FUNDAMENTALS OF ACCOUNTANCY, BUSINESS AND MANAGEMENT 2

MODULE 1. WEEK 1

STATEMENT OF FINANCIAL POSITION

In your Fundamentals of Accountancy, Business and Management 1 you have learned the
accounting principles and basic accounting equation which state that Assets=Liabilities + Equity.
In this lesson you will be able to incorporate this basic accounting operation to the one of the
important elements of Financial Statement called Statement of Financial Position or the Balance
Sheet. To give you a hint, Financial Position is a report based on the accounting equation as a
consequence of a double-entry accounting.

LEARNING OBJECTIVES

 Identify the elements of the SFP and describe each of them (ABM_FABM12-la-b-1)

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 Classify the elements of the SFP into current and non-current items (ABM_FABM12-la-

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b-2)

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 Prepare Statement of Financial Position using report format and account
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format(ABM_FABM12-la-b-4)

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Activity No. 1
Pre-Assessment
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This activity helps you to recall significant lessons on your Fundamentals of Accountancy,
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Business, and Management 1. It also measures your understanding on the execution of basic
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accounting operation, how account titles may be categorized and the basic rules of debit-credit
entry system.
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Direction: Classify the following accounts if belong to Assets, Liabilities or Equity

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Cash Sales Revenue Notes Receivable

Accounts payable Accounts Receivable Merchandise Inventory

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Prepaid Insurance Withdrawal Office Supplies

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Notes payable Capital Furniture and Fixture

Unearned Income Doubtful Account Utility Expense

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Direction: Solve the following by applying the Accounting Equation:

Assets = Liabilities + Equity

1. 1,500,000 = ________ + 900,000

2. 600,000 = 130,000 + ________

3. ________ 70,000 + ________

4. 230,000 = ___________ + (60,000)

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 FUNDAMENTALS OF ACCOUNTANCY, BUSINESS AND MANAGEMENT 2

5. ________ = 120,000 + (15,000)

Activity No. 2
Problem Solving (Journalizing and Posting Transactions)

Dina Uulit decided to open and ice cream store on May 1, 2020. In order to do so, she invested
P300,000 for the establishment of her business. On the month of May, Dina Uulit also incurred
the following transactions:

May 5 Bought the necessary equipment for the ice cream shop. The purchase price was
P200,000

May 7 Bought goods on credit. The goods were bought from Ryan Store at a cost of
P50,000. The goods are to be paid in 15 days.

May 15 The ice cream store opened. During this day, Dina Uulit sold P25,000 worth of
ice cream. Half of this was paid in cash and the other was paid to be in 15

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days. The cost of the ice cream sold is P20,000.00.

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May 22 Paid Ryan Store eH w
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May 30 Received payment for the goods sold in May 15
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Required:1. Journalize the transactions using the following account titles (Cash, Account
Receivable, Equipment, Inventory, Accounts Payable, Capital, Revenues and
Expenses)
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2. Prepare the Unadjusted Trial Balance

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Discussion
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Statement of the Financial Position

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We begin our study of financial statements with the statement of Financial Position. It was

previously referred to as Balance Sheet. At the topmost part of the

SFP is the title. The first line
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BIG GREAT COMPANY of the title shows the name

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STATEMENT OF FINANCIAL POSITION of the company. The second

AS OF DECEMBER 29, 2019 line identifies the FS which
is the SFP. The third line is
the date of the SFP. It states
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‘as of ‘ tells the reader that

ASSETS
the balances reported on the
Current Assets SFP is the net effect of all
Cash 100,000.00 transactions related specific
Accounts Receivable 500,000.00 account from the date of the
Less: Allowance for Doubtful Accounts (50,000.00) 450,000.00 establishment of the
company up to the date of
Accrued Income 300,000.00 the SFP.
Inventory 200,000.00
Prepaid Expenses 50,000.00
Total Current Assets 1,100,00.00
NON-CURRENT ASSETS

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 FUNDAMENTALS OF ACCOUNTANCY, BUSINESS AND MANAGEMENT 2

Long Term Investments 1,250,000.00

Intangible Assets 500,000.00
Property,Plant and Equipment
Cost 1,000,000.00
Less: Accumulated Depreciation (300,000.00) 700,000.00
Total Non-Current Assets 1,450,000.00
Total Assets 3,550,000.00

LIABILITIES AND OWNER’S EQUITY

CURRENT LIABILITIES
Accounts Payable 250,000.00
Accrued Expenses 100,000.00
Notes Payable 1,000,000.00
Unearned Income 80,000.00
Total Current Liabilities 1,430,000.00

NON-CURRENT LIABILITIES

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Mortgage Payable 500,000.00

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Loans Payable eH w 1,000,000.00
Total Non-Current Liabilities 1,500,000.00

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Total Liabilities 2,930,000.00
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Add: Owner’s Equity 620,000.00

Total Liabilities and Owner’s Equity 3,550,000.00

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Always remember that Assets= Liabilities + Equity. The total Assets will be extracted by
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summing up the total amount of Current Assets and Non-Current Assets. Total Liabilities may be
derived by summing up Current Liabilities and Non-Current Liabilities. The Owner’s Equity will
then be added to the total liabilities and should come up with the same value as the assets when
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the two elements are combined.

