What I Need to Know

This module was designed and written with you in mind. It is here to help you
master the Statement of Financial Position (SFP). The scope of this module permits
it to be used in many different learning situations. The language used recognizes
the diverse vocabulary level of students. The lessons are arranged to follow the
standard sequence of the course. But the order in which you read them can be
changed to correspond with the textbook you are now using.

The module is composed of one lesson, namely:

• Lesson 1 – Identify the element of the Statement of Financial Position (SFP)

and describe each of them.

After going through this module, you are expected to:

1. Identify the elements of the SFP and describe each of them;
2. Prepare an SFP using the report form and the account form with proper
classification of items as current and noncurrent; and
3. Appreciate the importance of the SFP in a business organization.

What I Know
Directions: Choose the letter of the best answer and write your answer on a
Separate sheet of paper (intermediate pad).
1. It pertains to resources which are controlled and owned by the business.
a. Assets c. Equity
b. Liabilities d. Resources
2. It is derived from deducting the total liabilities to the total assets of a company.
a. Assets c. Equity
b. Liabilities d. Resources
3. Which of the following pertains to the obligations that the business owed to other
entities arising from past events which are to be settled in the future?
a. Assets c. Equity
b. Liabilities d. Resources
4. Which of the following is the correct Accounting Equation?
a. Assets + Liabilities = Equity c. Assets = Liabilities + Equity
b. Assets = Liabilities - Equity d. Assets + Equity = Liabilities
5. Which of the following is classified as Current Asset?
a. Prepaid Expenses c. Delivery Vehicle
b. Land d. Copyright
6. Which of the following financial statements presents the financial position of an
entity at a given or specific date?
a. Income Statement c. Statement of Changes in Equity
b. Statement of Financial Position d. Statement of Cash Flows
7. All of the following are classified as Assets, EXCEPT:
a. Accounts Receivable c. Building
b. Inventory d. Accounts Payable
8. Which of the following is classified as a non-current liability?
a. Accounts Payable c. Utilities Payable
b. Mortgage Payable d. Unearned Revenue
9. Which of the following is classified as a current asset?
a. Prepaid Rent c. Investments
b. Unearned Rent d. Drawings
10. In which part of Statement of Financial Position does the Salaries Payable be listed?
a. Assets c. Owner’s Equity
b. Liabilities d. Expenses
11. The following are elements of Statement of Financial Position EXCEPT:
a. Assets c. Equity
b. Liabilities d. Expenses
12. It is a form of the Statement of Financial Position that is presented in a
horizontal format.
a. Report form c. Digital form
b. Account form d. Line form
13. It is a form of the Statement of Financial Position that is presented in a vertical format.
a. Report form c. Digital form
b. Account form d. Line form
14. An item is considered current when__________________________________________?
a. It is expected to be used or converted into cash or to be paid for more than one year.
b. It cannot be converted or realizable into cash within a year.
c. It is expected to be used or realizable into cash or to be paid within a year.
d. It has an expected life for more than 12 months
15. A non-current item is _________________________________.
a. expected to be used/realizable into cash or to be paid for more than one year.
b. Expected to be converted or realizable into cash within a year.
c. expected to be used or paid within a year.
d. item bought for readily consumption/
 What’s In
Lesson 1
Identify the element of the Statement of Financial Position
(SFP) and describe each of them
The Statement of Financial Position (SFP), which is also known as the Balance
Sheet, shows the financial position of a business entity at a given period or a
specified date. Its purpose is to help the financial statement users in the
assessment of the financial health and soundness of a business entity in
determining its liquidity, financial, credit and business risks.
It has three (3) elements:

1. Assets (resources owned and controlled by the business);

2. Liabilities (obligations owed to someone by the business); and
3. Equity or Owner’s Equity (residual interest of the owners of the business or what
was left of the assets after paying the liabilities is the right of the owners).

