Financial Statement Lecture

1. Statement of
Financial
Position
Fundamentals of Accountancy,
Business and Management 2
Module 4

2. Learning Objectives
Define the statement of
financial position;
Explain the objective of the
SFP
Identify the elements of the
SFP and describe each of
them;
Classify the elements of SFP
into current and noncurrent
items;
Prepare an SFP of a Single
Proprietorship; and
Prepare an SFP using a
report form and account
form with proper
classification of items as
current and noncurrent.

3. The Statement of
Financial Position
Often referred to as the balance
sheet. It is a report that shows a
business entity’s assets, liabilities,
and capital.
The SFP shows the financial
condition of a business entity in a
single document.
ASSETS
Refers to what a
business entity owns
that are expected to
provide future
economic value to the
business in its current
operations or will
give it some benefit in
the future in the form
of income generation,
expense reduction, or
increased sales.
LIABILITIES
The entity’s payables
to its service, goods,
or resource
providers. These can
include obligations
for lease or rent,
accounts payables to
suppliers, debt
mortgage or loan,
deferred revenue, and
accrued expenses.
CAPITAL
The amount of equity
business owner’s
place into their
businesses. It is often
called “capital
account” or “owner’s
investment”.

4. ASSETS
Assets are normally in the form of
properties and rights owned by a
business.
• Cash
• Cash Equivalents
• Inventories
• Notes and Accounts Receivables
• Stocks, Investments, and Interest in a
business or projects
• Land
• Plant, Properties, and Equipment
• Prepaid Expense
Tangible Assets
• Goodwill
• Trademarks
• Royalties
• Patent Rights
Non-Tangible Assets

5. ASSETS
Characteristics
Assets are controlled by the
enterprise
Assets are the result of past events or
transactions.
Assets yield future economic benefits.
Assets are under the ownership,
control, and custodianship of
the entity, emanating from the
past transaction as purchase, an
exchange, or a donation

6. ASSETS
Assets are considered as something of value and
can be normally converted to cash.
Current Assets include cash and cash equivalents
which are free for use as well as other assets that
are to be expected to be realized into cash or sold
or consumed within the normal operating cycle of
the business or within one year.
Noncurrent Assets are those properties that are
needed in the operation of the business over a long
period of time and are not intended for sale.
• Cash & Cash Equivalents
• Notes and Accounts Receivables
• Merchandise Inventory
• Unused Office Supplies
• Prepaid Expense
Current Assets
• Land
• Building
• Equipment
• Furniture and Fixtures
• Vehicle
• Long-Term Investment
Noncurrent Assets

7. LIABILITIES
Characteristics
Liabilities are controlled by the
enterprise
Liabilities are the result of past events
or transactions.
Liabilities can be settled in many ways
depending on the agreement of the
parties
Liabilities are acknowledged
responsibilities.
Liabilities are present
obligations of the
business entity from its
operations.

8. LIABILITIES
Liabilities are generally debts or obligations
owed by the business.
Current Liabilities are debts or obligations
which is normally expected to be settled in
the normal course of the company’s
operating cycle.
Noncurrent Liabilities are long-term debts
that will be paid in over a year’s time.
Current
Liabilities
Utilities
Payable
Loans
Payable
Accounts
Payable
Interest
Payable
Noncurrent
Liabilities
Bonds
Payable
Notes
Payable (if
due more
than one
year)
Mortgage
Payable

9. CAPITAL
Characteristics
Capital is a permanent contribution to the business.
Capital does not translate to an obligation to pay
dividends.
Capital is not backed by any security.
Capital sets one’s liability to the extent of one’s
interest in the business.
CAPITAL IS THE AMOUNT
OF EQUITY, BUSINESS
OWNERS PLACED INTO
BUSINESS
IT IS OFTEN CALLED A
CAPITAL ACCOUNT.
IN A PARTNERSHIP,
EACH PARTNER HAS HIS
RESPECTIVE CAPITAL
REFLECTING HIS
CONTRIBUTIONS TO THE
VENTURE’S
CAPITALIZATION.
IN A CORPORATION, THE
CAPITAL IS REFLECTED
AS SHAREHOLDER’S
EQUITY.
IN NONPROFIT ENTITIES,
IT IS NORMALLY CALLED
FUND BALANCE.

10. Account Titles in the SFP
Cash (Currencies,
Checks, Money Order,
Bank Deposits, and
Other Money
Equivalent)
Trading Account
Securities
(Investments and
Other Current Assets
readily convertible to
Cash)
Notes Receivable
(Claims of business
from customers that
are evidenced by a
promissory note)
Accounts
Receivable (Claims
of business from
customers for sales of
products or service
rendered)
Allowance for Bad
Debts (A contra asset
account and a
deduction from
Accounts Receivable)
Supplies (Includes
various unused office
or shop supplies).
Equipment (Includes
computer set, A/C
unit and Delivery
Vehicles)
Furniture and
Fixtures (Includes
tables and chairs,
cabinets and other
types of furniture for
business)
Accumulated
Depreciation (A
contra asset account
and a deduction from
Property, Plant and
Equipment)
Accounts Payable
(Debts of the
business due to
purchases of
products or services
that are to be paid)
Notes Payable
(Business obligations
supported by
promissory note to
the business’s
suppliers)
Utilities Payable
(The amounts due to
providers or water,
electricity, telephone,
and other basic
services)
Mortgage Payable
(Debts secured from
a financial institution
by mortgage or lien
on real state of the
business)
Owner’s Drawing
(Covers the
withdrawal, for
personal use, of cash
or any form of assets
from the business)

11. Concept of Normal Operating Cycle
An operating cycle refers to the
time required for a company’s
cash to be put into its operation
and then return to the company’s
cash account.

12. Preparation of the SFP for a Single
Proprietorship
• The SFP must have a heading comprising the name of the business,
the title of the report, and the date covered by the report
• Its left margin is usually subdivided into two: extreme margin for
major subheadings (current assets; plant, property, and equipment;
other noncurrent assets; current liabilities; noncurrent liabilities; and
owner’s equity) and inner margins for specific account titles
• At the right margin, the extreme money column is also for major
subheadings, while the inner margin is for specific accounts.
• A double rule is placed under Total Assets and Total Liabilities and
Owner’s Equity. As expressed in the accounting equation, assets must
equal liabilities and owner’s equity.

13. SFP – Report
Form
According to the International
Financial Reporting Standards and
the Philippine Accounting Standards,
the minimum requirement for
presenting an SFP is to show the total
assets, total liabilities, and the total
owner’s equity. The format to use
depends on how management find it
suited with them.

14. SFP – Account Form