Republic of the Philippines

Department of Education
Division of San Pablo
San Pablo City Integrated National High School
LEARNING PACKETS
FUNDAMENTALS OF ACCOUNTING, BUSINESS AND MANAGEMENT 2
Statement of Financial Position (SFP) WEEK 1
Most Essential Learning Competencies
1. identify the elements of the SFP and describe each of them (ABM_FABM12-Ia-b-1)
2. prepare an SFP using the report form and the account form with proper classification of items as current and
noncurrent (ABM_FABM12-Ia-b-4)
WHAT I NEED TO KNOW?
Specific Learning Outcomes
At the end of the topic,
1. reflect on the importance of preparing the SFP.
2. reflect on the separation of current and noncurrent items in the SFP
3. reflect on the difference of the report form and the account form 1

At the end of this topic,

You should be able to define the following terms:
1. Statement of Financial Position/Permanent Accounts 7. Contra Liability
2. Assets 8. Accrued Expense
3. Contra Assets 9. Unearned Income
4. Accrued Income 10. Equity
5. Prepaid Assets 11. Report Form
6. Liabilities 12. Account Form

WHAT I KNOW?
REVIEW (write your answer on the yellow pad)
1. Define the following terms:
a. Accounting Equation
b. Assets
c. Liabilities
d. Equity
e. Single/sole Proprietorship Business

2. Give specific account titles for each of the terms above and give examples of single/sole proprietorship businesses
and merchandising businesses.

3. Identify the normal balance

a. asset
b. liabilities
c. equity
Review on how these accounts are increased/decreased.

WHAT’S IN?
MOTIVATION
1. Prepare a Personal SFP:
a. Get a piece of paper
b. Write your current savings and everything that you own (clothes, pen, pencil, etc.)
c. Write the amount that you owe to your friends, family members, parents (tuition)
d. Deduct the amount you owe from the amount you own
e. Associate amounts owned with assets and amount owed with liabilities with the net amount as
equity
2. Discuss the importance of the SFP:
a. Reinforce the difference between assets and liabilities
b. Analyze this, “Having more assets does not mean that the business is earning”

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WHAT IS IT?
DISCUSSION

STATEMENT OF FINANCIAL POSITION – Also known as the balance sheet. This statement includes the amounts of
the company’s total assets, liabilities, and owner’s equity which in totality provides the condition of the company on
a specific date. (Haddock, Price, & Farina, 2012)

PERMANENT ACCOUNTS – As the name suggests, these accounts are permanent in a sense that their balances
remain intact from one accounting period to another. (Haddock, Price, & Farina, 2012) Examples of permanent
account include Cash, Accounts Receivable, Accounts Payable, Loans Payable and Capital among others. Basically,
assets, liabilities and equity accounts are permanent accounts. They are called permanent accounts because the
accounts are retained permanently in the SFP until their balances become zero. This is in contrast with temporary
accounts which are found in the Statement of Comprehensive Income (SCI). Temporary accounts unlike permanent
accounts will have zero balances at the end of the accounting period.

CONTRA ASSETS – Contra assets are those accounts that are presented under the assets portion of the SFP but are
reductions to the company’s assets. These include Allowance for Doubtful Accounts and Accumulated Depreciation.
Allowance for Doubtful Accounts is a contra asset to Accounts Receivable. This represents the estimated amount
that the company may not be able to collect from delinquent customers. Accumulated Depreciation is a contra asset
to the company’s Property, Plant and Equipment. This account represents the total amount of depreciation booked
against the fixed assets of the company.

Sample SFP
LEARNING IS FUN COMPANY
STATEMENT OF FINANCIAL POSITION
as of December 31,2016
Assets
Current Assets
Cash Php100,000.00
Accounts Recievable Php500,000.00
Less: Allowance for Doubtful Accounts (50,000.00) 450,000.00
Accrued Income 300,000.00
Inventory 200,000.00
Prepaid Expenses 50,000.00
Total Current Assets Php1,100,000.00
Noncurrent Assets
Long Term Investments Php1,250,000.00
Intangible Assets 500,000.00
Property, Plant and Equipment
Cost Php1,000,000.00
Less: Accumulated Depreciation (300,000.00) 700,000.00
Total Noncurrent Assets Php2,450,000.00
Total Assets Php3,550,000.00