The assets, aside from the capital investment of the owners, maybe financed from
outside sources (like loans from banks and other financial institutions or from
other creditors). The total assets should always be equal to the sum of the total
liabilities and total equity. Thus, the Accounting Equation is stated as: Assets =
Liabilities + Equity.

As what you have learned from your Fundamentals of the Accountancy, Business
and Management 1 about the types of major accounts (Assets, Liabilities, Equity,
Income and Expenses), let us focus on the three major accounts which are also the
elements of the SFP or the Balance Sheet. These are the Assets, Liabilities and
Equity.

What’s New
The activity below will help you check how much you know about the key elements
of the Statement of Financial Position (SFP).

Activity 1: “HULA ME”

Directions: 1. Guess the account title being described in each sentence.
2. Identify what element of SFP (Assets, Liabilities or Equity) it is
listed/included.
3. Write your answers in separate paper intermediate pad.
Description Account title SFP Element
1. I am used as a medium of exchange in business transactions. I may be held on
hand or put in banks for safekeeping.
Answer: CASH ASSETS
2. I can be in the form of cash or other assets invested by the owner to start- up a
business.
3. I am items held for resale.
4. I am expenses paid in advance.
5. I am expenses incurred but not yet paid.
6. I am amounts due to suppliers for the purchase of goods or services received on
account.
7. I am an amount taken by the owner from the business for personal use.
8. I am an account due with supporting promissory notes.
9. I am an account due from customers as a result of sale of goods or for services
rendered.
10. I have a long- life and acquired for use in business operations.

What is It
In Activity 1, you were able to identify and describe some of the account titles and
the elements to which it belongs in relation to the Statement of Financial Position
(SFP). In this part of the module, you will learn further the preparation of SFP
using the report form and the account form with proper classification of
items as current and noncurrent. The Statement of Financial Position (SFP): its
classification, its preparation and its form. As mentioned earlier, the Statement of
Financial Position (SFP) or the Balance Sheet shows the financial position of a
business entity at a given period or a specific date. Following the accounting cycle
the SFP and other financial statements (which will be discussed in the succeeding
modules) are prepared once the adjusted trial balance is done to come- up with a
fair balance sheet statement. Assets, Liabilities and Equity are properly grouped
and classified to give a meaningful information. Assets are presented and classified
by the order of its liquidity or those that are readily available for use and can easily
be converted into cash are listed first and assets that cannot be easily converted
into cash are listed last. When it comes to liabilities, maturity matters. Those
obligations that are currently due are listed first. The Balance Sheet includes
permanent and contra asset accounts. An account is said to be permanent because
their balances are carried over from one accounting date to another. The Assets,
Liabilities and Equity accounts are permanent accounts. Contra asset accounts are
accounts also presented in the SFP as a deduction to a particular asset. These are
Allowance for Doubtful Accounts and Accumulated Depreciation. The Allowance for
Doubtful Accounts, a contra- asset for Accounts Receivable, it is an allowance
made by the business for estimated uncollectible accounts. An Accumulated
Depreciation is an account that represents depreciation of Fixed Assets (except for
Land) due to its usual wear and tear. Classification of Assets, Liabilities and Equity
1. Assets ( Are divided into current or non- current )
Current Assets- are items that are listed on a business’ statement of
financial position that are expected to be used or realized into cash within one
accounting period or a year. It usually includes cash, accounts receivable,
inventories and prepaid expenses. Cash is considered the most liquid asset
because it is readily available for use. It is used as a medium of exchange in
business transactions and may be held on hand or put in banks for safekeeping.
Accounts Receivables are accounts due from customers as a result of sale of goods
or for services rendered that are collectible within one year. Inventories are
regarded as a current asset because these are items held for resale because they
are readily available (either raw materials or finished goods). Prepaid expenses are
considered current assets because they are expenses paid in advance to be
consumed within a year. (Consumable or convertible with in normal operating cycle.)
Non- Current Assets - are items that are listed on a business’ statement of
financial position that cannot be used or realized into cash within one accounting
period or a year. It includes assets that are long- term in nature like fixed assets,
long-term investments and intangibles. Fixed assets includes Property, Plant and
Equipment (Furniture, equipment, land, building, vehicles, etc.) that are used
acquired for use in operations and have an estimated useful life of more than one
year. Long- term investments are investments made by the owners of the business
for long- term purposes like marketable securities. Intangible assets are non-
physical assets like Patents, Copyright and Franchise.

