Module 1: Statement of

Financial Position (SFP)

Objectives
At the end of the topic, I should be able to
1. Identify the elements of the SFP and describe
each of these items for a single/sole
proprietorship business
2. Prepare an SFP for a single/sole proprietorship
business using the report form
3. Prepare an SFP for a single/sole proprietorship
business using the account form
At the end of this topic, I should be able to
define the following terms:
1. Statement of Financial Position/Permanent Accounts
2. Assets
3. Contra Assets
4. Accrued Income
5. Prepaid Assets
6. Liabilities
7. Contra Liability
8. Accrued Expense
9. Unearned Income
10. Equity
11. Report Form
12. Account Form
Review
Define or Describe

a. Accounting Equation
b. Assets
c. Liabilities
d. Equity
e. Single/sole Proprietorship Business
Answers to the review
a. Accounting Equation–
Assets=Liabilities+Equity
b. Assets – Cash, Accounts Receivable
c. Liabilities – Accounts Payable, Loan Payable
d. Equity – Capital
e. Single/sole proprietorship business –as long as
there is one owner
Motivation
1. Prepare a Personal SFP:
a. Ask the learners to get a ¼ piece of paper (any paper will do if
they don’t have a ¼ sheet)
b. Ask them to write their current savings and everything that
they own (clothes, pen, pencil, etc.)
c. Ask them to write the amount that they owe their friends,
family members, parents (tuition)
d. Tell learners to deduct the amount they owe from the amount
they own
e. Associate amounts owned with assets and amount owed with
liabilities with the net amount as
equity
Definition
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)
Definition
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.
Definition
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.
LEARNING IS FUN COMPANY
STATEMENT OF FINANCIAL POSITION
AS OF DECEMBER 31, 2016
Assets
Current Assets
Cash Php 100,000.00
Accounts Receivable Php 500,000.00
Less: Allowance for Doubtful Accounts (50,000.00) 450,000
Accrued Income 300,000
Inventory 200,00
Prepaid Expenses 50,000
Total Current Assets Php 1,100,000.00
Noncurrent Assets
Long Term Investments Php 1,250,000.00
Intangible Assets 500,000.00
Property, Plant and Equipment
Cost Php 1,000,000.00
Less: Accumulated Depreciation (300,000.00) 700,000.00
Total Noncurrent Assets Php 1,450,000.00
Total Assets Php 3,550,000.00
Liabilities and Owner’s Equity
Current Liabilities
Accounts Payable Php 250,000.00
Accrued Expenses 100,000.00
Unearned Income 80,000.00
Notes Payable 150,000.00
Total Current Liabilities 580,000.00
Noncurrent Liabilities
Mortgage Payable Php 500,000.00
Loans Payable 1,000,000.00
Total Noncurrent Liabilities Php 1,500,000.00
Total Liabilities Php 3,080,000.00
Owner’s Equity 470,000.00
Total Liabilities and Owner’s Equity Php 3,550,000.00
Definition
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
Definition
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.
Definition
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.
Sample Questions
Easy:
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?
Medium:
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?
Answers
1. Answer: P176,000.
2. Answer: P30,000.
3. Answer: P265,000.
4. Answer: P640,000 and P30,000
Activity
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