learners must be able to recall the difference of Assets and Liabilities
 Tell the learners that having more assets does not mean that the business is
earning
 The learners must be familiar with the following terms:
a. Permanent Account – these accounts are permanent in a sense that their
balances remain intact from one accounting period to another.

- Examples: 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.

b. Temporary accounts - unlike permanent accounts will have zero

balances at the end of the accounting period.

- This is in contrast with temporary accounts which are found in the

Statement of Comprehensive Income (SCI).

c. 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.

Definition of Statement of Financial Position (SFP)

 is a snapshot of the financial position of the company

 is a report based on the accounting equation: Assets + Liabilities + (Owners’)
EQUITY (ALOE)
 It is also called as 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

Elements of SFP
I. Assets –are resources with future benefits that are with the control of the company.
Current Assets -  are those that are expected to be realized or used within the company's
normal operating cycle or 1 year, whichever is longer. They include properties that are held
primarily for the purpose of selling them in the near future. In essence, current assets are
short-term in nature.

1. Cash and Cash Equivalents

 Cash on Hand - consists of un-deposited collections
 Cash in Bank - made up of bank accounts that are unrestricted as to
withdrawal
 Short-term cash funds such as Petty Cash Fund, Payroll Fund, Tax Fund,
etc.
 Cash Equivalents are short-term investments with very near maturity
dates making them assets that are "as good as cash".
2. Trading Securities or "Financial Assets at Fair Value"
 Trading Securities are investments in stocks that are held with the
purpose of trading (speculative investments)
3. Trade and Other Receivables
 Accounts Receivable - receivables from customers arising from rendering
of services or sale of goods
 Notes Receivable - receivables from customers which are backed up by
promissory notes
 Other receivables representing claims from other parties such as: Rent
Receivable, Interest Receivable, Dividend Receivable, etc.
 Allowance for Bad Debts - a contra-asset account deducted from
Accounts Receivable. It represents the estimated uncollectible amount of
the receivable.
4. Inventories
 Inventories are assets that are held for sale in the normal operations of the
business. A service business normally has no inventory account.
 Merchandising businesses normally maintain one inventory account
– Merchandise Inventory.
 Manufacturing businesses have several inventories: Raw Materials
Inventory, Work in Process Inventory, Finished Goods Inventory,
and Factory Supplies Inventory.
5. Prepaid Expenses or Prepayments
 Prepayments consists of costs already paid but are yet to be used or
incurred. Common prepaid expense accounts include: Office
Supplies, Service Supplies, Prepaid Rent, and Prepaid Insurance.

Non-Current Assets - are properties held for a long period of time (i.e. more than 1 year).
1. Property, Plant, and Equipment (PPE) also known as Fixed Assets
 PPE includes tangible assets that are expected to be used for more than
one year. PPE accounts include: Land, Building, Machinery, Service
Equipment, Computer Equipment, Delivery Equipment, Furniture and
Fixtures, Leasehold Improvements, etc.
 Take note that land that is not used by the business in its operations but is
rather held for appreciation is not part of PPE but of investments.
 Accumulated Depreciation - a contra-asset account deducted from the
related PPE account. It represents the decrease in value of the asset due
to continuous use, passage of time, wear & tear, and obsolescence.
2. Long-Term Investments
 Investment in Long-Term Bonds, Investment in Associate, Investment in
Subsidiary, Investment Property, Long-Term Funds; these are
investments that are intended to be held for more than one year.
3. Intangibles
  An intangible has no physical form but from which benefits can be derived
and its cost can be measured reliably.
 Intangibles include Patent for inventions, Copyright for authorship,
compositions and other literary works,Trademark, Franchise, Lease
Rights, and Goodwill.
4. Other Non-Current Assets
 Assets which cannot be classified under the usual non-current asset
categories
 Includes: Advances to Officers, Directors, and Employees not collectible
within one year, Cash in Closed Banks, and Abandoned or Idle Property

There you have a list of asset accounts. Take note that different companies may use
different (although similar) sets of account titles. It will depend upon the company's
business and industry, and what specific accounts were adopted in its chart of
accounts.