2. Liabilities ( Are also divided into current or non- current.)

Current Liabilities- are liabilities that should be paid and realized within a
year after the year- end date. These include Accounts Payable, Notes Payable,
Accrued Expenses and Unearned Income. Accounts Payable is amount due to
suppliers for the purchase of goods or services received on account to be paid
within a year. Notes Payable is account due with supporting promissory notes with
short-term mode of payments. Accrued Expenses are expenses incurred but not yet
paid, examples are Salaries Payable, Taxes Payable, etc. Unearned Income is cash
collected or given in advance from customers for future delivery of goods or services
to be performed.
Non- Current Liabilities- are liabilities that are to be paid for more than a
year from the year- end date. These include Loans Payable, Mortgage Payable, etc.
Loans Payable is account due from third parties which was agreed to be paid for
longer terms. Mortgage Payable is account due from third parties with associated
collaterals to be paid for longer terms.

3. Equity
Equity or Owner’s Equity is the residual interest of the owners of the business or
what was left of the assets after paying the liabilities is the right of the owners. It
includes the Capital and Drawing accounts. Capital is the investment made by the
owner to start- up a business in the form of cash or other assets. Drawing or
withdrawal is an amount taken by the owner from the business for personal use.

Steps in preparing a simple Statement of Financial Position (SFP):

1. You should start with a heading. The heading includes the name of the business
or entity (ex. JD Gardens), name of the financial statement (ex. Statement of
Financial Position) and the reporting date/ period (ex. As of December 31, 2019).
We use as of in SFP because the amounts (in Philippine Peso) of the items are
cumulative from the start of the operations of the business up to the accounting
date.
2. Assets are presented first. These are classified into current and non- current
assets.
3. Next is to present the Liabilities. These should also be classified into current
and non- current liabilities.
4. Equity/ Owner’s Equity is then added after the liabilities to complete the
accounting equation (Assets= Liabilities + Equity).

Forms of Statement of Financial Position (SFP)

The Statement of Financial Position (SFP) has two forms Report form and the
Account Form. The format in the preparation of the SFP depends on the
preference but most financial users prefer to use the report form because it is
easier to read especially when comparing multiple years SFP.
1. Report Form- it is a form of SFP wherein accounts are presented vertically,
the Assets first, followed by the Liabilities and then the Equity. The above
presented Balance Sheet is an example of a Report Form SFP.
2. Account Form- it is a form of SFP wherein accounts are presented
horizontally, the Assets are presented on the left side while the Liabilities
and the Equity are on the right side of the Balance Sheet. It will look like the
debit and credit balances of an account.
SAMPLE FORMAT/TEMPLATE WITH AMOUNT of Statement of Financial
Position ( REPORT FORM )
Dale’s Garden
Statement of Financial Position
As of December 31, 2020
(In Philippine Peso)

ASSETS
Current Assets
Cash PhP 250,000.00
Accounts Receivable 85,000.00
Garden Supplies and Materials 185,000.00
Prepaid Expenses 48,000.00
Total Current Assets Php 568,000.00
Non- Current Assets
Garden Tools and Equipment PhP 285,000.00
Accumulated Depreciation ( 95,000.00) PhP 190,000.00
Delivery Vehicle 500,000.00
Accumulated Depreciation ( 62,500.00) 437,500.00
Land 1,500,000.00
Building 550,000.00
Accumulated Depreciation ( 55,000.00) 495,000.00
Total Non- Current Assets PhP 2,622,500.00

