Fundamentals of Accountancy, Business and Management 2

1. FUNDAMENTALS OF
ACCOUNTANCY,
BUSINESS AND
MANAGEMENT 2
Week 1-2
Michael A. Alonzo, LPT
SHS/College Instructor
Inter-Global College Foundation, Inc.

2. OBJECTIVES
• Define the Statement of Financial Position
• Explain the objective of SFP
• Identify and explain the elements of SFP
• Classify the elements of SFP into current and non-current
items
• Prepare the SFP of a single proprietorship
• Prepare SFP using the report form and the account form
with proper classification of items as current and non-
current

3. Definition
• Statement of Financial Position
• is a statement that gives financial condition of a business of a
given date.
• Another name for the balance sheet
• Composed of 3 elements - assets, liabilities and capital
• Capital refers to the investment or equity of the owner
• Assets are things owned by the business
• Liabilities are debts owed by the business

4. ASSETS
• Cash, tools, equipment, building and land.
• are controlled by the enterprise
• result from past events
• give future economic benefits
• can be used by themselves alone to yield income
Specific Assets
• Cash and cash equivalents
• Notes receivable
• Accounts receivables
• Inventories
• Prepaid expenses
• Property, plant and equipment
• Intangible asset (copyright, patent, etc)

5. Liabilities
• Settlement of a liability will decrease the assets of an
entity
• incurred to realized a transfer of economic benefits
Payments may be done through:
1. Cash payment
2. Distribution of other asset
3. Rendering of services
4. Substitution with another liability
5. Conversion of the liability into ownership interest of the lender
in the borrowers entity

6. Liabilities
• Notes payable
• Accounts payable
• Accrued liabilities
• Unearned revenues
• Mortgage payable
• Bonds payable
• others

7. Capital
• Invested in the form of funds, merchandised, equipment
and other properties
• Owner’s primary purpose is to maximize the use of
capital by gaining profits
• Profit increases capital while loss decreases capital.
• Capital account – Single proprietorship
• Capital Account for each partner – Partnership
• Ordinary Share Capital, preference share capital -
Corporations

8. Reflect
1. What do you think is the role of assets in gaining profits
for a business?
2. Which is favorable for a business-huge debts or small
debts? Justify your position.
3. Does an increase in capital of the business arising from
profits indicate that the owner is successful in his or her
business? Why?

9. Objective of a General Purpose
Statement of Financial Position
• Liquidity – can be measured from quick assets and
current assets in relation to current liabilities.
• Solvency – pertains to a proportion of total long-term
debts to total assets.
• Financial Structure – refers to the level of borrowings from
external parties such as banks and other financial
institutions

10. Classification of SFP Elements into
Current and Noncurrent
• Current Asset – not restricted in use, readily convertible to
cash, or to be sold or consumed within normal operating
cycle of a business, or one year.
• Ex. cash, trading account securities, receivables, merchandise
inventory, prepaid expenses
• Noncurrent Asset – those asset that do not qualify as
current asset.
• Land, building, equipment, furniture and fixtures, leasehold rights

11. Liabilities
• Current Liabilities – debts or obligations normally
expected to be settled within one year.
• Accounts payable, loans payable, utilities payable, interest
payable, notes payable
• Noncurrent Liabilities – long-term debts which will be
settled for more than one year.
• Notes payable (due more than a year), mortgage payable, bond
payable

12. Normal Operating Cycle of a
Merchandising Business
Cash
Purchasing
Activity
Goods /
Services
Revenue
Activity
Accounts
Receivables
Collection
Activity

13. Preparation of the SFP of a Single
Proprietorship
1. SFP must have heading – name of the business, title of
report, date covered
2. Its left margin is subdivided into 2; extreme margin for
major subheading (e.g., current asset; plant, property
and equipment) and inner margin for specific account
titles.
3. A double rule is placed under “total assets” and “total
liabilities and owners equity”.
4. Asset must be equal to liabilities plus owner’s equity.

14. Activity 1
• Prepare the SFP of Xerxes Copiers as of 31 Dec. 2018.
(pp.11 FABM2 Diwa)
• Apply the steps for the preparation of SFP on the given
problem

15. Prepare the SFP of Xerxes Copiers
• Cash 14,700
• Supplies 1,200
• Accounts receivable 3,200
• Copying Machines 58, 200
• Accumulated Depreciation 3,200
• Accounts Payable 8,200
• Notes Payable 50,000
• Utilities Payable 300
• Xerxes, Capital 15,600

16. Reflect
1. Explain the concept of normal operating cycle for a
service or merchandising business.
2. Classify the following as current or noncurrent assets or
liabilities.
A. Utilities payable
B. Cash
C. Supplies
D. Accounts receivables
E. Bank loan due after two years
F. Copying machines
G. Accounts payable

17. Application: Classify each of the accounts as asset, liability
or owner’s equity.
1. Accounts receivable
2. Accounts payable
3. Supplies
4. Computer equipment
5. Shartimus, capital
6. Accumulated depreciation – computer equipment
7. Prepaid insurance
8. Interest payable
9. Notes payable
10. Cash
11. Buildings
12. Mortgage payable
13. Land
14. Salaries payable
15. Shartimus, Drawing