MMSU – SH G12 ABM

FABM 2: Fundamentals of Accountancy, Business and Management 2

Chapter 1: Statement of Financial Position (SFP)

Learning Competencies. The learners shall be able to:

1. identify the elements of the SFP and describe each of them
2. classify the elements of the SFP into current and noncurrent items
3. prepare the SFP of a single proprietorship
4. prepare the SFP using the report form and the account form with proper classification
of items as current and noncurrent

Definition
The SFP, also called “Balance Sheet”, is one of the components of financial statements. It
presents the financial position of the entity since its establishment. It reflects the resources
(assets), obligations (liabilities) and net worth (equity) of the entity. Further, only the real or
permanent accounts are presented in the SFP.

Current and non-current classification

Under the Philippine Accounting Standards (PAS) 1, an entity must normally present a
classified SFP, separating current and non-current assets and liabilities, unless presentation
based on liquidity provides information that is reliable. In either case, if an asset (liability)
category combines amounts that will be received (settled) after 12 months with assets
(liabilities) that will be received (settled) within 12 months, note disclosure is required that
separates the longer-term amounts from the 12-month amounts.
 Current assets are assets that are expected to be realized in the entity's normal
operating cycle held primarily for the purpose of trading expected to be realized within
12 months after the reporting period cash and cash equivalents (unless restricted).
 All other assets are non-current.
 Current liabilities are those expected to be settled within the entity's normal operating
cycle held for purpose of trading due to be settled within 12 months for which the entity
does not have the right at the end of the reporting period to defer settlement beyond
12 months.
 Other liabilities are non-current.

Description of Account Titles

ASSETS
Items of value owned and used by the business that will benefit future operations.

Current Assets include cash and other assets, which in the regular course of the business
are readily convertible into cash, used or consumed, usually within one year from the balance
sheet date. The current asset section of the balance sheet may contain the following items:

Cash on Hand includes currencies (coins and paper bills) and miscellaneous cash items
already received by the business but not yet deposited in the bank. Some examples of
cash items are checks, bank drafts, money order and treasury warrants.

Cash in Bank refers to the cash deposits at the bank readily available for the operation of
the business.
Petty Cash is a fund set aside for petty expenses which are not reasonably paid by check.

Notes Receivables are amounts due or collectible from customers for goods or services
sold, or from others, which are evidenced by written promises called promissory notes.

Accounts Receivables are amounts collectible on open account from customers for
services rendered or merchandise sold to them. They differ from notes receivable
because the accounts receivable is not supported by written promises to pay.

Allowance for doubtful accounts or bad debts is a contra-asset account item. It

provides for possible losses from possible uncollectible accounts. It is deducted from
Accounts Receivable in order to present the estimated amount of cash collectible from
customers or the Net Realizable Value (NRV).

Interest Receivable is the interest earned on notes receivable but not yet received or
collected.

Merchandise Inventory includes merchandise or goods bought by the business which

will be sold, sooner or later for profit and those still on hand and ready for sale as of
reporting date.

Prepaid Expenses are amounts paid in advance, which are applicable to expenses of
future periods. Examples are advance payments for rent, commission and interest.

Unused Supplies or Supplies on Hand are supplies bought for use but still unused as
of the balance sheet date. Common examples are office supplies like paper, ball pens,
carbon paper, paper clips, staple wires, etc.

Non-Current Assets refer to assets that are not classified as current assets.

Investments are assets not directly identified with the operating activities of the company
or assets not involved in the sale or production of goods or services. Thus, investments
occupy only an auxiliary relationship or a secondary role to the central activities of the
enterprise. They represent stockholdings acquired for the purpose of controlling another
firm or creating good customer-supplier relationship. Examples are investment in stocks
and investment in bonds.

Property, Plant and Equipment/Fixed Assets are assets which are permanent in nature
and acquired for use rather than for resale. Examples of fixed assets are:

Land is the lot owned by the business on which the building used for business is built.

Building is the structure owned and used by the business. This also includes major
repairs of the building.

Equipment includes office equipment like printers, computers, calculators, cash

registers and the like; delivery equipment like delivery van, delivery truck and wagon;
and other equipment, which are primarily used in the operation of the business.

Furniture and Fixtures include tables, chairs, counters, showcases, shelves,

dividers and similar assets owned by the business for its operation.
Tools are necessary assets used by shops extending services to the public.

Accumulated Depreciation is another contra-asset item. It represents the total

depreciation expenses of the past and current periods. It is a valuation account that
reduces the total cost of fixed assets to its Net Book Value (NBV).

Intangible Assets are relatively long-lived assets without physical characteristics whose
value lies in rights, privileges and competitive advantage which they give the owner.
Examples are franchises, trademarks and patents.

Franchise is a contract-based intangible asset. It may be between the government

and a private entity or individual or between private entities or individuals.

Patent is an exclusive right granted by the government to an inventor enabling the

grantee to control the manufacture, sale or other use of the invention for a specified
period of time.

Trademark is a symbol, sign, slogan or name used to mark a product to distinguish

it from other products.

LIABILITIES
Obligations that the business owes from other individuals or entities for the acquisition of
goods and/or services.