Liabilities and Owner's Equity

Current Liabilities
Accounts Payable Php250,000.00
Accrued Expenses 100,000.00
Unearned Income 80,000.00
Notes Payable 1,150,000.00
Total Current Liabilities Php1,580,000.00
Noncurrent Liabilities
Mortgage Payable Php500,000.00
Loans Payable 1,000,000.00
Total Noncurrent Liabilities Php1,500,000.00
Total Liabilities Php3,080,000.00
Owner's Equity 470,000.00
Total Liabilities and Owner's Equity Php3,550,000.00

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The Report Form and Account Form

Report Form – A form of the SFP that shows asset accounts first and then liabilities and owner’s equity accounts
after. (Haddock, Price, & Farina, 2012)The balance sheet shown earlier is in report form.

Account Form – A form of the SFP that shows assets on the left side and liabilities and owner’s equity on the right
side just like the debit and credit balances of an account. (Haddock, Price, & Farina, 2012)

a. Emphasize that the two are only formats and will yield the same amount of total assets, liabilities and equity
b. Emphasize that assets should always be equal to liabilities and equity.

Group accounts under Current Assets, Noncurrent Assets, Current Liabilities, Noncurrent Liabilities and Owner’s
Equity

Current Assets – Assets that can be realized (collected, sold, used up) one year after year-end date. Examples include
Cash, Accounts Receivable, Merchandise Inventory, Prepaid Expense, etc.
Current Liabilities – Liabilities that fall due (paid, recognized as revenue) within one year after yearend date.
Examples include Notes Payable, Accounts Payable, Accrued Expenses (example: Utilities Payable), Unearned
Income, etc.
Current Assets are arranged based on which asset can be realized first (liquidity). Current assets and current
liabilities are also called short term assets and shot term liabilities.

Noncurrent Assets – Assets that cannot be realized (collected, sold, used up) one year after yearend date. Examples
include Property, Plant and Equipment (equipment, furniture, building, land), Long Term investments, Intangible
Assets etc.
Noncurrent Liabilities – Liabilities that do not fall due (paid, recognized as revenue) within one
year after year-end date. Examples include Loans Payable, Mortgage Payable, etc.
Noncurrent assets and noncurrent liabilities are also called long term assets and long term liabilities.

Difference of the Statement of Financial Position of a Service Company and of a Merchandising Company

The main difference of the Statements of the two types of business lies on the inventory account. A service company
has supplies inventory classified under the current assets of the company. While a merchandising company also has
supplies inventory classified under the current assets of the company, the business has another inventory account
under its current assets which is the Merchandise Inventory, Ending.

Point out the different parts of the Statement of Financial Position

a. Heading

i. Name of the Company

ii. Name of the Statement

iii. Date of preparation (emphasis on the

wording – “as of”)

b. Sample of a Report Form SFP – Refer to

the one above

c. Sample of an Account Form SFP

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WHAT’S MORE?

PRACTICE ( write your solution and answer on your yellow pad paper)

1. Learning is Fun Company had current assets amounting to Php 100,000. Noncurrent assets for the year totaled
Php 76,000. How much is the company’s total assets?

2. Happy Selling Company’s total liabilities amounted Php 10,000. Total equity had an ending balance of Php 20,000.
How much is total assets?

3. Happy Selling’s had the following accounts at year end: Cash-250,000, Accounts Payable-70,000, Prepaid Expense-
15,000. Compute for the company’s current assets.

4. Happy Selling’s Accounts Receivable amounted to Php 500,000. Prepaid Expense and 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?

5. Company’s Total Liabilities and Equity amounted to Php 285,000. Total noncurrent assets ended at Php 85,000.
Cash totaled Php50,000. Inventory amounted to Php100,000. Assuming the company had no other assets, how much
is Accounts Receivable?

6. 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.

WHAT OTHER ENRICHMENT ACTIVITIES CAN I ENGAGE IN?

ENRICHMENT
When the company has a lot of assets (example: cash, accounts receivable, prepaid expenses), owners may
sometimes think that the company is doing well. There are instances that owners forget that they might also have a
lot of liabilities which may result to their equities having a very small balance. With the preparation of the SFP, the
owner can easily see the assets, liabilities and equity balances of his/her company which will show exactly the
financial position of the company as of a given point in time.

