This Study Resource Was: Module 1. Week 1 Statement of Financial Position
This Study Resource Was: Module 1. Week 1 Statement of Financial Position
MODULE 1. WEEK 1
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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FUNDAMENTALS OF ACCOUNTANCY, BUSINESS AND MANAGEMENT 2
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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Discussion
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We begin our study of financial statements with the statement of Financial Position. It was
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FUNDAMENTALS OF ACCOUNTANCY, BUSINESS AND MANAGEMENT 2
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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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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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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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.
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.
Classification of Assets
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.
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 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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Account Form
GCQ COMPANY
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FUNDAMENTALS OF ACCOUNTANCY, BUSINESS AND MANAGEMENT 2
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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Noncurrent Liabilities
OWNER’S EQUITY
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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.
_________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
_________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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in alphabetical order:
Accounts Payable 236,000
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Inventory 150,000
M. Abesamis Capital 366,000
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FUNDAMENTALS OF ACCOUNTANCY, BUSINESS AND MANAGEMENT 2
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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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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