II. Liabilities
- refer to economic obligations of an entity.
- A liability is technically defined as a "present obligation of an enterprise
arising from past transactions or events, the settlement of which is expected
to result in an outflow from the entity of resources embodying economic
benefits".
Current liabilities - are those that entity expects to settle within the entity's normal
operating cycle or 1 year, whichever is longer

1. Accounts Payable - refers to indebtedness that arise from purchase of goods,

materials, supplies or services and other transaction in the normal course of
business operations
2. Notes Payable - obligations that are evidenced by promissory notes that are
to be paid within 1 year
3. Income Tax Payable - current income tax obligation of the company payable
to the government
4. Withholding Tax Payable - includes wage taxes withheld from employees
that will be remitted to the appropriate government agency. Separate accounts
for Social Security Payable and Medicare Payable are also often used
5. Accrued Expenses - expenses already incurred but not yet paid. Accrued
expense accounts include: Salaries Payable, Rent Payable, Utilities
Payable, Interest Payable, Telecommunications Payable, and other unpaid
expenses
6. Unearned Revenues - represents advanced payments from customers which
requires settlement through delivery of goods or services in the future
7. Any other short-term payable, i.e. any obligation that is to be paid within
1 year after the balance sheet date

Non-Current Liabilities - are long-term obligations, i.e. expected to be settled beyond one
year.
1. Long-Term Notes Payable - obligations evidenced by promissory notes
which are to be paid beyond 1 year; also commonly referred to as Loans
Payable
2. Bonds Payable - liabilities supported by a formal promise to pay a specified
sum of money at a future date and pay periodic interests. A bond has a stated
face value which is usually the final amount to be paid. Bonds can be traded in
bond markets.
 For serial bonds (bonds paid in installments), the portion which is to be
paid within one year is considered as a current liability; the rest are non-
current. The same rule applies to other long-term obligations paid in
installments.
 3. Mortgage Payable - long-term obligation to a bank or other financial
institution, secured by real properties of the business
4. Any other long-term payable, i.e. any obligation that is to be paid beyond
1 year

III. Equity or the Owner’s Capital

- presents claims of the owner or the net assets of the business.
- It is composed of the owner’s investments and the accumulated net income of
the company, net of any distributions to the owners.
- It reflects the portion of the assets that belongs to the owners of the business.

Accounts that affects Capital

1. Income or Revenue -  are earned from rendering services
2. Expense - refer to costs incurred in conducting business
3. Withdrawal -
4. Revenue -  are earned from rendering services.

https://www.accountingverse.com/financial-accounting/elements/expense-
accounts.html
 Sample of Statement of Financial Position

Explanation and Pointers

1. A Balance Sheet shows the financial position or condition of the company; thus, it is
also called "Statement of Financial Position".
2. A typical balance sheet starts with a heading which consists of three lines. The first
line presents the name of the company; the second describes the title of the report; and
the third states the date of the report.
3. Notice that the third line is worded "As of..." Unlike the other components of the
financial statements which cover a span of time ("For the period ended.."), the balance
sheet presents information as of a certain date (at a specific point in time). In the above
example, the contents of the balance sheet pertain to the financial condition of the
company on December 31, 2016.
4. A balance sheet summarizes the assets, liabilities, and capital of a company. Assets
refer to properties owned and controlled by the company. Liabilities are obligations to
creditors, lenders, etc. And capital represents the portion left for the owners of the
business after all liabilities are paid.

5. Assets and liabilities are classified as either current or non-current. Current

assets are properties that will be converted into cash within 12 months or within the
operating cycle of the business. Current liabilities are due within 12 months or within the
operating cycle. Non-current assets and non-current liabilities are those that do not meet
the above qualifications.
6. "Total assets" and "total liabilities and capital" should always be equal.
7. The capital amount, P470,000 for Learning Is Fun Company, was actually taken from
the Statement of Owner's Equity. (To be discussed on lesson about Statement of
Owner’s Equity)
8. The balance sheet may be presented in two forms: account form and report form. (to
be discussed on next lesson )In account form, assets are presented on the left side
while liabilities and capital are presented on the right. In report form, assets are
presented first and then followed by liabilities and capital. The example above is
presented using the report form.
9. Good accounting form suggests that a single line is drawn every time an amount is
computed. It signifies that a mathematical operation has been completed. The "total
assets" and "total liabilities and capital" amounts are double-ruled.
 ACTIVITY SHEET

Name of Activity : Remember Me!

MELC: . Identify the elements of the SFP and describe each of them
(ABM_FABM12- Ia-b-1)

Name: _______________________________ Date: ________________

Grade & Section: ______________________ Track & Strand: ________

Direction: From the box select the best answer which will complete
each statements.