WHAT’S MORE?
Other important matters:
a. Without the SFP, the company cannot know if it truly owns anything because in case of bankruptcy, liabilities are
paid first. - Small businesses don’t usually account for their assets and liabilities as long as the owners see that cash is
coming in. They sometimes forget that when liabilities become due, if they don’t have enough current assets to be
able to pay those liabilities, then they can get in trouble with their debts.

b. The importance of the format:

i. Report form vs Account form – these are just formats. Usually depends on the reader for preference.

ii. Report form is the normal format for those not familiar with accounting. Account form easily shows that the SFP
is balanced and separates assets from liabilities and equities.

iii. Separation of the current and noncurrent – current liabilities are upcoming liabilities and the company should be
prepared to pay them. Companies should prepare as early as today for payment of noncurrent liabilities as these
usually have large balances. Current assets shows the company’s ability to sustain its current operations while
noncurrent assets shows the company’s ability to sustain long-term operations.

ASSIMILATION
EVALUATION ( write your solution and answer on your yellow pad paper)

1. If assets are Php17,000 and owner's equity is Php10,000, liabilities are ___________________.

2. At the end of the first month of operations for Juana’s Delivery Service, the business had the following accounts:
Accounts Receivable, Php1,200; Prepaid Insurance, Php500; Equipment, Php36,200 and Cash, Php40,650. On the
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same date, Juana owed the following creditors: Nena’s Supply Company, Php12,000; Maria’s Equipment,
Php9,500.The current assets for the Juana’s Delivery Service are _________.

3. At the end of the first month of operations for Juana’s Delivery Service, the business had the following accounts:
Accounts Receivable, Php1,200; Prepaid Insurance, Php500; Equipment, Php36,200 and Cash, Php40,650. On the
same date, Juana owed the following creditors: Nena’s Supply Company, Php12,000 (due in 6 months); Maria’s
Equipment, Php9,500 (due after 2 years).Current liabilities are _________.

4. If during the year total assets increase by Php75,000 and total liabilities decrease by Php16,000, by how much did
owner's equity increase/decrease?

5. Prepare a Statement of Financial Position using the following accounts (one in report form and one in account
form):

Cash – 5,000
Loans Payable – 77,500
Accounts Receivable – 2,600
Supplies – 2,300
Equipment – 17,000
Owner’s equity – 40,000
Accounts Payable – 22,400
Building – 113,000
Use any business name and the end of the current year for the heading. Suggested Answer: (Topic: Preparation of
the statement

6. You were hired by Mr. Juan Dela Cruz to prepare his sari-sari store’s Statement of Financial Position. In order to
prepare the statement, you identified the following assets and liabilities of Mr. Dela Cruz:
a. His sari-sari store has cash deposited in a bank account amounting to P50,000
b. His sari-sari store had a lot of uncollected sales from customers amounting to P75,000
c. The total amount of merchandise left inside the store is P30,000
d. He already paid one year’s rent in advance amounting to P12,000
e. The value of all the company’s furniture amounted to P100,000
f. He bought merchandise from his supplier amounting to P25,000 and the supplier agreed that payment can be
made 2 months after year-end
g. SSS, Philhealth and Pag-ibig Payables for his one employee totaled P5,000
h. The sari-sari store had outstanding liabilities to utility companies amounting to P3,000
i. He had a loan from the bank amounting to P50,000 to be paid in 3 years

Prepare a Statement of Financial Position for the company (one in report form and one in account form) – This can
be given as a group work which can be taken home to be prepared using a spreadsheet program

REFLECTION
On your journal, write your personal insights about the lesson using prompts below:

I understand that ____________________________________________________________________________

___________________________________________________________________________________________

I realize that ________________________________________________________________________________

___________________________________________________________________________________________
REFERENCE

(2016) FUNDAMENTALS OF ACCOUNTANCY, BUSINESS, AND MANAGEMENT 2 Teaching Guide for Senior High School pages 1-18
Haddock, M., Price, J., & Farina, M. (2012). College Accounting: A Contemporary Approach, Second Edition. New York: McGraw-Hill/Irwin.
Valencia, E. G., &Roxas, G. F. (2010). Basic Accounting (3rd ed.). Mandaluyong City, Philippines: Valencia Educational Supply.

Prepared by: Cherielee A. Fabro