FUNDAMENTALS OF ACCOUNTANCY, Allowance for Doubtful Accounts is a

BUSINESS, AND MANAGEMENT 2 contra asset to Accounts Receivable. This

STATEMENT OF FINANCIAL POSITION
(SFP)
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)
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.

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.
 Differentiate 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.
The different parts of the Statement a. Heading
of Financial Position 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