TOTAL ASSETS PhP 3,190,500.00

================
LIABILITIES
Current Liabilities
Accounts Payable PhP 355,000.00
Notes Payable, 1 year 150,000.00
Salaries Payable 35,500.00
Total Current Liabilities PhP 540,500.00
Non-Current Liabilities
Notes Payable, 7 years 350,000.00
TOTAL LIABILITIES PhP 890,500.00

OWNER’S EQUITY
Owner’s Equity
D. Ramos, Capital PhP 2,300,000.00
TOTAL LIABILITIES AND OWNER’S EQUITY PhP 3,190,500.00
================
The illustration is an example of a simple statement of financial position of a
single/ sole proprietorship. Other forms of business organizations ( partnership and corporation
The total assets must be always equal to the total liabilities and owner’s equity. The
total assets, as well as, the total liabilities and equity are double ruled showing that
it is the end part of a financial statement.
 SAMPLE FORMAT/TEMPLATE WITH AMOUNT of Statement of Financial Position ( REPORT FORM )

Dale’s Garden
Statement of Financial Position
As of December 31, 2020
(In Philippine Peso)

ASSETS
LIABILITIES AND EQUITY
Current Assets Current Liabilities
Cash PhP 250,000.00 Accounts Payable PhP 355,000.00
Accounts Receivable 85,000.00 Notes Payable, 1 year 150,000.00
Garden Supplies and Materials 185,000.00 Salaries Payable 35,500.00
Prepaid Expenses 48,000.00 Total Current Liabilities PhP 540,500.00
Total Current Assets Php 568,000.00

Non- Current Assets Non-Current Liabilities

Garden Tools and Equipment PhP 285,000.00 Notes Payable, 7 years 350,000.00
Accumulated Depreciation ( 95,000.00) PhP 190,000.00 TOTAL LIABILITIES PhP 890,500.00
Delivery Vehicle 500,000.00
Accumulated Depreciation ( 62,500.00) 437,500.00
OWNER’S EQUITY
Land 1,500,000.00
Building 550,000.00 Owner’s Equity
Accumulated Depreciation ( 55,000.00) 495,000.00 D. Ramos, Capital PhP 2,300,000.00
Total Non- Current Assets PhP 2,622,500.00

TOTAL ASSETS PhP 3,190,500.00 TOTAL LIABILITIES AND OWNER’S EQUITY PhP 3,190,500.00
================ ================

The illustration is an example of a simple statement of financial position of a single/ sole proprietorship. Other forms of business organizations (partnership and corporation
The total assets must be always equal to the total liabilities and owner’s equity. The total assets, as well as, the total liabilities and equity are double ruled showing that
it is the end part of a financial statement.
Activity 3: “PRAKTISADO AKO 1”
Directions:
1. Prepare a properly classified Statement of Financial Position using the
report form.
2. Write your answers in separate paper (JOURNAL PAPER)
Rubrics:
a. Neat (no erasure) -------------------------------------------- 30 %
b. Proper (follow the given format/template,
use proper accounts title) -------------------------------- 40 %
c. Complete ( heading, body of SFP, peso sign,
double rule etc.) ---------------------------------------------- 30 %
Mr. Dale Ramos, owned a plant shop named Dale’s Gardens. He hired you to
prepare his plants shop’s Statement of Financial Position for the year 2019. The
following shows the assets and liabilities of Mr. Ramos:
a. His plant shop has cash in bank account amounting to P150,000.
b. His plant shop has uncollected sales from customers amounting to P125,000.
c. The total amount of garden supplies and materials after inventory showed
P80,000 on hand.
d. He already paid one year’s advertisement in advance in a local newspaper
amounting to P12,000
e. Total value of all the shop’s garden tools and equipment amounted to P150,000
f. He bought garden supplies and materials on account from his supplier
amounting to P155,000 to be paid within three months after the year- end.
g. Salaries unpaid to his three employees totaled P21,000.00.
h. Utilities amounting to P6,000.00 remained unpaid as of year- end.
i. His outstanding loan balance amounted to P45,000 will be paid within 5 years.