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Statement of Financial Position or Balance Sheet reports the resources available for the company
to use, obligations that company is required to settle and the equity that belongs to the owners of
the company. It is helpful in determining the state of the entity’s liquidity risk, credit risk and
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business risk and assists the users financial statements to predict the amount, timing and
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volatility of entity’s future earnings.

1.2 Elements of the Statement of Financial Position

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Assets

They are resources with future benefits that are within the control of the company. These
benefits are usually in the form of their ability to directly or indirectly increase cash inflow to the
entity or a reduction of its outflows.

Major Accounts under Assets

Cash- refers to money readily available to be used in the company’s operations. The cash
account reports the balances of cash in bank, as well as bills, coins and checks on hand.

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 FUNDAMENTALS OF ACCOUNTANCY, BUSINESS AND MANAGEMENT 2

Receivables- Assets that pertain to the company’s right to collect or right to claim payment.
They arise when a business rendered goods or services to the customer on account or credit.

Inventory- refers to the cost of unsold merchandise that the company purchased for the purpose
of reselling to its customers in normal course of its business.

Prepaid Expense-is an asset account that refers to future expenses paid in advance before the
services or goods are used.

Property, Plant and Equipment- long term assets which are used in the operations of the
company.

Intangible Assets- they are assets having no physical or tangible properties.

Classification of Assets

Assets may be divided into two categories: current and noncurrent.

Current Assets- Items listed on a company’s balance sheets that are expected to be converted
into cash within one fiscal year. Examples are cash, accounts receivable consists of the expected

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amount to be collected within one fiscal year and inventory which includes raw materials and

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finished goods that are readily available for sale.

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Noncurrent Assets- are long term assets that a company expects to hold over one fiscal year that

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cannot be readily converted to cash within a year. Examples are fixed assets, intangible assets
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and long term investments.
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Liabilities
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Liabilities are one of the claims of external parties from the entity. Basically, they are the debts of
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the entity to external creditors. These debts do not always have to be paid in money. Some of
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these liabilities are in the form of obligations to do some service or even give me something.

Account Title for Liabilities

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Accounts Payable- is obligation to the suppliers of purchased inventories.

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Notes Payable- refers to obligation to pay documented in a promissory note.

Accrued Expenses – refers to the obligation to pay for goods or services already used in
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operation of the business such as salaries payable, utilities payable, rent payable and interest
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payable.

Unearned Income- refers to advance payments made by customers while goods and services are
not yet delivered to the customer.
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Long term liabilities are obligation to pay to be settled at some specific date that is more than
one year away from the date of the SFP.

Classification of Liabilities

Current Liabilities- are those that the company expects to settle within 12 months of the date on
the balance sheet. Examples are account payable, notes payable, unearned income, wages
payable and taxes payable

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 FUNDAMENTALS OF ACCOUNTANCY, BUSINESS AND MANAGEMENT 2

Non-Current Liabilities- are accounts that the company doesn’t expect to liquidate them within
12 months of the balance sheet date. Examples are Long-Term Bank Loan, Bonds Payable, and
Mortgage Payable.

Equity

The equity reflects the residual claims or net assets of the owners of an entity. It is composed of
the owner’s investment and the accumulated net income of the company. Equity is usually
presented in the statement of financial position under the following categories:

For Sole Proprietoship- Owner’s Equity, Net of withdrawal

For Partnership- Partner’s Equity, net of partners’ withdrawal ang share in net income (loss)

For Corporation

a. Share capital represents the amount invested by the owners in the entity.
b. Retained Earnings comprises the total net profit or loss retained in the business after
distribution to the owners in the form of dividends

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1.3 Presentation of Statement of Financial Position

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The SFP may be presented using two acceptable formats, the report form and the account
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Format.

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Account Form- The account form consists of two columns, set side by side. The left column
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lists the company’s assets. The final line on the left side of the statement provides provides the
total value of all assets. The column on the right lists both liabilities and equity, with liabilities
coming first. The final line on the right provides the total combined value of liabilities and
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equity.
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Report Form- provides information in a vertical format-essentially one column that goes the full
width of the page. The report starts with assets, providing a total value at the end of the assets
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section. It then lists liabilities and finishes with equity with the final line of the report providing
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the total combined value of liabilities and equity.

