WHAT IS THE STATEMENT OF FINANCIAL POSITION
- Statement of Financial Position was previously
referred to as Balance Sheet. The SFP shows the
company’s assets, liabilities and equity.
Figure 1.1. Illustrates the basic accounting equation ALE
(Asset, Liability, Equity). It also shows that the debit
balance of assets must be equal to the Credit balances
of liabilities and equity. The equation wants you to
realize that assets came from two difference sources; it
may originate though borrowings or owner’s
contributed capital.
- SFP is prepared from the Trial balance.
Elements of SFP:
SFP is composed of the following elements: Assets,
Liabilities and Equity. In other words, SFP the
accounting equation ALE shows the basic elements of
the SFP. The accounts in the balance sheet is called real
accounts. Real accounts are accounts where their
balances are carried forward into the next accounting
period. Hence, these accounts always have a closing
balance.
Assets – debit is the normal balance.
- SFP balances start with Assets. Assets are
company resources that are expected to have
future economic benefits.
- All assets should be owned and within the
control of the company. The asset should be
useful to the company in the future. Control
means that the company can prevent others
from benefiting from the asset; control also tells
that the company has the right to dispose the
assets. Resources are classified into asset
account based on its future use to the company.
There are many kinds of assets and they
classified as Current and
Non-current. Below are the assets that will be
discussed in this context:
Current Assets:
1. Cash and Cash Equivalents
2. Receivables
3. Inventories
4. Prepaid Expenses
Non current Assets:
5. Property, Plant and Equipment
6. Intangible Assets
Current Assets
- Current Assets are assets that are expected to
be converted to cash within one year.
Cash and Cash Equivalents
- The first line item in the balance sheet is the
Cash. Cash means money.
 Cash on Hand is cash in the form of bills,
coins or checks inside the Company’s
premises. It usually under the vault and
kept by the company’s employee
known as cash custodian.
 Bills and coins are the normal currency
used in the business that are readily
available for use.
 Bank checks, or checks, are bank
documents used by the issuer to
instruct the bank to pay the assigned
payee from funds in the issuer's bank
account.
 Checks maybe reported as part of cash
because these documents are accepted
as payments and deposits. A check is
classified as cash if the date of the
check is on or before the SFP date.
 Cash equivalents are are short-term
highly liquid investments that are
readily convertible into cash. Cash
equivalents are technically not cash
because it is not immediately available
for use.
 Time deposits with term maturities of
ninety days or less are example of cash
equivalents.
 Receivables - Receivables is a general
term that refers to the company's right
to collect payment from third parties,
such as customers and employees.
Hence, receivables arise from
contractual rights to receive cash or
other assets from third parties.
 Trade receivables - are claims from
suppliers from unpaid sales or services
rendered in advance to customers.
Trade Receivables came from the
normal operating activities of the
company. This is usually the largest
receivables of an entity. Trade
Receivables arise when a company sold
inventories or rendered services to its
customers.
 Note receivable - is a receivable
evidenced by a note. It is a piece of
paper signed by the borrower where it
promises to pay a certain amount at a
certain time. This is called promissory
note (PN). Promissory notes usual bear
interest.
Other receivables came from other
sources. Examples are:
Inventories - This balance sheet
account represents cost of unsold
merchandise. Inventories are
company’s assets that are sold in
the normal course of its business.
- Inventories are held primarily for
sale. Those that are to be used in
the day-to-day operations of the
business such as Office supplies are
not Inventories. It is classified as an
asset called Supplies or Office
supplies.
Prepaid expenses - are expenses
not yet incurred but paid in
advance. One of the best examples
of a prepaid expense is the mobile
prepaid load. This expense is an
asset until such expense is
consumed.

1. Advances to Officers and Employees

2. Advances to Customers
3. Advances to Affiliated Companies
4. Deposits for Future Contingencies
5. Dividend Receivables
6. Interest Receivables
7. Claims from Third Parties (such as
insurance)
8. Miscellaneous receivables from sale
of other assets other than
inventories

Not all receivables are collectible.