Capital Current Assets Accounts Receivable

Liabilities Revenue Current Liabilities Cash Equivalents

Accounts Payable Inventory Prepaid Expense

___________________1. These are rreceivables from customers arising from

rendering of services or sale of goods.
___________________2. It reflects the portion of the assets that belongs to the
owners of the business
___________________3. These are earnings from rendering services
___________________4. It refers to economic obligations of an entity.
___________________5. These are costs already paid but are yet to be used or
incurred.
___________________6. These are short-term investments with very near maturity
dates making them assets that are "as good as cash".
___________________7. These are assets that are held for sale in the normal
operations of the business.
___________________8. It refers to indebtedness that arise from purchase of goods,
materials, supplies or services and other transaction in the normal course of business
operations.
___________________9. It refer to economic obligations of an entity.
__________________10. These are those that entity expects to settle within the
entity's normal operating cycle or 1 year, whichever is longer.
Answer: Easy

1. Accounts Receivable

2. Capital

3. Revenue

4. Liabilities

5. Prepaid Expense

6. Cash Equivalents

7. Inventory

8. Accounts Payables

9. Liabilities

10. Current liabilities

 ACTIVITY SHEET

Name of Activity : You Are My Current!

MELC: . Identify the elements of the SFP and describe each of them
(ABM_FABM12- Ia-b-1)

Name: _______________________________ Date: ________________

Grade & Section: ______________________ Track & Strand: ________

Directions: Place a ✔ if your answer is in the “Current Assets” column

and if y place a if you answer is in the “Current
Liabilities” column.

Elements Current Assets Current Liabilities

1. Accrued Expenses

2. Accounts Receivable

3. Loan Payable

4. Cash

5. Inventory

6. Prepaid Expenses

7. Utilities Expense

8. Utilities Payable

9. Cash on Hand

10. Unearned Revenue

Answer : Moderate

Elements Current Assets Current Liabilities

✔
1. Accrued Expenses
✔
2. Accounts Receivable

3. Loan Payable
✔
4. Cash
✔
5. Inventory
✔
6. Prepaid Expenses
✔
7. Utilities Expense

8. Utilities Payable
✔
9. Cash on Hand

10. Unearned Revenue

 ACTIVITY SHEET

NAME OF ACTIVITY : Answer me Why?

MELC: . Identify the elements of the SFP and describe each of them
(ABM_FABM12- Ia-b-1)

Name: _______________________________ Date: ________________

Grade & Section: ______________________ Track & Strand: ________

Direction: Answer each questions very briefly

1. Why is it that Statement of Financial Position is very important in Financial

statement?

______________________________________________________________________

2. Why is it that to have a good accounting form suggests that a single line is
drawn every time an amount is computed?

______________________________________________________________________

3. Why do we need to identify the elements of SFP?

______________________________________________________________________
Rubrics for Difficult

Short Answer Grading Rubric

Grading Factors:

1. Completeness (5 points)
Does your response directly answer each part of the assignment
question(s)?

Excellent Very Good Good Need Improvement

5 4-3 2 1-0

2. Knowledge (10 points)

Does your response clearly show you have read and understand the
lesson content by correctly defining key terms, key persons and
summarizing concepts?
Have you made inferences based on this knowledge to personal or
modern-day applications?

Excellent Very Good Good Need Improvement

10-9 8-7 7-6 5-0

3. Analysis (5 points)
Have you clearly state analysis and give examples to back them up?
Does your response provide analysis to the larger concepts of the lesson?

Excellent Very Good Good Need Improvement

5 4-3 2 0-1

4. Writing Skills (5 points)

Do you write clearly, in complete sentences, with minimal errors in
grammar and spelling? Did you use the APA Method of Citation where
needed?

Excellent Very Good Good Need Improvement

5 4-3 2 0-1
 ACTIVITY SHEET

NAME OF ACTIVITY : My Statement!

MELC: . Identify the elements of the SFP and describe each of them
(ABM_FABM12- Ia-b-1)

Name: _______________________________ Date: ________________

Grade & Section: ______________________ Track & Strand: ________

Direction: Prepare a simple Statement of Financial Position

using the following accounts:

Prepare a Statement of Financial Position for Rivera Sari-Sari store using the
following accounts:
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
Answer: Enhancement

Rivera Sari-Sari store

STATEMENT OF FINANCIAL POSITION
AS OF December 2019

Assets

Current Assets
Cash P5,000
Accounts Receivable 2,600
Supplies 2,300
Total Current Assets P 9,900

Non-Current Assets
Building P113,000
Equipment 17,000
Total Non-Current Assets P130,000
TOTAL ASSETS P139,900
========

Liabilities and Owner’s Equity

Current Liability
Accounts Payable P22,400
Non-Current Liability
Loan Payable 75,500
Total Liabilities P99,900
Owner’s Equity 40,000
TOTAL LIABILITIES & OWNER’S EQUITY P139,900
========

References:
- https://www.accountingverse.com/financial-
accounting/elements/expense-accounts.html

- The Commission on Higher Education in collaboration with the

Philippine Normal University
FABM2

- http://qm.riosalado.edu/resources/SyllabusDB/SocialSciences/Rubric_S
hort_Answer.pdf