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Account Form
GCQ COMPANY
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STATEMENT OF FINANCIAL POSITION

AS OF DECEMBER 31, 2019
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ASSETS LIABILITIES AND OWNER’S EQUITY

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Current Assets Current Liabilities

Cash P215,000 Accounts Payable P 55,000
Accounts Receivable 85,000 Taxes Payable 12,000

Prepaid Expenses 35,000 Loans Payable-Current Portion 50,000

TOTAL CURRENT ASSETS P335,000 Total Current Liabilities P117,000

Non-current Assets Non-Current Liabilities

Delivery Equipment P450,000 Loans Payable(5 yrs to pay) 450,000

Accumulated Depreciation (7,500) Total Liabilities P567,000
Total Non-Current Assets P442,500 Owner’s Equity

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 FUNDAMENTALS OF ACCOUNTANCY, BUSINESS AND MANAGEMENT 2

GQC, Capital P210,800

TOTAL ASSETS P777,800 TOTAL LIABILITIES &OE P777,800

REPORT FORM

A. DE GUZMAN
STATEMENT OF FINANCIAL POSITION
AS OF DECEMBER 31, 2019

ASSETS

Current Assets
Cash P215,000
Accounts Receivable 85,000
Prepaid Expenses 35,000 P335,000

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Non-current Assets

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Delivery Equipment P450,000

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Accumulated Depreciation eH w ( 7,500 ) 442,500
TOTAL ASSETS P777,800
LIABILITIES

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Current Liabilities
Accounts Payable P55,000
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Taxes Payable 12,000

Loans Payable-Current portion 50,000 P117,000

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Noncurrent Liabilities

Loans Payable(5 years to pay) P450,000 450,000

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TOTAL LIABILITIES P567,000

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OWNER’S EQUITY

A. De Guzman, Capital 210,800

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TOTAL LIABILITIES AND OWNER’S EQUITY P777,800

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Activity No. 3
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Post Assessment

TRUE OR FALSE: Read each sentence carefully and determine whether the statement is True
or False. Write your answers on the space provided before the number.

_________1. The SFP provides readers with the information as to the company’s financial
position as a specified date.

_________2. Asset=Liabilities +Owners Equity is the governing equation of the SFP.

_________3. Asset is an element of the SFP that has a normal balance of credit.

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 FUNDAMENTALS OF ACCOUNTANCY, BUSINESS AND MANAGEMENT 2

_________4. Debit means to increase an account

_________5. T-account is a representation of the general ledger account used in teaching

accounting.

_________6. An entry on the opposite side of the normal balance of an account means to
decrease the account by the amount entered.
_________7. The normal balance of liabilities and equity is credit
_________8. The normal balance of note receivable is debit
_________9. Credit means to decrease an account.
_________10. The normal balance of Unearned income is debit.

Activity No.4
Arrange the following letter to form a complete accounting term. Write your answer on
the space provided before the number.
_____________________1. S L I B I T E I A L I
_____________________2. E D U N A R E N M E N I C O
_____________________3. Y Q E T I U

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_____________________4. P X E E S E N

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____________________5.S T A S E S

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____________________6.N A T C O C U B E R C V E I A L E
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____________________7. P A L A T I C

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____________________8. C S I I V G E R N
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____________________9. U E R E EV N
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____________________10.T R E C U R N
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Activity No.5
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The December 31 2019 statement of Financial Position of N. Abesamis is shown below

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in alphabetical order:
Accounts Payable 236,000
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Accounts Receivable 115,000

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Accumulated Depreciation-Equipment 25,000

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Allowance for Bad Debts 8,000

Cash and Cash Equivalents 65,000
Equipment 600,000
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Inventory 150,000
M. Abesamis Capital 366,000
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Notes Payable(due in 2022) 200,000

Salaries Payable 20,000
Supplies 5,000
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Withholding Taxes Payable 80,000

A. Prepare the Statement of Financial Position as of December 31, 2019

For M. Abesamis using:
A. Account Form
B. Report Form

B. Answer the following questions:

1. What is the arrangement of the elements of statement of financial position?
2. How many assets are classified current or non-current?

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 FUNDAMENTALS OF ACCOUNTANCY, BUSINESS AND MANAGEMENT 2

3. How many liabilities are classified current or non-current?

Remember

 Statement of Financial Position or Balance Sheet reports resources available for the
company to use, obligations that company is required to pay and the equity that belongs
to the owner’s of the company.
 Assets are resources that are within the control of the company and have future benefits.
Examples are cash , receivables, inventory, prepaid expense, property plant and
equipment
 There are two Classifications of Assets; Current Assets and Non-Current Assets
 Liabilities are obligation to make payments. Examples are Accounts payable, notes
payable, accrued expenses, unearned income, and long term liabilities
 The Classifications of Liabilities are Current Liabilities and Non-Current Liabilities
 The equity reflects the residual claims or net assets of the owners of an entity. It is
composed of the owner’s investment and the accumulated net income of the company.

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 Equity is usually presented in the statement of financial position under the following

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categories:

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For Sole Proprietorship- Owner’s Equity, Net of withdrawal

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For Partnership- Partner’s Equity, net of partners’ withdrawal and share in net income
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For Corporation

 Share capital represents the amount invested by the owners in the entity.
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 Retained Earnings comprises the total net profit or loss retained in the business
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after distribution to the owners in the form of dividends

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 The SFP may be presented using two acceptable formats: The account form and the
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report form.
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Reference:
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Salazar, Dani Rose C., Fundamentals of Accountancy, Business and Management 2, Rex
Bookstore, 2017.
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De Guzman Angeles A., Fundamentals of Accountancy, Business and Management 2, Lorimar

Publishing Inc., 2018.
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