There are some receivables where
collection is uncertain due to some
reasons such as customer’s
bankruptcy. In some cases,
receivables became worthless.
Non current Assets
- Noncurrent Assets are assets that
are expected to be used for more
than one year.
Typical examples are as follows:
Property, plant, and equipment
(PPE) - The old term is fixed assets.
- These assets are long-term assets
that are used in the operations of
the company
- The purchased of PPE is recorded
as assets and will not automatically
recorded as expense as these assets
will be used for more than one year.
Expenses for these assets will be
recorded through depreciation.
Examples of non current assets:
1. Land – real property used in
operations or for rent. This is a fixed
asset not subject
to deprecation.
2. Building – real property used in
operations such as warehouse and
office buildings.
3. Equipment – this includes office
computers, automobiles, delivery
vehicle, and manufacturing
equipment.
4. Land and Building Improvements
– these are enhancements to land
or building. Land improvements
includes landscaping, parking lots
and driveways. Building
improvements includes floor and
roof renovation.
5. Leasehold Improvements – it’s
like building improvements, except
that the premise
is just rented by the company.
Intangible Assets
- Intangible assets are also long-term assets like
PPE. The only distinguishing feature of these
assets is that they are untouchable or cannot be
seen by the naked eyes.
- These assets don’t have physical substance.
Intangible assets will be used in the business
operations for more than one year.
- Their costs are allocated similar to PPE. Its cost
allocation is called amortization.
Typical examples are:
1. Trademarks – this is a distinguishing mark
such as brand names, logo and symbols. A
lot of companies are using their trademarks
such as Jollibee, McDonalds and Coca-Cola.
Liabilities
- credit is the normal balance.
- These are obligations of the company. The
company is expected to pay cash or exchange
other assets to settle the obligations.
Below are the assets that will be discussed in
this context:
Current Liabilities
1. Trade and Other Payables
2. Accrued Expenses
3. Unearned Income
Noncurrent liabilities
4. Loans Payable
5. Noncurrent portion of Notes Payable
Current Liabilities - Liabilities are obligations of
the company that are expected to be paid
within one year. As discussed before, assets
could also originate from liabilities.
 Payables
- Trade Payables are payables arise from
purchased of merchandise from suppliers. Thus,
trade payables are company obligations due to
purchase of inventories.
Accrued Expenses
- The opposite of prepaid expense. This account
represents expenses already incurred but not
yet paid.
Accrued Expenses are presented as current
liabilities as these should be paid as soon as
possible. Examples of accrued expenses are:
1. Accrued Utilities – includes water and
electricity and internet connections.
2. Accrued Salaries – amount of labor already
rendered by the employees but not yet
paid.
2. Accrued Interest – is interest already
incurred but is not yet paid.
Unearned Income
- This represents income received in advance but
not yet earned. In short, collection are already
made but services are not yet
rendered.Example is advance rent received by
the landlord from the lessen.
Noncurrent Liabilities
- Noncurrent Liabilities are long-term obligations
payable for more than one year.
Examples are:
1. Loans Payable – this usually originate
from borrowing from the banks.
2. Long-term portion of Notes Payable.
Equity
- credit is the normal balance
- Equity is the excess of assets over liabilities.
Hence, equity is the net assets of the business.
This represents capital contributed by the
owners. It will increase due to accumulated
income and additional investments; It will
decrease because of accumulated loss and
owner’s withdrawals.
STATEMENT OF
COMPREHENSIVE INCOME (SCI)
- Statement of Comprehensive Income is same as
and previously referred as Income Statement.
- The Statement of Comprehensive Income is the
statement that gives you the information
regarding the income and expenses of the
company that incurred for a certain period of
time.
- It is usually presented first in the Financial
Statement.
Elements of Statement of Comprehensive
Income:
- The two accounts have already shown above
the Revenue and Cost and Expenses.
- Remember that accounts in the Statement of
Comprehensive Income are called nominal
accounts. Meaning at the end of the year,
nominal accounts will be closed to Income and
Expenses Summary account. The Income and
Expense Summary account is then closed to
Equity. At the end of the year, the balances of
the nominal accounts are nil or zero.