Activity 4: “PRAKTISADO AKO 2”

Directions:
1. Using the same data in Activity 3, prepare a properly classified
Statement of Financial Position using the account form.
2. Write your answers in separate paper ( SHORT BOND PAPER)
Rubrics:
d. Neat (no erasure) -------------------------------------------- 30 %
e. Proper (follow the given format/template,
use proper accounts title) -------------------------------- 40 %
f. Complete ( heading, body of SFP, peso sign,
double rule etc.) ---------------------------------------------- 30 %

What I Have Learned

At this point, let us see how much you have gained from the discussions and
activities you have undergone.

Activity 5: “PROBLEM MO, SOLVE KO”

Directions:
A. Analyze the given situations, solve and give the appropriate answers.
Show solution..
B. Use a separate sheet of short bond paper.
1. Wash and Wear Laundry has current assets amounting to Php 300,000.
Noncurrent assets for the year totaled Php 89,000. How much is the laundry’s
total assets?
2. Read Me Book Shop has assets of Php 2,000,000.00 and owner’s equity of Php
600,000.00. How much is the book shop’s total liabilities?
3. No Melt Ice Cream parlor has liabilities of Php 395,000.00 and assets of Php
524,000.00. How much is the ice cream parlor owner’s equity?
4. Everyday Bake Shop has total liabilities amounting to Php 35,000. Total equity
had an ending balance of Php 42,000. How much is total assets?
5. Choose Me Boutique had the following accounts at year end:CashPhP250,000,
Accounts Payable-PhP70,000, Prepaid Expense-PhP15,000. Compute for the
company’s current assets.
6. A hotel company has owner’s equity of PhP 5,000,000.00 and liabilities of PhP
2,560,000.00. How much is the company’s total assets?
7. At the beginning of the year, the assets of Dale’s Services were PhP 560,000.00
and its Owner’s Equity was PhP 250,000.00. During the year, assets were
increased by PhP 120,000.00 and liabilities increased by PhP 20,000.00. What
was the owner’s equity at the end of the year?
8. Happy Selling’s Accounts Receivable amounted to Php 500,000. Prepaid
Expenseand Unearned Income totaled Php 30,000 and Php 10,000 respectively.
Cash balance amounted to Php 100,000 while Accounts Payable and Inventory
totaled to Php 20,000 and Php 10,000 respectively. How much is the company’s
current assets? Current liabilities?
9. Company’s Total Liabilities and Equity amounted to Php 285,000. Total
noncurrent assets ended at Php 85,000. Cash totaled Php 50,000. Inventory
amounted to Php100,000. Assuming the company had no other assets, how
much is Accounts Receivable?
10. Total assets amounted to Php575,000. Total equity amounted to Php
250,000. Accounts Payable amounted to Php 50,000 while Unearned Income
totaled Php 85,000. Assuming there are no other current liabilities, compute for
the company’s noncurrent liabilities.
This activity will help you transfer into real-life situations the knowledge and
skills you have gained or learned from this module.

Activity 6: “OWNED and OWED KO” (Make your own SFP)

Direction:
1. On a separate sheet of paper (bond paper short), make a list of your savings (if
you have any) and then everything that you personally own (cellphone, clothes,
accessories, bags, jewelries, etc.). Make sure to estimate the amounts/ values of
what you have listed.
2. Next is to list down what you owed from your parents, other family members
and friends.
3. Deduct the amount you owe (liabilities) from the amount of what you own
(assets).
4. Determine what was left of you (equity).

