Module 2

Statement of Financial Position

How are financial statements prepared?

By going through the accounting cycle:

1) Journalizing - initial recording of transactions
2) Posting to the ledger and taking the balances
3) Preparing the adjusting entries
4) Preparing the financial statements
5) Preparing the closing entries
6) Preparing the post-closing financial
statements
 Basic concepts applicable to the Statement
of Financial Position

1. Money Measurement
2. Business Entity
3. Going Concern
4. Cost Concept
5. Dual Aspect
 Basic concepts applicable to the Statement
of Financial Position

1. Money Measurement

Accounting records only those facts that can

be expressed in monetary terms.
 Basic concepts applicable to the Statement
of Financial Position

2. Business Entity

Accounts are kept for entities as distinguished

from the persons associated with those entities.
 Basic concepts applicable to the Statement
of Financial Position

3. Going Concern

Accounting assumes that an entity will

continue to exist indefinitely and that it is not
about to be liquidated.
 Basic concepts applicable to the Statement
of Financial Position

4. Cost Concept

Assets are recorded at the amount paid to acquire

them. This cost, rather than current fair value, is the
basis for subsequent accounting of the asset. Should
the entity decide to adjust the asset to its fair market
value to make the statement of financial position
indicative of the worth of the entity, the asset undergoes
revaluation procedures.
 Basic concepts applicable to the Statement
of Financial Position

5. Dual Aspect

Every transaction affects at least two items

and preserves the fundamental equation:
Assets = Liabilities + Owners’ Equity
 Basic concepts applicable to the Statement
of Financial Position

Therefore:
The Statement of Financial Position shows the
financial condition of an entity as of a specified
moment of time. It consists of two sides –
 Basic concepts applicable to the Statement
of Financial Position

ASSETS
These are the economic resources
1) controlled by the entity
2) that are expected to provide future benefits
to it and
3) that were acquired at objectively
measurable amounts.
 Basic concepts applicable to the Statement
of Financial Position

LIABILITIES
Obligations of the entity to others (suppliers, etc).

OWNERS’ EQUITY
Amounts invested by the owners.
 Account Categories of the
Statement of Financial Position
ASSETS
Current Assets
Property, Plant and Equipment
Other Assets
Investments
Intangibles
 Account Categories of the
Statement of Financial Position
LIABILITIES
Current Liabilities
Non-Current Liabilities

OWNERS’ EQUITY
 ASSETS

Current Assets
Cash xx
Marketable Securities xx
Accounts Receivable xx
Less: Allowance for Bad Debts xx xx
Notes Receivable xx
Advances from Officers and Employees xx
Inventories xx
Prepaid Suppliesxx
Prepaid Taxes and Licenses xx
Prepaid Insurance xx
 ASSETS
Current Assets

Note:
Current Assets are presented in the order
of liquidity.
 ASSETS

Property, Plant and Equipment

Land xx
Buildings xx
Less: Accumulated Depreciation xx xx
Vehiclesxx
Less: Accumulated Depreciation xx xx
Equipmentxx
Less: Accumulated Depreciation xx xx
Furniture and Fixturesxx
Less: Accumulated Depreciation xx xx
 ASSETS

Other Assets
Investments

Intangible Assets
Goodwill
Patents
Copyrights
Trademarks
Franchises
 Assets
Notes:
1) Marketable Securities vs Investments
Marketable Securities – current assets
reflecting the short-term use of excess cash
Investments – securities of one company
owned by another either in order to control the
other company or in anticipation of earning a
long-term return from the investment
 Assets
Notes:
2) Prepaid Expenses vs Intangible Assets
Prepaid Expenses – this is expected to be
used up during the normal operating cycle
Intangible Assets – non-physical things
controlled by the business with a much longer
life span
 Liabilities
Current Liabilities
Accounts Payable
Notes Payable
Taxes Payable
Accrued Expenses
Deferred Revenues
Current portion of long-term debt
Non-current Liabilities
Mortgage Payable
 Equity

Sole Proprietorship
Owner, Capital xx

Partnership
Partner, Capital xx
Partner, Capital xx
Partner, Capital xx
 Equity
Corporation

Paid-in Capital xx
Retained Earnings xx
 Garden Corporation
Statement of Financial Position
As of December 31, 2016

Assets Liabilities and Stockholders’ Equity

Current Assets Current Liabilities
Cash P 3,448,891 Accounts Payable P6,301,442
Marketable Securities 246,221 Taxes Payable 1,672,000
Inventories 5,954,588 Accrued Expenses 640,407
Prepaid Expenses 377,960 P22,651,072 Deferred Revenues 205,240
Current portion of Long
Term Debt 300,000 P9,119,089
Property, Plant and Equipment
Land P 642,367
Buildings and Equipment P26,303,481
Less: Accumulated
Depreciation 13,534,069 12,769,412 13,411,779

Other Assets Stockholders’ Equity

Investments Paid-in Capital P 5,000,000
Jollibee, Inc P110,000 Retained Earnings 19,116,976 24,116,976
Intangibles
Goodwill 63,214 173,214 ------------------
Total Assets P36,236,065 Total Liabilities and Stockholders’ Equity P36,236,065
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 End of Module 2

Thank you….!
 For reflection…….
Does the Bible tell us that money is the root
of all evil?
NO…..
The Bible teaches us that “ The love of money
is the root of all kinds of evil.” –Timothy 6:10
Reflection: God is not opposed to wealth but
He is opposed to the misuse and abuse of
money.