Current Liabilities are obligations or debts payable by the business to the creditors and are
expected to be paid or liquidated within the operating cycle of the business. This section of
the balance sheet may contain the following:

Notes Payable are unpaid promissory notes given to creditors for money borrowed,
merchandise and/or other assets bought and services acquired on credit.

Accounts Payable are obligations or debts payable by the business to other parties for
services acquired or merchandise and/or other assets purchased on credit not evidenced
by a promissory note.

Accrued Expenses are expenses already incurred but not yet paid. These may include
unpaid salaries, taxes already due, unpaid interest and similar items.

Unearned Income includes income from rent, interest or commission that has already
been received in advance but the corresponding service has not yet been rendered.

SSS, PAG-IBIG and Medicare Contributions Payable refer to the employer’s

contributions paid as benefit to employees.

Noncurrent Liabilities are obligations of the business with maturity dates beyond one year
from reporting date.

Notes Payable are obligations supported by promissory notes that are payable or due
after one year.
Mortgage Payable are obligations which are evidenced by a mortgage of real properties
(Real Estate Mortgage) or personal properties (Chattel Mortgage).

Loans Payable are obligations of the business to individuals or financial institutions for
money borrowed payable beyond one year from balance sheet date.

Bonds Payable are long-term promissory notes under seal which are issued to the public.

CAPITAL / OWNER’S EQUITY / PROPRIETORSHIP

It represents the claim of the owner in the assets of the business.

Name of the proprietor, Capital represents the total investment of the owner.

Name of proprietor, Drawing or Personal represents withdrawals or amount of cash

and/or other assets taken by the owner from the business for personal use.
SAMPLE STATEMENT OF FINANCIAL POSITION OF A SINGLE PROPRIETORSHIP
SERVICE BUSINESS (REPORT FORM):

EXCELVICE
Balance Sheet
December 31, 2022

ASSETS
Current
Cash on Hand P 111,500
Cash in Bank 500,000
Accounts Receivable P 23,500
Less: Allowance for Bad Debts 1,175 22,325
Notes Receivable 28,000
Interest Receivable 1,002
Office Supplies 22,300
Prepaid Interest 26,400
Prepaid Insurance 5,250 P 716,777

Non-current
Office Equipment 120,000
Less: Accumulated Depreciation 3,900 116,100
Office Furniture and Fixture 75,000
Less: Accumulated Depreciation 4,100 70,900 187,000
TOTAL ASSETS P 903,777

LIABILITIES AND CAPITAL

Current Liabilities
Accounts Payable P 8,700
Notes Payable 120,000
Accrued Salaries 5,000
Accrued Rent Expense 4,000
Unearned Service Fees 5,200 P 142,900

Noncurrent Liabilities
Notes Payable 200,000
Loans Payable 300,000 500,000

Total Liabilities

Capital
Excellent, Capital 294,000
Add(Deduct) Net Income (Loss) (23,123)
Total/Balance 270,877
Less: Excellent, Drawing 10,000 260,877
TOTAL LIABILITIES AND CAPITAL P 903,777
SAMPLE STATEMENT OF FINANCIAL POSITION OF A SINGLE PROPRIETORSHIP MERCHANDISING BUSINESS (ACCOUNT FORM):

SODAMI TRADING
Balance Sheet
December 31, 2022

ASSETS LIABILITIES AND OWNER'S EQUITY

Current Liabilities
Cash on Hand P 11,500 Accounts Payable P 10,000
Accounts Receivables P 23,500 Notes Payable 20,000
Less: Allowance for Bad debts 1,175 22,325 Salaries Payable 2,000
Merchandise Inventory 55,200 Accrued Taxes 980
Office Supplies Inventory 200 Rent Payable 5,000
Store Supplies Inventory 400 Interest Payable 3,300 P 41,280
Prepaid Insurance 900
Non-current Capital
Store Equipment 4,800 Morales, Capital 40,000
Less: Accumulated Depreciation 400 4,400 Add: Net Income 13,645 53,645
TOTAL ASSETS P 94,925 TOTAL LIABILITIES AND CAPITAL P 94,925
Written Work 1: Given below are the accounts and the corresponding amounts taken from
the Adjusted Trial Balance of Sy Bea Information Systems Company as of December 31,
2022.

Account Title Amount

Acc. Depreciation - Building 214,500
Acc. Depreciation - Equipment 139,500
Acc. Depreciation - Furniture and Fixtures 56,250
Accounts Payable 174,350
Accounts Receivable 89,000
Accrued Rent Income 16,000
Accrued Salaries Expense 34,600
Allowance for Doubtful Accounts 4,450
Building 1,430,000
Cash 325,750
Depreciation Expense 136,750
Doubtful Accounts Expense 650
Equipment 465,000
Furniture and Fixtures 150,000
Account Title Amount
Insurance Expense 12,000
Land 1,500,000
Loans Payable 350,000
Mortgage Payable 475,000
Other Expenses 37,426
Prepaid Insurance 24,000
Rent Income 165,431
Salaries Expense 336,430
Service Income 675,325
Supplies On Hand 16,800
Sy Bea, Capital 2,397,000
Sy Bea, Drawing 23,000
Unearned Service Income 25,000
Utilities Expense 148,600

Prepare the Statement of Financial Position in Report Form.