Guide Questions:
1. What did you feel while doing the activity?
2. Were you able to differentiate what you owned from what you owed?
3. What do you think is the importance of knowing one’s SFP?
4. Do you think having more assets in a business means that the business is
earning?
What I Can Do
Directions: Choose the letter of the best answer and write your answer on a
separate sheet of paper (intermediate paper).
1. A non-current item is _________________________________.
a. expected to be used/realizable into cash or to be paid for more than one year.
b. expected to be converted or realizable into cash within a year.
c. expected to be used or paid within a year.
d. item bought for readily consumption/ production.
2. An item is considered current when _______________________________________?
a. It is expected to be used or converted into cash or to be paid for more than one year .
b. It cannot be converted or realizable into cash within a year.
c. It is expected to be used or realizable into cash or to be paid within a year.
d. It has an expected life for more than 12 months
3. It is a form of the Statement of Financial Position that is presented in a vertical
format.
a. Report form c. Digital form
b. Account form d. Line form
4. It is a form of the Statement of Financial Position that is presented in a
horizontal format.
a. Report form c. Digital form
b. Account form d. Line form
5. The following are elements of Statement of Financial Position EXCEPT:
a. Assets c. Equity
b. Liabilities d. Expenses
6. In which part of Statement of Financial Position does the Salaries Payable be
listed?
a. Assets c. Owner’s Equity
b. Liabilities d. Expenses
7. Which of the following is classified as a current asset?
a. Prepaid Rent c. Investments
b. Unearned Rent d. Drawings
8. Which of the following is classified as a non-current liability?
a. Accounts Payable c. Utilities Payable
b. Mortgage Payable d. Unearned Revenue
9. All of the following are classified as Assets, EXCEPT:
a. Accounts Receivable c. Building
b. Inventory d. Accounts Payable
10. Which of the following financial statements presents the financial position of
an entity at a given or specific date?
a. Income Statement c. Statement of Changes in Equity
b. Statement of Financial Position d. Statement of Cash Flows
11. Which of the following is classified as Current Asset?
a. Prepaid Expenses c. Delivery Vehicle
b. Land d. Copyright
12. Which of the following is the correct Accounting Equation?
a. Assets + Liabilities = Equity c. Assets = Liabilities + Equity
b. Assets = Liabilities - Equity d. Assets + Equity = Liabilities
13. Which of the following pertains to the obligations that the business owed to
other entities arising from past events which are to be settled in the future?
a. Assets c. Equity
b. Liabilities d. Resources
14. It is derived from deducting the total liabilities to the total assets of a
company.
a. Assets c. Equity
b. Liabilities d. Resources
15. It pertains to resources which are controlled and owned by the business.
a. Assets c. Equity
b. Liabilities d. Resources
Additional Activities
Let us reinforce the skills/knowledge that you have gained from this lesson by
doing the next activity.

Activity 7: PROBLEM SOLVING AND ANALYSIS

Direction: From these randomly ordered accounts of Josh Trading prepare a
properly classified Balance Sheet (in report form). The balances shown are as of
12/31/2019.
Sales Returns and Allowances Php11,000.00
Accumulated Depreciation 50,000.00
Merchandise Inventory, December 31, 2019 80,000.00
Sales 1,050,000.00
Merchandise Inventory, January 1, 2019 100,000.00
Purchases 400,000.00
Selling Expenses 190,000.00
Accounts Payable 100,000.00
Purchase Returns and Allowances 2,000.00
Cash 50,000.00
Office Equipment 220,000.00
Withdrawals 50,000.00
Sales Discounts 29,000.00
Transportation-In 10,000.00
General and Administrative Expense 200,000.00
Office Supplies 30,000.00
Accounts Receivable 220,000.00
Notes Payable 200,000.00
Prepaid Rent 100,000.00
Josh, Capital, Jan. 1, 2019 200,000.00
Purchase Discounts 8,000.00
Net Income from operation 200,000.00

Rubrics:
a. Neat (no erasure) -------------------------------------------- 30 %
b. Proper (follow the given format/template,
use proper accounts title) -------------------------------- 40 %
c. Complete ( heading, body of SFP, peso sign,
double rule etc.) ---------------------------------------------- 30 %